# Composition Scheme: Limit on Marginal Services
## The Core Rule
A composition supplier under Section 10(1) and 10(2) is primarily meant to deal in goods (and restaurant services). However, the law gives a small leeway to provide other services ('marginal services').
A person becomes INELIGIBLE for composition u/s 10(1) & 10(2) if marginal services [services other than restaurant service] in the preceding financial year exceed:
> Higher of:
> - 10% of Turnover in State/UT in preceding FY, OR
> - ₹ 5,00,000
## Important Carve-outs
### 1. Interest income is excluded
While interest on loans, deposits and advances is technically an 'exempt supply' of services, it is NOT counted while computing:
- The value of marginal services, AND
- The turnover used in the 10% formula
### 2. First year of business
In the first year of business, the preceding FY turnover is NIL → 10% × NIL = NIL.
So, the higher figure becomes ₹ 5 lakhs, which is the maximum marginal services that can be provided in year 1.
### 3. Restaurant services have no marginal cap
Restaurant services are specifically permitted under composition (no limit) — only subject to the overall aggregate turnover threshold (₹ 1.5 cr / ₹ 75 lakhs).
## How to apply (step-by-step)
1. Find preceding FY turnover in State/UT (exclude interest).
2. Compute 10% of that turnover.
3. Compare with ₹ 5,00,000 → pick the higher.
4. That is the cap on non-restaurant services for the current year.
5. Restaurant services are unlimited (subject only to ₹1.5 cr / ₹75 lakh aggregate cap).