Quick answer: The GST composition scheme lets small businesses pay tax at a flat rate on turnover — 1% for traders and manufacturers, 5% for restaurants, and 6% for small service providers — instead of normal GST rates. The turnover limit is ₹1.5 crore a year (₹75 lakh in eight special-category states). You file one statement each quarter (CMP-08) and one annual return (GSTR-4). You cannot claim input tax credit, and you cannot charge GST separately on your bills.
If you run a small shop, a manufacturing unit, or a restaurant, the regular GST system can feel heavy: monthly returns, invoice-wise details, and input tax credit matching. The composition scheme, under Section 10 of the CGST Act, 2017, trades all of that for a simpler deal — a low flat rate, paid on your total turnover, with far fewer filings.
The trade is real, though. You give up input tax credit, and your business customers cannot claim credit on what they buy from you. This guide covers the rates, the limits, who can and cannot opt in, and the exact forms and dates — so you can judge whether the scheme fits your business.
What is the GST composition scheme?
The composition scheme is a simplified way to pay GST. Instead of charging GST on each sale at the normal slab rate and then subtracting the input tax credit on your purchases, you pay a fixed percentage of your turnover straight to the government.
Three things change at once:
- Tax: a flat rate on turnover — 1%, 5%, or 6%, based on what you sell.
- Filings: four quarterly statements and one annual return a year, instead of monthly returns.
- Bills: you issue a bill of supply, not a tax invoice, and you do not add GST on top of the price.
The tax comes out of your own margin. If you sell goods worth ₹1,00,000 as a trader, the 1% tax (₹1,000) is your cost — you do not collect it from the customer as a separate GST line.
What is the turnover limit for the GST composition scheme?
The limit is tested on your aggregate turnover in the preceding financial year. Aggregate turnover is counted across all your GST registrations under the same PAN, on an all-India basis. It includes taxable supplies, exempt supplies, exports, and inter-state supplies — but it excludes the GST taxes themselves.
| Business type | Turnover limit (preceding year) |
|---|---|
| Traders, manufacturers, restaurants | ₹1.5 crore |
| Traders, manufacturers, restaurants in special-category states | ₹75 lakh |
| Service providers (Section 10(2A) scheme) | ₹50 lakh |
The eight special-category states with the ₹75 lakh limit are Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
A goods supplier can also supply services under the scheme, but only up to a small value: the higher of 10% of the preceding year’s turnover or ₹5 lakh. Cross that service value, and the service part no longer fits the goods scheme — the 6% service-provider scheme, capped at ₹50 lakh, is the route for mainly-service businesses.
What are the GST composition scheme tax rates?
| Business type | Total rate | Split (CGST + SGST) |
|---|---|---|
| Manufacturers | 1% | 0.5% + 0.5% |
| Traders and other goods suppliers | 1% | 0.5% + 0.5% |
| Restaurants not serving alcohol | 5% | 2.5% + 2.5% |
| Service providers (Section 10(2A)) | 6% | 3% + 3% |
Worked examples, so the numbers are concrete:
- A trader with ₹80 lakh yearly turnover pays 1% = ₹80,000 for the year, split across four quarterly payments.
- A restaurant with ₹40 lakh yearly turnover pays 5% = ₹2,00,000 for the year.
- A service provider with ₹30 lakh yearly turnover pays 6% = ₹1,80,000 for the year.
The rate applies to turnover, not profit. A low-margin business pays the same percentage as a high-margin one on the same sales — which is why the next section matters more than the headline rate.
Who can opt in — and who cannot?
Who can opt in: manufacturers, traders, and restaurants that do not serve alcohol, within the turnover limits above — plus small service providers under the 6% scheme. A new business can choose the scheme at the time of GST registration. An existing regular taxpayer files an intimation in Form CMP-02 before the start of the financial year, and the scheme applies from the beginning of that year.
Who cannot opt in, even under the limit:
- Anyone making inter-state outward supplies of goods — even one such sale ends eligibility.
- Anyone supplying goods or services through an e-commerce operator that must collect tax at source under Section 52 — with one change since October 2023: intra-state supplies of goods through such operators are now allowed. Inter-state sales through them are still barred.
- Casual taxable persons and non-resident taxable persons.
- Manufacturers of notified goods: ice cream, pan masala, tobacco and tobacco substitutes.
- Suppliers of goods that GST does not cover at all, such as alcohol for human consumption.
- Any business where another registration under the same PAN stays outside the scheme — all registrations under one PAN must opt in together.
Note the restaurant trap: a dine-in restaurant can use the scheme, but the moment it starts selling through Swiggy or Zomato for delivery outside its state, or takes an inter-state order, eligibility breaks. Delivery-first cloud kitchens should check this rule before opting in.
