# Composition scheme

> The composition scheme lets a small business pay GST at a low fixed rate on its turnover, 1% for traders and manufacturers, with a quarterly payment and one annual return. In exchange it cannot charge GST to customers, claim input tax credit or sell to other states.

In EaseDesk: In EaseDesk every customer and vendor carries its GST registration type, including Composition, and the bill of supply is a document of its own. A purchase from a composition vendor is recorded without input tax credit.

## Why it matters to your business

For a small shop selling to consumers in one state, the scheme means little paperwork and a
predictable tax. For a business selling to other registered businesses it usually costs more than
it saves, because your customers get no credit on what they buy from you, and you get none on what
you buy. Knowing who is under the scheme also matters when you buy: their bill gives you no credit.

## How it works

As of October 2026:

- You opt in on the GST portal before the financial year begins, or when you register.
- You pay tax from your own pocket at the fixed rate on your turnover. You must not show or collect
  GST on your bills.
- You issue a [bill of supply](/glossary/bill-of-supply), headed "composition taxable person, not
  eligible to collect tax on supplies".
- You cannot claim [input tax credit](/glossary/itc) on purchases.
- You cannot sell goods to customers in other states, and some goods, such as ice cream, pan
  masala and tobacco, are kept out of the scheme for manufacturers.
- Tax under reverse charge is paid at the normal rate, on top.
- Once your turnover crosses the limit during the year, you leave the scheme from that day and
  move to regular GST with [tax invoices](/glossary/tax-invoice).

## An example

A stationery shop in Jaipur with a turnover of ₹60 lakh a year opts for the scheme. Each quarter
it pays 1% of that quarter's sales, about ₹15,000 on ₹15 lakh, in form CMP-08. It bills customers
at its usual prices on a bill of supply, with no GST shown. A company that buys office supplies
from it cannot claim any credit, and may prefer a regular dealer for large orders.

## Common mistakes

- Charging GST on bills while under the scheme.
- Selling to a customer in another state.
- Not leaving the scheme on the day the turnover limit is crossed.
- Buyers claiming credit on a composition dealer's bill.

## Questions

### What is the turnover limit for the composition scheme?

₹1.5 crore of turnover in the previous financial year for traders, manufacturers and restaurants, and ₹75 lakh in the special category states. Service providers have a separate scheme with a limit of ₹50 lakh.

### What rate does a composition dealer pay?

1% of turnover for traders and manufacturers, 5% for restaurants that do not serve alcohol, and 6% for service providers under their scheme. Half is CGST and half is SGST.

### Can I claim input tax credit on a purchase from a composition dealer?

No. A composition dealer issues a bill of supply without GST, so there is no tax to claim.

### Which returns does a composition dealer file?

A statement with payment in form CMP-08 by the 18th of the month after each quarter, and the annual return GSTR-4 by 30 June after the financial year.

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Source: https://www.easedesk.com/glossary/composition-scheme · Updated 2026-10-02 · EaseDesk