GST Composition Scheme: Limit, Rates, CMP-08 and Bills

Quick answer: The GST composition scheme lets small Indian businesses with turnover up to Rs 1.5 crore (Rs 75 lakh in some states) pay GST as a fixed percentage of turnover: 1% for manufacturers and traders, 5% for restaurants, and 6% for service providers up to Rs 50 lakh. In return they cannot charge GST or claim input credit, and they issue a bill of supply.

For a small shop, local manufacturer or cafe, the scheme can cut GST compliance to one quarterly payment and one annual return. It also has real costs: no input tax credit, no inter-state sales of goods, and B2B buyers who cannot claim credit on what they buy from you. This guide explains who qualifies, the composition scheme limit and rates, the CMP-08 and GSTR-4 calendar, and why your document must be a bill of supply, not a tax invoice.

Note: This is general information, not tax advice. GST rules change through notifications and GST Council decisions. Check the GST portal and CBIC notifications, or a chartered accountant, before you opt in or out.

What is the GST composition scheme?

The GST composition scheme is set out in section 10 of the CGST Act, 2017 and the matching state laws. Instead of charging GST on each sale and claiming credit on purchases, an eligible taxpayer pays a flat percentage of turnover from its own pocket. It is optional, and it is meant for small businesses that sell mostly to final consumers within one state.

If you are not yet registered, start with our GST registration guide, because you choose composition either at registration or before the start of a financial year.

Composition scheme limit and rates

Type of business	Turnover limit (previous year)	Rate on turnover (CGST + SGST)
Manufacturers (other than notified goods)	Rs 1.5 crore; Rs 75 lakh in special category states	1% (0.5% + 0.5%)
Traders	Rs 1.5 crore; Rs 75 lakh in special category states	1% of turnover of taxable supplies of goods
Restaurants not serving alcohol	Rs 1.5 crore; Rs 75 lakh in special category states	5% (2.5% + 2.5%)
Service providers and mixed suppliers (Notification 2/2019)	Rs 50 lakh	6% (3% + 3%)

The lower Rs 75 lakh limit applies to a list of special category states, which has included Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim and Tripura. Turnover is aggregate turnover across all GST registrations on the same PAN, so a business with branches in two states counts both.

Under the main scheme you may also supply services, other than restaurant services, up to 10% of the previous year's turnover or Rs 5 lakh, whichever is higher.

Who cannot opt for composition

• Businesses making inter-state outward supplies of goods
• Suppliers of goods not taxable under GST, such as alcohol for human consumption
• Non-resident and casual taxable persons
• Manufacturers of notified goods, including ice cream, pan masala and tobacco products
• Businesses supplying services through e-commerce operators that collect tax at source

One rule changed in 2023: from 1 October 2023, composition taxpayers can sell goods through e-commerce operators within their own state, under a special procedure in Notification 36/2023-Central Tax. The operator must block inter-state orders. Check the current procedure with your marketplace before listing.

Bill of supply, not a tax invoice

This is where many small businesses go wrong. A composition dealer is not allowed to collect GST from customers. So it cannot issue a tax invoice; it issues a bill of supply. The GST rules require composition taxpayers to print "composition taxable person, not eligible to collect tax on supplies" at the top of the bill of supply, and to display "composition taxable person" on a board at their place of business.

A bill of supply under the GST rules generally shows:

• Supplier name, address and GSTIN
• A consecutive serial number of up to 16 characters, unique for the financial year
• Date of issue
• Recipient name, address and GSTIN if registered
• HSN code of goods or SAC of services, where required
• Description and value of goods or services, after any discount
• Signature or digital signature of the supplier

There is no GST line. The price you charge is the full price, and the composition tax comes out of it. If you sell an item for Rs 1,180, the bill of supply shows Rs 1,180 as the value of the goods, not Rs 1,000 plus Rs 180 of GST, and your 1% composition tax is worked out on your turnover for the quarter, not on each bill. Buyers, including registered businesses, cannot claim any input credit from it, which is why a GST-registered customer may ask whether you can issue a tax invoice instead. For the difference between document types, see our guides on tax invoice vs retail invoice and the full GST invoice guide for regular taxpayers.

A word on our tool: our free invoice generator creates PDFs with a fixed "Invoice" heading, so it is not built to produce a document titled bill of supply. You can set tax to 0% and add the composition declaration in the notes, but whether that satisfies the rules is a question for your adviser. Many composition dealers use GST billing software that prints a proper bill of supply heading.

CMP-08, GSTR-4 and other compliance dates

Form	What it does	Due date
CMP-02	Opt in to composition (existing taxpayers)	Before the start of the financial year, generally by 31 March
CMP-08	Quarterly statement and payment of composition tax	18th of the month after each quarter
GSTR-4	Annual return	30 June after the financial year (from FY 2024-25)
CMP-04	Voluntary withdrawal from composition	When you choose to leave

For the full return calendar, including the returns you would file under the regular scheme, see our GST return filing guide. Any purchases on which tax is payable under reverse charge still attract GST at the normal rate, without input credit.

