Composition Scheme Under GST: Eligibility, Rates, Returns, and 2026 Rules

Turnover Limits for the Composition Scheme

Turnover Limits by Business Type

Notification 14/2019-Central Tax sets the ₹1.5 crore and ₹75 lakh limits. The separate ₹50 lakh scheme for service and mixed suppliers is governed by Notification 2/2019-Central Tax (Rate).

States Where the Limit Is ₹75 Lakh

The ₹75 lakh threshold applies to eligible taxpayers registered in the following eight states: Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.

What Is Aggregate Turnover?

Aggregate turnover is the total value of supplies made by all GST registrations linked to the same PAN across India. It includes taxable supplies, exempt supplies, exports , and inter-state supplies made through all GST registrations linked to the same PAN across India.

It does not include CGST, SGST, UTGST, IGST, compensation cess, or inward supplies on which tax is payable under reverse charge. Specified interest or discount income from deposits, loans, and advances is also excluded where the relevant GST provisions apply.

This means composition-scheme eligibility cannot be checked by considering only one shop, branch, or GSTIN.

Example: Turnover Across Two GSTINs

Suppose a business has a turnover of ₹90 lakh under its Delhi GSTIN and ₹70 lakh under its Haryana GSTIN. Its aggregate turnover will be:

₹90 lakh + ₹70 lakh = ₹1.60 crore

Since turnover is calculated on a PAN-based, all-India basis, the business cannot treat the two GSTINs separately to remain within the normal ₹1.5 crore composition limit.

Manufacturers, Traders, and Restaurants

The standard composition scheme is available to eligible manufacturers, wholesalers, retailers, local traders, and restaurants that do not serve alcoholic liquor for human consumption.

Taxpayers covered under the standard scheme may also provide a limited amount of services. The value of these services cannot exceed 10% of turnover in the state or union territory during the preceding financial year or ₹5 lakh, whichever is higher.

Service and Mixed Suppliers

A service provider or a business supplying both goods and services may opt under Section 10(2A) if its aggregate turnover in the preceding financial year does not exceed ₹50 lakh.

The business must not make inter-state outward supplies or supply goods or services that are not leviable to GST. It must also satisfy the other prescribed conditions.

Who Cannot Opt?

A taxpayer is generally not eligible for the composition scheme if the business makes inter-state outward supplies, exports goods or services, supplies goods or services that are not leviable to GST, or exceeds the applicable turnover limit. Casual taxable persons and non-resident taxable persons are also excluded.

The scheme is also unavailable to manufacturers of notified goods . Composition taxpayers supplying services through an e-commerce operator required to collect TCS under Section 52 are also excluded.

Manufacturers Excluded From the Standard Scheme

Manufacturers of certain notified goods cannot opt for the ordinary composition scheme. These include ice cream and other edible ice , pan masala, tobacco, and manufactured tobacco substitutes, and aerated waters. Aerated waters were added to the exclusion list through Notification 43/2019-Central Tax.

Notification 04/2022-Central Tax also excludes manufacturers of fly ash bricks, fly ash aggregate containing 90% or more fly ash, fly ash blocks, bricks of fossil meals or similar siliceous earths, building bricks, and earthen or roofing tiles from the standard composition scheme.

Inter-State and E-Commerce Rules

Can Composition Dealers Make Inter-State Purchases?

Yes. The restriction applies to inter-state outward supplies, meaning sales or other outward supplies made to another state. It does not prohibit a composition taxpayer from purchasing goods or services from a supplier located in another state.

Example

A composition retailer in Uttar Pradesh may purchase stock from a registered supplier in Delhi. However, the retailer cannot sell goods to a customer in Delhi while continuing under the scheme.

Can Composition Dealers Sell Through E-Commerce Platforms?

Eligible composition taxpayers can sell goods through e-commerce platforms such as Amazon and Flipkart, provided the sales are made within the same state.

The e-commerce operator must not allow the taxpayer to make inter-state supplies. It must collect TCS where Section 52 applies and report the transactions in GSTR-8.

This relaxation applies only to the supply of goods. Composition taxpayers cannot supply services through an e-commerce operator that is required to collect TCS under Section 52. The procedure for these transactions is prescribed under Notification 36/2023-Central Tax.

The following table explains the tax rate on turnover applicable for composition dealers.

The turnover on which tax is calculated differs by taxpayer category. Manufacturers and restaurants generally calculate composition tax on turnover in the state or union territory. Other eligible suppliers, such as traders, calculate it on taxable turnover.

Example: Trader With Taxable and Exempt Sales

A local trader has:

• Taxable sales: ₹80 lakh
• Exempt sales: ₹5 lakh

Aggregate turnover for eligibility is ₹85 lakh. The trader’s composition tax is calculated on taxable turnover:

₹80,00,000 × 1% = ₹80,000

The exempt sales still count when testing the turnover threshold.

ITC, Billing, and Reverse Charge

Can a Composition Taxpayer Claim Input Tax Credit?

No. A composition taxpayer cannot claim input tax credit on goods purchased for resale, raw materials, capital goods, rent, professional services, other business expenses, or tax paid under reverse charge.

