---
title: "A Comprehensive Guide To GST Composition Scheme %sep% %sitename%"
description: "The composition scheme is a simple and easy scheme under GST for taxpayers. This scheme can be opted by a taxpayer whose turnover is less than Rs. 1.5 Crores."
canonical: "https://busy.in/gst/gst-composition-scheme/"
author: "Nitin Bansal"
published: "2023-02-22T05:51:58.000Z"
category: "GST"
---

-   GST Composition Scheme is an optional scheme for eligible small taxpayers under Section 10 of the CGST Act.
-   The general turnover limit is ₹1.5 crore for eligible traders, manufacturers, and restaurants.
-   Eligible service providers and mixed suppliers can use the separate ₹50 lakh Section 10(2A) scheme.
-   Composition dealers pay GST at fixed rates but cannot claim ITC or collect GST separately.
-   The scheme works best for small B2C businesses with local sales and low input tax.

This guide is for GST-registered small traders, manufacturers, restaurants, and small service or mixed suppliers who want to check whether the composition scheme is suitable for FY 2026-27. It is also useful for accountants and business owners who need a quick reference for rates, forms, filing dates, and restrictions.

# GST Composition Scheme: Eligibility, Rates, Limits, and Returns

## **What is GST Composition Scheme?**

GST Composition Scheme is a simplified tax payment option for eligible small taxpayers. Instead of paying GST at normal slab rates on each taxable supply, the taxpayer pays GST at a [**fixed percentage of turnover**](https://busy.in/gst/benefits-of-registering-under-gst-composition-scheme/) .

The scheme is provided under Section 10 of the CGST Act, 2017, and it is optional, not mandatory. A taxpayer can choose it only if all eligibility conditions are met. Under this scheme, the taxpayer pays GST at a fixed composition rate and files fewer returns than a regular taxpayer. However, they cannot claim input tax credit or collect GST separately from customers. They must also issue a Bill of Supply instead of a tax invoice.

This can make GST easier for small B2C businesses. However, businesses with many GST-registered buyers should compare it with the regular scheme before opting in.

## **GST Composition Scheme Eligibility, Limits, and Rates**

### **GST Composition Scheme Turnover Limit in 2026**

The turnover limit depends on the taxpayer category and, in some cases, the state or union territory. For eligibility, aggregate [**turnover in the preceding financial year**](https://busy.in/gst/minimum-turnover-for-gst-registration-in-india/) should be checked at PAN level. For eligible traders, manufacturers, and restaurants, the general limit is ₹1.5 crore. Eligible service providers and mixed suppliers are covered separately under the ₹50 lakh Section 10(2A) scheme.

| Taxpayer type | Turnover limit |
| --- | --- |
| Eligible traders and other goods suppliers | ₹1.5 crore |
| Eligible manufacturers | ₹1.5 crore |
| Eligible restaurants not serving alcoholic liquor | ₹1.5 crore |
| Eligible traders, manufacturers, and restaurants in specified states | ₹75 lakh |
| Eligible [**service providers / mixed suppliers**](https://busy.in/gst/gst-composition-scheme-for-service-providers/) under Section 10(2A) | ₹50 lakh |

The reduced ₹75 lakh limit applies only to Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.

### **GST Composition Scheme Rates in 2026**

Once eligible, the taxpayer pays GST at a fixed composition rate based on the business category.

| Business category | CGST | SGST | Total GST rate |
| --- | --- | --- | --- |
| Manufacturers eligible for composition | 0.5% | 0.5% | 1% |
| Traders and other eligible suppliers | 0.5% | 0.5% | 1% |
| [**Restaurants not serving alcoholic liquor**](https://busy.in/gst/taxability-of-restaurants-under-gst-composition-scheme/) | 2.5% | 2.5% | 5% |
| Service providers / mixed suppliers under Section 10(2A) | 3% | 3% | 6% |

