GST Composition Scheme for Goods –
Eligibility, Tax Rate, Returns & Compliance in India
The GST Composition Scheme for goods lets small traders and manufacturers pay a flat 1% tax on quarterly turnover — instead of monthly multi-rate GST. Lower compliance work, fewer filings, reduced accounting costs. But it is not right for every business.
Overview
What Is the GST Composition Scheme for Goods?
The GST Composition Scheme for Goods is governed by Section 10 of the CGST Act, 2017. It allows eligible traders and manufacturers to pay GST at a fixed percentage of aggregate turnover — instead of the standard multi-rate GST structure. The scheme removes the need for invoice-level GST calculation and monthly return filing.
Under the Composition Scheme for goods, the taxpayer pays 1% GST on total quarterly sales — split as 0.5% CGST and 0.5% SGST. The taxpayer files only two return types per year: a quarterly CMP-08 statement and an annual GSTR-4. A trader or manufacturer with local customers and moderate turnover often finds this scheme far more cost-efficient than regular GST compliance.
Composition Scheme vs Regular GST — Key Differences
Our GST Consultancy Services compare the actual numbers for your business before recommending the scheme.
| Parameter | Composition Scheme (Goods) | Regular GST |
|---|---|---|
| GST Rate | 1% flat on turnover | Standard rates: 5%, 12%, 18%, 28% |
| GST Charged on Invoices | No — bill of supply only | Yes — tax invoice issued |
| Input Tax Credit (ITC) | Not claimable | Claimable on eligible purchases |
| Return Filings | 5 per year (4× CMP-08 + 1× GSTR-4) | 24 per year (12× GSTR-1 + 12× GSTR-3B) or more |
| Inter-State Supply | Not permitted | Permitted |
| E-Commerce Selling | Not permitted | Permitted |
| B2B Buyer ITC Impact | Buyer cannot claim ITC on purchases from you | Buyer can claim ITC — commercially preferred for B2B |
| Reverse Charge GST | Still payable on specified inward supplies | Payable on specified inward supplies |
Who Qualifies
Who Is Eligible for the GST Composition Scheme for Goods?
Eligibility depends on turnover, supply type, and business category. Getting this right before opting in prevents demand orders and penalty exposure later. Our GST Registration advisory confirms eligibility before filing any Composition application.
Turnover Limit — General States
The aggregate annual turnover threshold for the GST Composition Scheme for goods is ₹1.5 crore for most states. This turnover is calculated across all registrations under the same PAN in India — not just the home state.
Turnover Limit — Special Category States
Businesses in special category states — Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand — face a lower threshold of ₹75 lakh.
Who Can Use the Composition Scheme for Goods
Traders dealing in goods and manufacturers of goods qualify at the 1% rate. Manufacturers of ice cream, pan masala, aerated beverages, and tobacco products are specifically excluded by the CGST Act. Businesses supplying a mix of goods and restaurant services can also register on combined turnover.
Who Cannot Use It
Businesses making inter-state outward supplies of goods are ineligible — this is the most common disqualification. E-commerce sellers on platforms collecting TCS (Amazon, Flipkart), casual taxable persons, non-resident taxable persons, and Input Service Distributors are also excluded.
Tax Rate
Tax Rate Under the GST Composition Scheme for Goods
The GST Composition Scheme for goods offers a significantly lower tax rate than standard GST. However, the rate applies to total turnover — not on profit margin or value addition. This distinction is critical for businesses with high input costs.
(Central GST)
on Quarterly Turnover
(State GST)
1% Rate for Traders — What It Really Means
A trader buying goods at ₹90 and selling at ₹100 pays ₹1 in GST — even though the margin is only ₹10. For high-volume, low-margin traders, this arithmetic must be checked carefully before opting in. Our GST Health Check models this comparison for your actual numbers.
1% Rate for Manufacturers — ITC Loss Calculation
A manufacturer spending ₹70 on inputs (carrying ₹8–10 of ITC) to produce goods sold at ₹100 pays: 1% on ₹100 = ₹1 under Composition, versus approximately ₹3–5 under regular GST after ITC set-off. The ITC loss must be factored into every scheme comparison.
Reverse Charge GST Still Applies
Even under the Composition Scheme, businesses must pay GST under reverse charge on specified inward supplies — for example, purchases from unregistered suppliers. This GST is paid in cash and cannot be offset. Businesses with significant unregistered supplier purchases must include this cost in the calculation.
Filing Obligations
Returns Under the GST Composition Scheme for Goods
Reduced return filing is one of the biggest advantages of the Composition Scheme — from 24 monthly filings down to just 5 per year. However, missed deadlines attract late fees and interest, so the simplified returns must still be filed on time.
Quarterly Payment Statement
Form CMP-08 is filed by the 18th of July (Q1), October (Q2), January (Q3), and April (Q4). Tax payment accompanies the filing. The form requires aggregate outward turnover and reverse charge inward supplies — not invoice-level details. We file CMP-08 for all Composition Scheme clients as part of our GSTR-4 Filing service.
