Composition scheme vs regular GST registration — which should you choose?
The composition scheme is a simplified GST regime for small businesses with turnover up to Rs 1.5 crore (Rs 75 lakh in special category states) for goods, or up to Rs 50 lakh for a separately notified services scheme. Composition taxpayers pay a flat, low tax rate on turnover, file only a quarterly payment (CMP-08) and an annual return (GSTR-4), but cannot claim input tax credit, cannot sell interstate, and cannot sell through e-commerce operators.
How the composition scheme works
Instead of charging GST on every invoice and claiming input tax credit on purchases, a composition taxpayer pays a flat percentage of turnover directly to the government — commonly 1% for traders and manufacturers, and 5% for restaurant services (without alcohol) — without separately charging GST to customers on the invoice.
Eligibility limits
Goods businesses can opt for the composition scheme up to Rs 1.5 crore aggregate turnover (Rs 75 lakh in special category states). A separate composition scheme for services (and mixed suppliers) is available up to Rs 50 lakh turnover. E-commerce sellers, interstate suppliers, and businesses supplying goods not liable to tax under GST are excluded from the scheme entirely, regardless of turnover.
Shunya's CA team handles the entire process — filing, documentation, and follow-up with the department. Fully online.
Talk to a CA →What you give up: input tax credit and interstate sales
The biggest trade-off is losing the ability to claim input tax credit on business purchases — composition taxpayers cannot offset GST paid on inputs against their output liability. They are also barred from making interstate outward supplies, which rules out the scheme for any business planning to sell across state lines.
Compliance under the composition scheme
Composition taxpayers file a quarterly statement-cum-payment in Form CMP-08 and a single annual return in Form GSTR-4, a significant reduction compared to the monthly GSTR-1 and GSTR-3B cycle of regular taxpayers. This is the scheme's main practical appeal for very small, single-state businesses.
When regular registration makes more sense
Regular GST registration is the better fit for any business selling interstate, selling through e-commerce marketplaces, working with B2B clients who need input tax credit on their purchases (which composition invoices cannot provide), or one where input costs are high enough that the ITC forgone under composition would exceed the tax saved by the flat rate.
Can a business under the composition scheme sell to customers in other states?
No. Businesses registered under the GST composition scheme are barred from making interstate outward supplies — they can only sell within the state where they are registered. Any business planning interstate sales, even occasionally, should register under the regular GST scheme instead, since switching out of composition mid-year requires a formal application and takes effect only from the following financial year in most cases.
This article is for general information only. For your specific situation, consult a practicing CA.
Get it done right, the first time
Shunya's CA team handles the entire process — filing, documentation, and department follow-up. Fully online, no office visit required.
Get Started →