## **Who Can and Cannot Opt for Composition Scheme?**

A GST-registered business can opt for the composition scheme only if it meets the turnover limit and eligibility conditions under Section 10 of the CGST Act. The scheme is generally available to small traders, eligible manufacturers, restaurants not serving alcoholic liquor, eligible service providers under Section 10(2A), and mixed suppliers within the prescribed turnover limit.

| Can opt for composition | Cannot opt for composition |
| --- | --- |
| Small traders and local goods suppliers | Businesses making inter-state outward supplies |
| Eligible manufacturers | Suppliers of goods or services not leviable to GST |
| Restaurants not serving alcoholic liquor | Casual taxable persons |
| Eligible service providers under Section 10(2A) | Non-resident taxable persons |
| Mixed suppliers within the prescribed limit | Businesses supplying services through an e-commerce operator required to collect TCS under Section 52 |
| Goods-side composition taxpayers supplying limited services within the allowed limit | Manufacturers of notified goods excluded from the scheme |

If a taxpayer has more than one [**GST registration under the same PAN**](https://busy.in/gst/what-are-composition-scheme-rules-under-gst/) , all such registrations must follow the same scheme.

For goods-side composition taxpayers, limited service supply is allowed up to 10% of turnover in the state or union territory in the preceding financial year, or ₹5 lakh, whichever is higher. This is different from the separate ₹50 lakh Section 10(2A) scheme for eligible service providers and mixed suppliers.

Composition taxpayers can supply [**eligible goods through e-commerce operators**](https://busy.in/gst/gst-composition-scheme-rules-for-e-commerce-sellers-and-online-retailers/) in permitted cases. However, this does not allow inter-state outward supply, and the restriction on services through TCS-liable e-commerce operators still applies.

### **Notified Goods Excluded from Composition Scheme**

Manufacturers of certain notified goods cannot use the composition scheme. The updated Notification No. 14/2019-Central Tax list includes:

-   ice cream and other edible ice,
-   pan masala,
-   aerated water,
-   tobacco and manufactured tobacco substitutes,
-   fly ash bricks, fly ash aggregates, and fly ash blocks,
-   bricks of fossil meals or similar siliceous earths,
-   building bricks,
-   earthen or roofing tiles.

This check is important for manufacturers in [**food products, tobacco products, beverages**](https://busy.in/gst/what-goods-and-services-are-not-eligible-for-the-gst-composition-scheme/) , bricks, tiles, and construction materials.

### **Can Composition Dealers Sell Through E-commerce Platforms?**

From 1 October 2023, composition dealers can supply eligible goods through e-commerce operators in permitted cases. However, this relaxation does not allow inter-state outward supply, and services through TCS-liable e-commerce operators remain restricted.

-   Eligible composition taxpayers can supply goods through e-commerce operators.
-   Inter-state outward supply is still not allowed.
-   Services through TCS-liable e-commerce operators are not allowed under composition.
-   Marketplace and GST portal requirements should be checked before starting.

GST composition limits, rates, due dates, and eligibility conditions may be revised through GST Council recommendations, CBIC notifications, or GST portal updates, so taxpayers should check the latest official position before opting in or filing returns.

## **Conditions for Composition Dealers**

A composition dealer gets simpler GST compliance, but only by following certain restrictions. These conditions mainly affect GST collection, ITC, billing, reverse charge, and registrations under the same PAN.

| Area | Condition |
| --- | --- |
| GST collection | The dealer cannot collect GST separately from customers. |
| Input tax credit | [**GST paid on purchases or expenses**](https://busy.in/gst/gst-input-tax-credit/) cannot be claimed as ITC. |
| Invoice type | A [**Bill of Supply must be issued**](https://busy.in/gst/guide-to-bill-of-supply-under-gst/) instead of a tax invoice. |
| Bill declaration | The Bill of Supply must mention "composition taxable person, not eligible to collect tax on supplies". |
| Business display | "Composition taxable person" must be displayed at the principal place of business and every additional place of business. |
| Reverse charge | GST must be [**paid under Reverse Charge Mechanism**](https://busy.in/gst/all-about-reverse-charge-mechanism-rcm-under-gst/) wherever applicable. |
| Same PAN rule | All GST registrations under the same PAN must follow the same scheme. One registration cannot be under composition while another stays under the regular scheme. |

Rule 5 of the CGST Rules covers several of these conditions, including the Bill of Supply declaration, business display requirement, and RCM payment rule.