Annual Return for Composition Taxpayers
GSTR-4 consolidates the four quarterly CMP-08 statements and provides a complete year-view of turnover, tax paid, and inward supplies. Auto-populated inward supply data from supplier GSTRs is verified against books before submission — discrepancies can trigger GST Scrutiny of Returns. We reconcile GSTR-2B data before every GSTR-4 filing.
Key Limitations
Key Restrictions of the GST Composition Scheme for Goods
The Composition Scheme simplifies compliance but imposes operational restrictions. Understanding these before opting in prevents commercial and compliance problems after registration.
No Input Tax Credit
Businesses cannot claim ITC on any purchase — raw materials, goods for resale, capital goods, or input services. For traders or manufacturers with substantial input costs, the lost ITC can outweigh compliance savings. We run the ITC comparison before every Composition opt-in advisory.
Cannot Charge GST to Customers
A Composition Scheme goods taxpayer cannot collect GST from customers. Every bill must state: "Composition taxable person, not eligible to collect tax on supplies." GST-registered B2B buyers cannot claim ITC on purchases from a Composition supplier — making regular GST registration commercially necessary as B2B sales grow. We manage this transition through our GST Registration Change & Amendment service.
No Inter-State Supply of Goods
The Composition Scheme for goods prohibits inter-state outward supply. A trader or manufacturer who accepts even a single order from a buyer in another state must immediately switch to regular GST registration. Failure to switch before the inter-state supply invalidates the Composition registration entirely — attracting demands for standard GST on all prior inter-state supplies plus penalties.
Mandatory Invoice and Signboard Declaration
Every invoice, bill of supply, and physical signboard must display the phrase "Composition taxable person." This is a legal requirement under the CGST Rules. All delivery challans and physical records must also reflect this status. Non-compliance attracts penalties under Section 122.
Registration & Transitions
How to Register for and Switch From the Composition Scheme
Opting into the Composition Scheme at the time of fresh registration is the cleanest path. Existing regular taxpayers can also switch at the start of a new financial year — with ITC reversal obligations.
Fresh Registration Under the Composition Scheme for Goods
Switching from Regular GST to Composition Scheme
Switching Back to Regular GST from Composition Scheme
Our Services
Our GST Composition Scheme for Goods Services
N D Savla & Associates provides complete support for the GST Composition Scheme for goods — from the first eligibility check to ongoing annual compliance and scheme transition advisory.
Eligibility Check and Cost-Benefit Analysis
Composition Scheme Registration and Opt-In Filing
Quarterly CMP-08 and Annual GSTR-4 Filing
Scheme Switch Advisory — When Composition No Longer Fits
Is the GST Composition Scheme for Goods Right for Your Business?
Eligibility check, cost-benefit analysis, registration, quarterly CMP-08, annual GSTR-4, and scheme switch advisory — complete Composition Scheme support for traders and manufacturers across India.
F.A.Q.
The GST Composition Scheme for Goods is a simplified GST option under Section 10 of the CGST Act, 2017. It allows small traders and manufacturers to pay GST at a flat 1% rate on quarterly turnover — instead of standard multi-rate GST. Businesses on this scheme file only CMP-08 quarterly and GSTR-4 annually, instead of monthly GSTR-1 and GSTR-3B. Our GST Registration Services help new businesses opt into the Composition Scheme from day one.
The turnover limit for the GST Composition Scheme for Goods is ₹1.5 crore for most states. For special category states — including Manipur, Mizoram, Nagaland, and Tripura — the limit is ₹75 lakh. This aggregate turnover is calculated across all registrations under the same PAN across India — not just in the home state.
Traders and manufacturers on the GST Composition Scheme for Goods pay GST at 1% of aggregate quarterly turnover — 0.5% CGST and 0.5% SGST. This applies to total sales value, not on profit. Furthermore, reverse charge GST on specified inward supplies is payable separately on top of the 1% composition tax.
No. Traders and manufacturers on the GST Composition Scheme for Goods cannot claim ITC on any purchases — raw materials, goods for resale, capital goods, or input services. This ITC loss is the primary financial trade-off of the scheme. Therefore, businesses with high input costs should run a cost-benefit analysis before opting in. Our GST Health Check provides this analysis before any scheme decision.
A taxpayer on the GST Composition Scheme for Goods files Form CMP-08 — a quarterly tax payment statement — by the 18th of the month following each quarter. Additionally, GSTR-4 is filed as an annual return by 30 April each year. This replaces the 24 monthly returns that regular taxpayers file. We manage both CMP-08 and GSTR-4 through our GSTR-4 Filing service.
No. The GST Composition Scheme for Goods prohibits inter-state outward supply. A business making even a single inter-state sale must immediately switch to regular GST registration. Continuing to supply inter-state under Composition registration invalidates the entire Composition status — attracting demands for regular GST on all inter-state supplies with penalties. We advise on the switch process through our GST Registration Change & Amendment service.
An existing regular taxpayer switches to the GST Composition Scheme for Goods by filing Form GST CMP-02 on or before 31 March. The switch applies from 1 April of the new financial year. Before switching, all ITC on closing stock and capital goods must be reversed in Form GST ITC-03. We calculate this reversal, confirm the net benefit of the switch, and file the transition documents. We also update the registration through our GST Amendment service.