The customer also cannot claim ITC on the purchase because the composition taxpayer issues a bill of supply and does not charge GST separately.

What Document Does a Composition Taxpayer Issue?

A composition taxpayer must issue a bill of supply instead of a tax invoice. GST cannot be shown or collected separately from the customer. The following declaration should appear at the top of the bill:

“Composition taxable person, not eligible to collect tax on supplies”

The words “Composition taxable person” should also be displayed prominently at the principal place of business and every additional place of business.

How Composition Tax Affects Pricing

A composition taxpayer cannot add GST as a separate line item on the bill. The tax is paid from the business’s receipts, so the business may consider this cost while setting its selling price.

Does Reverse Charge Apply?

Yes, reverse charge can apply where the transaction is covered by a specific RCM provision or notification. Where reverse charge applies, GST must be paid at the normal rate applicable to the inward supply, not at the 1%, 5%, or 6% composition rate. The composition taxpayer cannot claim input tax credit on the amount paid.

Reverse charge does not automatically apply to every purchase from an unregistered supplier. Section 9(4) applies only to notified classes of registered persons receiving specified supplies.

How to Opt for the Composition Scheme

New GST Registrants

Select the composition option while filing GST REG-01.

Existing Regular Taxpayers

File GST CMP-02 before the beginning of the financial year in which composition is required. For FY 2027-28, the option should ordinarily be filed on or before 31 March 2027.

Where applicable, the taxpayer must also file GST ITC-03 within 60 days from the start of the relevant financial year. ITC-03 reverses the input tax credit relating to stock and capital goods when moving from regular GST to composition.

Once the option has been validly exercised, a fresh CMP-02 is not required every year, provided the taxpayer continues to meet the eligibility conditions.

Multiple GST Registrations Under One PAN

The composition option applies at the PAN level. A business cannot choose composition for one GSTIN while keeping another GSTIN under the same PAN in the regular scheme.

All registrations linked to the PAN must opt together. Withdrawal or ineligibility for one registration also affects the other registrations under the same PAN.

FY 2026-27 Compliance Calendar

Note: Notification 12/2024-Central Tax changed the annual GSTR-4 deadline from 30 April to 30 June for FY 2024-25 onward. These are the normal statutory dates. A government notification may extend a deadline for a specified period or class of taxpayers.

CMP-08

CMP-08 is a quarterly statement-cum-challan used to declare and pay self-assessed tax . It is not the annual return.

GSTR-4

GSTR-4 is filed once for the financial year . A taxpayer who remained under composition for only part of the year must also file it for that year. All applicable CMP-08 statements must normally be filed before GSTR-4 can be submitted.

Interest and Late-Filing Consequences

Delayed CMP-08

The official GST portal states that there is no late fee merely for delayed filing of CMP-08. However, interest may apply where the tax itself is paid after the due date.

Delayed GSTR-4

A late fee applies when annual GSTR-4 is filed after the due date. Under Notification 21/2021-Central Tax, the total late fee is generally capped as follows:

The total figures include the central and corresponding state or union territory components.

What Happens If a Taxpayer Becomes Ineligible?

The composition option ends from the date the taxpayer crosses the applicable turnover threshold or stops meeting any other eligibility condition. The business must move to the regular GST scheme from that date and cannot wait until the end of the financial year.

It must begin charging GST through tax invoices, file Form GST CMP-04 within seven days of becoming ineligible, and start filing the applicable regular GST returns. The taxpayer must also file Form GST ITC-01 within 30 days from the effective date of withdrawal, declaring the eligible inputs, inputs contained in semi-finished or finished goods, and capital goods held on that date.

Composition Scheme vs Regular GST

When Can the Scheme Be Suitable?

The composition scheme may suit a business that mainly sells to final consumers within one state, has relatively low input GST on purchases, and does not plan to make inter-state sales. It can also be useful where customers do not need input tax credit and simpler filing is a priority.

Regular GST may be more suitable when customers are GST-registered businesses that expect ITC, the business buys high-value taxable stock or machinery, or it plans to make inter-state or export sales. It may also be the better option for businesses operating across several states or approaching the composition turnover limit.

Practical Example

Suppose a retailer has taxable sales of ₹90 lakh and has paid ₹6 lakh in GST on eligible purchases.

Under the composition scheme, the retailer would pay tax at the applicable composition rate but would lose the ₹6 lakh input tax credit. Under regular GST, the eligible ₹6 lakh could be adjusted against the output tax liability.

This information alone is not enough to decide which option is cheaper. The comparison must also consider the GST rates on the products sold, selling prices, profit margins, and whether customers need input tax credit.

Once the tax treatment has been confirmed, BUSY accounting software can help maintain bills of supply, track turnover, and prepare GST-ready business reports. Eligibility and tax decisions should still be reviewed with a qualified tax professional.

Conclusion

The composition scheme under GST can simplify compliance for an eligible local business, but it is not automatically the least expensive option. The decision should be based on aggregate turnover, input tax costs, customer type, sales model, and expected growth.

Businesses must continue monitoring their eligibility because the option ends from the date a turnover limit or another prescribed condition is breached.