## **Forms and Process for Composition Scheme**

### **GST Forms for Composition Scheme**

| Form | Purpose |
| --- | --- |
| CMP-02 | Intimation to opt for composition before the start of the financial year |
| ITC-03 | Reversal of ITC when switching from regular to composition |
| CMP-03 | Stock details, where required after opting for composition |
| CMP-04 | Withdrawal from composition scheme |
| CMP-05 | Show-cause notice issued by the officer |
| CMP-06 | Reply to the show-cause notice |
| CMP-07 | Officer's order accepting or rejecting the reply |
| ITC-01 | Claim of eligible ITC after moving from composition to regular scheme |

CMP-02 is filed before the start of the financial year. [**ITC-03 is used to reverse ITC**](https://busy.in/gst/reversal-of-input-tax-credit/) when switching from regular GST to composition. CMP-04 is used to withdraw from the scheme, and ITC-01 is used to claim eligible ITC after moving from composition to the regular scheme.

### **How to Switch from Regular Scheme to Composition Scheme**

Before switching from regular GST to composition, the taxpayer should check turnover, stock, ITC reversal, pricing, and whether customers need ITC. To move from regular GST to composition, follow these steps:

1.  Check turnover and eligibility.
2.  File CMP-02 before the start of the financial year.
3.  Reverse ITC already claimed by filing ITC-03 within the prescribed time.
4.  Start issuing Bill of Supply instead of tax invoices.
5.  Stop collecting GST separately from customers.

### **How to Exit Composition Scheme**

A taxpayer must exit the composition scheme if the turnover crosses the applicable limit, the business starts making inter-state outward supplies, the taxpayer becomes ineligible for any other reason, or the taxpayer voluntarily chooses to move to the regular scheme.

To exit the scheme, the taxpayer must file [**Form CMP-04 on the GST portal**](https://busy.in/gst/how-to-opt-out-of-the-composition-scheme/) . If the exit is due to ineligibility, CMP-04 should be filed within 7 days from the date of ineligibility. After moving to the regular scheme, eligible ITC may be claimed through Form ITC-01 on inputs, stock, semi-finished goods, finished goods, and capital goods, subject to prescribed conditions and reductions.

The composition option lapses from the date the taxpayer becomes ineligible. From that date, the taxpayer must begin complying with the regular GST rules, including issuing tax invoices, charging GST where applicable, maintaining ITC records, and filing GST returns.

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## **Returns, Due Dates, and Compliance Risks**

### **CMP-08 Due Dates for FY 2026-27**

Composition dealers do not file GSTR-1 and GSTR-3B like regular monthly taxpayers. They [**file CMP-08 quarterly and GSTR-4 annually**](https://busy.in/gst/guide-to-gstr-4/) . CMP-08 is due by the 18th day of the month after the end of the quarter.

| Quarter | Period | CMP-08 due date |
| --- | --- | --- |
| Q1 FY 2026-27 | April to June 2026 | 18 July 2026 |
| Q2 FY 2026-27 | July to September 2026 | 18 October 2026 |
| Q3 FY 2026-27 | October to December 2026 | 18 January 2027 |
| Q4 FY 2026-27 | January to March 2027 | 18 April 2027 |

### **GSTR-4 Due Dates**

From FY 2024-25 onwards, [**GSTR-4 is due by 30 June**](https://busy.in/gst/gst-returns-types-and-due-dates/) after the end of the financial year. This change was made through Notification No. 12/2024-Central Tax.

| Financial year | GSTR-4 due date |
| --- | --- |
| FY 2025-26 | 30 June 2026 |
| FY 2026-27 | 30 June 2027 |

Always check the GST portal before filing, as due dates can be extended via notifications.