Can composition dealers claim input tax credit?
No. This is the single biggest cost of the scheme, and the reason it is not right for every small business.
Under the regular scheme, the GST you pay on purchases (your input tax credit) reduces the tax you owe on sales. Under composition, that chain breaks twice: you cannot claim credit on your purchases, and your customers cannot claim credit on their purchases from you.
A simple comparison shows the trade. Suppose a trader buys goods worth ₹50 lakh in a year and pays 18% GST on them — ₹9 lakh of input tax. Under the regular scheme, that ₹9 lakh would be available as credit against output tax (subject to the usual conditions). Under composition, the ₹9 lakh simply becomes part of the trader’s cost, and the trader still pays 1% on turnover on top. For a trader with high input tax and thin margins, the regular scheme can easily come out cheaper despite its monthly filings.
The flip side: if most of your customers are end consumers who cannot use input tax credit anyway, and your input costs are low, composition usually wins. Composition suits B2C businesses — retail shops, neighbourhood restaurants, small manufacturers selling to consumers — far better than B2B suppliers whose buyers want the credit.
Which returns does a composition taxpayer file?
Five filings a year, against the monthly cycle of the regular scheme:
| Form | What it is | Due date |
|---|---|---|
| CMP-08 | Quarterly statement-cum-challan: self-assessed tax for the quarter | 18th of the month after each quarter |
| GSTR-4 | Annual return consolidating the year | 30 April after the financial year ends |
The CMP-08 dates for FY 2026-27 are: 18 July 2026 (April–June quarter), 18 October 2026 (July–September), 18 January 2027 (October–December), and 18 April 2027 (January–March). The GSTR-4 for FY 2026-27 is due 30 April 2027.
You do not file GSTR-1, GSTR-3B, or GSTR-9 under the scheme. But do not confuse the two composition forms: paying CMP-08 on time does not remove the GSTR-4 duty, and filing GSTR-4 does not make up for a skipped quarter. A nil CMP-08 is still required for a quarter with no sales.
Timely note: the July–September 2026 CMP-08 fell due on 18 October 2026. If you missed it, file now — the late fee runs per day of delay, and interest at 18% a year applies to unpaid tax. The next date on the calendar is 18 January 2027.
Late fees and interest
Late CMP-08 filing draws a late fee of ₹200 a day (₹100 CGST + ₹100 SGST), capped at ₹5,000 per return, plus 18% annual interest on the tax due. Late GSTR-4 filing also draws a per-day late fee — check the figure shown on the GST portal at filing time, since late-fee notifications are revised from time to time.
One more duty survives the simplification: tax payable under reverse charge on specified inward supplies still applies to composition dealers, and it belongs in the quarter’s self-assessed figure.
Can a composition dealer sell in another state?
No — not outward supplies of goods. Inter-state outward supply is the clearest disqualifier in the scheme. You may buy from other states (the bar is on outward supply), but a single inter-state sale ends your eligibility from that date.
If you already sell across state lines, or plan to, stay in the regular scheme. The same logic applies to e-commerce: intra-state goods sales through an e-commerce operator are allowed since October 2023, but inter-state sales through one are not.
What happens if turnover crosses ₹1.5 crore mid-year?
Eligibility ends on the date the limit is crossed — there is no grace period. From that date you are a regular taxpayer again, and three steps follow:
- File Form CMP-04 (intimation to withdraw from the scheme) within 7 days of the date eligibility ended.
- Start filing as a regular taxpayer — GSTR-1 and GSTR-3B — for the rest of the year.
- Claim input tax credit on the stock and capital goods you hold on the switch date by filing Form GST ITC-01 within 30 days.
The reverse move has its own form: when a regular taxpayer switches into composition, the input tax credit on held stock must be reversed through Form ITC-03. Voluntary exit works the same way — file CMP-04, then file as a regular taxpayer.
How to opt in: CMP-02 step by step
- Log in to the GST portal and open Services → Registration → Application to Opt for Composition Levy.
- File Form GST CMP-02 with the details of your business and the scheme category.
- For an existing taxpayer, file before the financial year starts — the scheme applies from the beginning of that year, not mid-year.
- Once opted in, issue bills of supply (not tax invoices) and display the composition status at your place of business.
Bill of supply, not a tax invoice
A composition dealer cannot issue a tax invoice and cannot show GST as a separate line on the bill. Every bill of supply must carry the words: “composition taxable person, not eligible to collect tax on supplies.” The same declaration goes on a board displayed at the business premises.
