The composition scheme is a small-taxpayer simplification — flat-rate tax on turnover, quarterly payment via CMP-08 and one annual GSTR-4. The trade-off is you cannot collect tax from customers, claim ITC or supply outside your state.
| Attribute | Composition | Regular |
|---|---|---|
| Turnover threshold | ≤ ₹1.5 crore (₹75L for special states) | No upper cap |
| Tax rate (traders) | 1% of turnover | 5% / 12% / 18% / 28% |
| Tax rate (manufacturers) | 1% of turnover | As per HSN |
| Tax rate (restaurants) | 5% of turnover | 5% / 18% |
| Tax rate (other services up to ₹50L) | 6% (3% CGST + 3% SGST) | 18% |
| Collect tax from customer | No (cannot mention GST) | Yes |
| Input tax credit | Not allowed | Allowed |
| Inter-state outward supply | Not allowed | Allowed |
| Returns | CMP-08 quarterly + GSTR-4 annual | GSTR-1 + GSTR-3B monthly/quarterly |
| E-commerce sales | Not allowed (except restaurants) | Allowed |
Our recommendation
Composition fits local kirana shops, restaurants serving in-state, small manufacturers under ₹1.5 cr selling B2C, and freelancers under ₹50L. Regular is mandatory the moment you sell B2B (because clients want ITC), inter-state, or via marketplaces other than restaurant aggregators.
FAQs
Can I switch from composition to regular mid-year?
Yes, file CMP-04 within 7 days of opting out. The switch is effective from the date you cross the threshold or voluntarily opt out.
Is reverse-charge GST payable under composition?
Yes. RCM under Section 9(3) (e.g., GTA, advocate fees) is paid at the normal rate, not the composition rate, and no ITC is available on it.
Run your own numbers
Last updated: 25 Mar 2026