### **Late Fees and E-way Bill Blocking**

Late filing can [**lead to late fees under Section 47**](https://busy.in/gst/gst-penalties-and-appeals/) of the CGST Act. The exact amount payable may depend on the return type, current notifications, waivers, and portal calculation. For a live filing, the GST portal should be treated as the final practical reference for the amount payable.

A separate compliance risk is e-way bill blocking. If a composition taxpayer fails to furnish CMP-08 for two consecutive quarters, [**e-way bill generation may be blocked**](https://busy.in/gst/how-to-check-your-e-way-bill-limit-and-avoid-penalties/) under Rule 138E.

## **Composition Scheme vs Regular Scheme**

### **Composition Scheme vs Regular Scheme: Comparison Table**

| Point | Composition Scheme | Regular Scheme |
| --- | --- | --- |
| Tax payment | Fixed percentage of turnover | Normal GST rates based on goods/services |
| ITC | Not available | Available if conditions are met |
| Invoice type | Bill of Supply | Tax invoice |
| GST collection from customer | Not allowed separately | Allowed |
| Returns | CMP-08 quarterly and GSTR-4 annually | GSTR-1 and GSTR-3B, monthly or QRMP where eligible |
| Inter-state outward supply | Not allowed | Allowed |
| E-commerce | Goods allowed in eligible intra-state cases; services restricted through TCS-liable ECOs | Generally allowed, subject to normal GST rules |
| Best suited for | Small B2C businesses with low input tax | B2B businesses, ITC-heavy businesses, inter-state sellers |

### **Practical Example: Small Retail Trader**

Suppose a local retail trader has annual turnover of ₹80 lakh and mostly sells to walk-in customers. Under composition, GST is 1% of turnover.

Composition GST = 1% of ₹80,00,000 = ₹80,000

The trader cannot collect this GST separately from customers and cannot claim ITC on purchases. So the ₹80,000 is a direct cost unless pricing is adjusted. This may still work well if most customers are end consumers and do not need ITC.

But if the trader sells mainly to GST-registered businesses, the regular scheme may be better. B2B buyers usually prefer tax invoices so they can claim ITC. A composition dealer cannot provide that benefit.

### **Practical Example: Consultant or Service Provider**

Suppose a consultant has turnover of ₹40 lakh and low input expenses. Under Section 10(2A), composition tax is 6%.

Composition GST = 6% of ₹40,00,000 = ₹2,40,000

The consultant cannot collect GST separately and cannot claim ITC. If the consultant primarily works with GST-registered companies, the regular scheme may be more commercially viable. The consultant can charge GST separately, and the client may claim ITC if eligible. If the consultant works mainly with individuals or small unregistered businesses, composition may reduce compliance work.

## **Advantages of GST Composition Scheme**

### **Lower and simpler tax rate**

The taxpayer pays GST at a fixed composition rate based on the business category. This makes tax calculation easier for small businesses.

### **Fewer GST returns**

The filing load is lower than regular monthly GST compliance.

### **Easier billing process**

A composition dealer issues a Bill of Supply instead of a tax invoice. This keeps billing simpler for small B2C businesses.

### **Useful for small B2C businesses**

The scheme works better for businesses whose customers do not need input tax credit.

### **Lower compliance pressure**

The scheme reduces routine GST filing and invoice-level compliance for small businesses.

## **Disadvantages of the GST Composition Scheme**

### **No input tax credit**

GST paid on purchases, expenses, or stock cannot be claimed as ITC.

### **GST cannot be charged separately**

A composition dealer cannot collect GST separately from customers. The tax is paid from the business turnover.

### **Not ideal for B2B sales**

GST-registered buyers may prefer regular taxpayers because they can [**claim ITC on tax invoices**](https://busy.in/gst/drawbacks-of-registering-under-the-gst-composition-scheme/) .

### **Inter-state outward supply is not allowed**

A composition dealer cannot make outward supplies to another state.

### **E-commerce services are restricted**

Services cannot be supplied through e-commerce operators required to collect TCS under Section 52.