This is also why B2B buyers often avoid composition suppliers: with no tax invoice, there is no credit for them to claim. If your buyers are mostly GST-registered businesses, say so in your own comparison before opting in — losing a big B2B customer costs far more than the filing time you save.
Composition vs regular scheme at a glance
| Point | Composition | Regular |
|---|---|---|
| Tax rate | Flat 1% / 5% / 6% on turnover | Slab rates on each sale, minus input credit |
| Input tax credit | Not available | Available (conditions apply) |
| Returns | 4 × CMP-08 + 1 × GSTR-4 a year | Monthly GSTR-1 + GSTR-3B, plus annual GSTR-9 |
| Inter-state sales | Not allowed | Allowed |
| Bills | Bill of supply, no separate GST | Tax invoice with GST shown |
| Best for | B2C small traders, restaurants, small manufacturers | B2B suppliers, high-input-cost businesses |
What changed — and what stayed the same
The GST 2.0 rate changes of 22 September 2025, which cut the main slabs to 5% and 18%, did not change the composition rates. The 1%, 5%, and 6% rates, the ₹1.5 crore limit, and the CMP-08/GSTR-4 cycle all stayed as they were. If you read an old article quoting a 2% manufacturer rate, that figure dates from the scheme’s early years and no longer applies.
By the numbers
- ₹1.5 crore — the aggregate turnover limit for traders, manufacturers, and restaurants under Section 10 of the CGST Act (₹75 lakh in the eight special-category states).
- 5 filings a year — four quarterly CMP-08 statements plus one annual GSTR-4, against the monthly GSTR-1 and GSTR-3B cycle of the regular scheme (GST portal return structure).
- ₹5,000 — the notified cap on the late fee for a delayed CMP-08 (₹200 a day), with 18% annual interest on unpaid tax.
- 22 September 2025 — the date GST 2.0 took effect; composition rates were left unchanged.
Frequently asked questions
What is the turnover limit for the GST composition scheme in 2026?
₹1.5 crore of aggregate turnover in the preceding financial year for traders, manufacturers, and restaurants. The limit drops to ₹75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand. Service providers under the separate 6% scheme are capped at ₹50 lakh.
What are the GST composition scheme tax rates?
Manufacturers and traders pay 1% (0.5% CGST + 0.5% SGST). Restaurants that do not serve alcohol pay 5% (2.5% + 2.5%). Service providers under Section 10(2A) pay 6% (3% + 3%). The tax is paid on turnover, from your own pocket — it is not added to the customer’s bill.
Can a composition dealer sell in another state?
No. Inter-state outward supplies of goods are not allowed under the scheme, and even one such sale ends eligibility from that date. You can still buy goods from other states. Since October 2023, intra-state sales of goods through e-commerce operators are allowed, but inter-state sales through them are not.
Can composition dealers claim input tax credit?
No. Composition dealers cannot claim input tax credit on purchases, and their customers cannot claim credit on purchases from them. The GST paid on inputs becomes a business cost. This is the main reason high-input-cost and B2B businesses often stay in the regular scheme.
Which returns does a composition taxpayer file?
Form CMP-08 every quarter, due on the 18th of the month after the quarter ends, and Form GSTR-4 once a year, due 30 April after the financial year ends. GSTR-1, GSTR-3B, and GSTR-9 are not filed under the scheme. A nil CMP-08 is still needed for a quarter with no sales.
What happens if turnover crosses ₹1.5 crore mid-year?
Eligibility ends on the date the limit is crossed, with no grace period. File Form CMP-04 within 7 days, start filing GSTR-1 and GSTR-3B as a regular taxpayer, and claim input tax credit on stock and capital goods held on the switch date through Form GST ITC-01 within 30 days.
Official sources
- GST portal (gst.gov.in) — composition levy forms (CMP-02, CMP-04, CMP-08), GSTR-4 filing, and return due dates.
- CBIC (cbic.gov.in) — CGST Act Section 10, composition rules, and late-fee notifications.
Related guides on eircicai: GST Registration (2026): Threshold, Documents and Online Process, GST for Freelancers in India (2026), Input Tax Credit (ITC) in GST: How to Claim It, GSTR-9 Annual Return Filing Guide, and GST E-Invoice in 2026: ₹5 Crore Threshold and Rules.
Reviewed by Asuthod Rathod, CA. Last updated: 27 October 2026.
Disclaimer: This article explains the GST composition scheme in general terms for FY 2026-27. Tax law and portal rules change through notifications — verify the current rates, limits, and due dates on gst.gov.in or with a qualified tax professional before opting in or filing.
Editorial byline for eircicai GST guides — covering registration, return filing, rates, and compliance for small businesses. Content is reviewed by Asuthod Rathod, CA.