Composition scheme — can you, should you

A flat tax on turnover with quarterly filing sounds ideal for a small business — until an out-of-state client disqualifies you. Seven questions settle it.

What do you mainly supply? Aggregate turnover last FY (₹, all-India, all GSTINs on this PAN) Registered in a special-category state? Any inter-state outward supply (client in another state)? Any export or supply to SEZ? Supplies through an e-commerce operator that collects TCS? Ice cream, pan masala, tobacco, or non-taxable goods (alcohol, petrol)? Casual taxable person or non-resident?

The rules this tool applies

Limits: goods/restaurants — aggregate turnover up to ₹1.5 crore in the previous FY (₹75 lakh in Arunachal, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand); services — up to ₹50 lakh under the s.10(2A) scheme.
Rates: manufacturers and traders 1% (0.5 + 0.5); restaurants not serving alcohol 5%; service providers 6% (3 + 3). Paid on total turnover — exempt supplies included for services.
Bars: no inter-state outward supply (exports and SEZ count as inter-state); no ice cream, pan masala, tobacco; no non-taxable goods; no casual/non-resident persons; services through TCS e-commerce operators excluded from the 6% scheme. Goods via e-commerce allowed intra-state since 1 October 2023.
What you give up: input tax credit; the right to charge GST (you issue a bill of supply marked "composition taxable person, not eligible to collect tax"); clients who are businesses lose their credit too.
Compliance: CMP-02 to opt in (before the FY, or at registration); CMP-08 quarterly by the 18th; GSTR-4 annually by 30 June; reverse-charge tax still payable at normal rates.

Worked example

A Lucknow graphic designer with ₹32 lakh turnover, all clients in Uttar Pradesh, none via TCS platforms: eligible at 6% → about ₹1,92,000 a year from her own pocket. Add one client in Delhi, and she is out — full 18% with ITC is then the only route. Note the maths: at 18% charged on top her clients pay the tax; at 6% composition she does.

Edge cases to know

Aggregate turnover is PAN-wide across all states and includes exempt and export supplies, excludes GST and inward reverse-charge supplies.
Crossing the limit mid-year ends the scheme from that day — file CMP-04 within 7 days and switch to regular returns.
Freelancers with foreign clients almost never qualify — export is inter-state by definition (s.7(5) IGST).
Mixed goods + services under the ₹1.5 crore scheme: services allowed up to 10% of turnover or ₹5 lakh, whichever is higher.

Related tools

GST: register or not? — the threshold question first.
Export of services checker — why exports disqualify.
GST calculator.

Last verified: 18 September 2026 — s.10 CGST Act as amended (Finance Act 2023 e-commerce relaxation), Notification 14/2019-CT (₹1.5 crore), Notification 2/2019-CT(Rate) (6% services), GSTR-4 due date per Notification 12/2024-CT. The 57th GST Council meets on 7 October 2026; this page is re-checked after every Council. · GST advice varies with facts — confirm with a CA.