Composition Scheme
Simplicity, at a commercial price
Simpler compliance, at a real commercial price.
Straight from CBIC
Official source, not a summary of a summary
Full text included
Read the exact words of the law yourself
Amendment history
See what changed, and when
Free, always
No login, no paywall, no book to buy
Start here
Composition lets a small business pay a flat percentage of turnover instead of running the full GST machinery. A trader or manufacturer pays 1%, a restaurant 5%, and other service providers 6% under a separate scheme. Filing drops to quarterly, and rate-by-rate tracking disappears.
What you give up is the credit chain, in both directions. You cannot claim input tax credit on your own purchases, and – more importantly – you cannot pass any credit to your customers, because you issue a bill of supply rather than a tax invoice.
There is also a hard geographic limit: composition dealers cannot make inter-state outward supplies at all. Not ‘at a different rate’ – not at all. A single inter-state sale can cost you the scheme.
Worked example
When 1% turns out to cost more than 18%
| Trader under composition, turnover ₹80 lakh | Pays 1% = ₹80,000 | Simple, quarterly filing |
| A B2B buyer worth ₹30 lakh a year | Gets zero credit on purchases | Effectively 18% more expensive |
| Buyer moves to a regular-scheme competitor | ₹30 lakh of revenue lost | To save ₹80,000 of tax admin |
Composition saved real money on tax and paperwork, and cost far more in lost business. For anyone selling B2B, that trade is usually the wrong way round.
The mistakes that cost people money
Not theoretical risks — the ones we actually see land on clients’ desks.
Making one accidental inter-state sale. It puts your eligibility for the whole scheme at risk, not just that transaction.
Issuing a tax invoice out of habit. Composition dealers must issue a bill of supply carrying the prescribed declaration.
Missing the CMP-02 window. The choice must be made before the financial year starts – generally by 31 March.
Free download · no email required
Composition Scheme — the complete guide
5 pages covering all 6 provisions, with the plain-language explanation and practice notes for each. Print it, keep it, share it with your accountant.
Common questions on this
Straight answers to what people actually ask us.
What Is the GST Composition Scheme, and Who Can Opt for It?
Composition scheme lets small businesses pay a flat, low rate instead of standard GST — here’s the exact turno…
Can a Composition Dealer Sell Outside the State?
No — composition dealers cannot make inter-state outward supplies of goods. Here’s why that restriction exists…
Composition Scheme Tax Rate for a Restaurant
A restaurant under the GST composition scheme pays a flat 5% of turnover, without input tax credit — different…
Small Trader Under ₹1.5 Crore — Should You Choose Composition or Regular GST?
The right choice depends on your customers, not just your turnover — here’s the real trade-off between composi…
Can a Composition Dealer Raise a Proper GST Tax Invoice?
No — composition dealers issue a Bill of Supply, not a tax invoice, and must state clearly they’re not collect…
If You’re on Composition, Can You Sell to a Customer in Another State?
No — even a single genuine inter-state sale can make a composition dealer ineligible for the scheme entirely, …
Composition Rate: Restaurant vs Trader vs Service Provider
Composition rates aren’t one number — traders pay 1%, restaurants pay 5%, and other service providers pay 6%. …
Deadline to Opt Into Composition Scheme for FY 2026-27
An existing regular taxpayer switching to composition for a new financial year must file CMP-02 before that ye…
Every provision on composition scheme
All 6 of them, each with a plain-language explanation and the full legal text.
CGST Rules, 2017 · 5
CGST Act, 2017 · 1
Reading is free. Getting it wrong isn’t.
Stuck on composition scheme for your own business?
You now know more about this than most people who will advise you on it. If the numbers are big enough that being wrong matters, send us the facts – we will tell you where you stand before you commit to anything.
6+ years · 2,500+ GST registrations filed · Bhopal, serving all of India