Worked example: composition vs regular scheme

Anil runs a hardware shop in Pune that sells to walk-in customers. His previous-year turnover was Rs 90 lakh, all within Maharashtra. In one quarter he sells goods worth Rs 22.5 lakh, having bought them for Rs 18.75 lakh before GST. Assume all goods carry 18% GST.

Item	Composition	Regular scheme
GST on purchases (Rs 18.75 lakh x 18%)	Rs 3,37,500, a cost with no credit	Rs 3,37,500, claimed as input credit
GST on sales	None charged to customers	Rs 4,05,000 charged on a tax invoice
Tax paid to government this quarter	1% of Rs 22.5 lakh = Rs 22,500	Rs 4,05,000 - Rs 3,37,500 = Rs 67,500
Returns	One CMP-08 this quarter	Monthly or quarterly GSTR-1 and GSTR-3B

Under the regular scheme, the GST is passed to customers and the input credit offsets it. Under composition, Anil pays only Rs 22,500 directly, but the Rs 3,37,500 of GST in his purchase price becomes a cost he has to build into his prices. Composition tends to suit businesses with low margins, mostly consumer customers and simple books. It suits poorly a business with many GST-registered buyers who want input credit. Recent rate changes, covered in our guide to GST 2.0 new rates, also change the input tax you would lose.

Is the GST composition scheme right for you?

• Likely a good fit: local retail shops, small manufacturers selling in one state, small restaurants and cafes, and service providers under Rs 50 lakh with mostly unregistered customers.
• Likely a poor fit: businesses selling to other GST-registered businesses, anyone shipping goods to other states, exporters, and businesses with high-tax purchases and thin value-added.
• Check first: whether your MSME status matters to buyers. Registering on Udyam is separate from GST and still useful; see our Udyam registration guide.

Composition dealers are not required to generate GST e-invoices, because the e-invoicing mandate applies to tax invoices by businesses above the threshold; our post on the India e-invoice limit covers that rule for regular taxpayers.

How to opt in to the GST composition scheme

1. Check eligibility. Confirm last year's aggregate turnover across all registrations on your PAN is within the limit, that you make no inter-state outward supplies of goods, and that you do not make excluded goods.
2. New applicants: choose composition in the GST registration application on the GST portal.
3. Existing registered taxpayers: file form CMP-02 on the GST portal before the start of the financial year you want to switch from. Composition then applies from 1 April.
4. Deal with stock. When switching from the regular scheme, you generally have to report stock held and reverse the input tax credit on it, using the forms the portal prompts for.
5. Change your stationery. From the first day under composition, issue bills of supply with the required declaration, and put up the "composition taxable person" board at your premises.
6. Diarise CMP-08 and GSTR-4. Set reminders for the 18th after each quarter and 30 June each year.

All the businesses on one PAN must make the same choice. You cannot keep one branch on composition and another on the regular scheme.

Leaving the scheme or crossing the limit

You can leave voluntarily at any time by filing CMP-04. You must leave if you become ineligible, for example because turnover crosses the composition scheme limit during the year or because you start inter-state sales of goods. From the date you leave, you issue tax invoices, charge GST at the applicable rates and file regular returns. You can usually claim input tax credit on stock held on that date, subject to the time limits and forms on the portal.

The common trap is a growing business that crosses Rs 1.5 crore in, say, January and keeps issuing bills of supply until March. Watch turnover monthly as you approach the limit.

Composition for service providers

The main GST composition scheme was built for goods. Pure service providers, such as tutors, small consultants and repair businesses, use a separate option under Notification 2/2019-Central Tax (Rate): 6% of turnover, for businesses with previous-year turnover up to Rs 50 lakh, with the same core conditions of no input credit and no tax charged to customers. For a freelancer billing mainly overseas clients or GST-registered companies, this option is rarely attractive, because exports of services can be zero-rated under the regular scheme and business clients want input credit.

Common mistakes under the scheme

1. Printing "GST 1%" on customer bills. Composition tax is not charged to customers.
2. Issuing a tax invoice with a GST breakup while under composition.
3. Making a one-off inter-state sale of goods, which breaks eligibility.
4. Missing a nil CMP-08 in a quiet quarter.
5. Forgetting to leave the scheme when turnover crosses the limit during the year.
6. Claiming input tax credit in the books on purchases.

Conclusion

The GST composition scheme trades input credit and flexibility for simplicity and a low headline rate. If you sell mainly to consumers in one state, it can save hours every month. If your buyers are GST-registered businesses, regular registration is usually better. Either way, get the document type right: a bill of supply under composition, a tax invoice under the regular scheme. For regular-scheme invoices, quotes and estimates, try our free invoice generator or a clean layout such as the minimal invoice template, and confirm your choice of scheme with a qualified adviser.