### **Not suitable for high input-tax businesses**

Businesses with high GST-paid purchases may lose more by giving up ITC.

### **Not available for excluded manufacturers**

Manufacturers of notified excluded goods cannot opt for the composition scheme.

## **Conclusion**

GST Composition Scheme can be useful for small businesses that [**sell mostly to end consumers**](https://busy.in/gst/gst-for-startup-small-business/) and want simpler compliance. It works best when the business has low input tax, local sales, and customers who do not need ITC.

It is not the best option for every small business. If your business depends on ITC, B2B buyers, inter-state sales, or high GST-paid purchases, the regular scheme may be more practical.

Before opting in or switching out, check turnover, customer type, ITC impact, e-commerce activity, and product eligibility. A small mistake can affect billing, ITC, e-way bills, and compliance.

## About the author

**Nitin Bansal**

I am a Fellow Chartered Accountant (FCA) and LLB graduate with 10 years of experience in corporate auditing, taxation, and financial consulting. My expertise includes corporate audits, income tax planning, HSN code classification, and GST rate advisory. Through my blogs and articles, I aim to simplify corporate taxation, auditing, and GST compliance, making financial matters more accessible for professionals and business owners.

## Frequently asked questions

### Should I choose the composition scheme if most of my customers are GST-registered businesses?

Usually, no. GST-registered buyers often prefer tax invoices to [**claim ITC**](https://busy.in/gst/input-tax-credit/) . Since a composition dealer cannot pass ITC, the regular scheme may be better for B2B businesses.

### Is the composition scheme better for a retail shop?

It can be useful for small retail shops that primarily serve end consumers and have limited GST-paid purchases. If the shop has high input tax or B2B customers, the regular scheme may work better.

### Can I opt for a composition for one GSTIN and a regular scheme for another GSTIN under the same PAN?

No. All GST registrations under the same PAN must follow the same scheme. One GSTIN cannot be under composition while another stays under the regular scheme.

### What should I check before opting for the composition scheme?

Check your turnover, customer type, input tax amount, inter-state sales, e-commerce activity, and whether your goods are excluded from the scheme.

### Can a composition dealer claim ITC after moving to the regular scheme?

Yes, eligible ITC may be claimed on stock, inputs, semi-finished goods, finished goods, and capital goods by filing ITC-01, subject to [**GST rules**](https://busy.in/gst/a-guide-to-invoicing-under-gst/) and conditions.

### What happens if I become ineligible but continue using the composition scheme?

The taxpayer may have to pay tax under the regular scheme from the date of ineligibility, along with applicable interest or penalty. Tax invoices, ITC records, and regular GST returns may also become applicable from that date.

### Is composition useful for service providers?

It depends on the customer base. If the service provider primarily serves unregistered customers and has low input tax, the composition scheme may reduce compliance. If clients are GST-registered businesses, the regular scheme may be better because clients can claim ITC.

### Can a composition dealer sell goods online through an e-commerce marketplace?

Yes, eligible goods can be supplied through e-commerce operators, but inter-state outward supply is still not allowed, and services through TCS-liable e-commerce operators remain restricted.

## Related articles

- [Regular Dealer Monthly GST Checklist for 2026](https://busy.in/gst/regular-dealer-monthly-gst-checklist-for-2026/)
- [Composition Scheme Invoice Mistakes: 7 Billing Errors and How to Fix Them](https://busy.in/gst/composition-scheme-invoice-mistakes-7-billing-errors-and-how-to-fix-them/)
- [GST Composition Scheme](https://busy.in/gst/gst-composition-scheme-2/)
- [Composition Scheme Under GST: Eligibility, Rates, Returns, and 2026 Rules](https://busy.in/gst/composition-scheme-under-gst-explained/)
- [What Goods and Services Are Not Eligible for the GST Composition Scheme?](https://busy.in/gst/what-goods-and-services-are-not-eligible-for-the-gst-composition-scheme/)
- [GST Composition Scheme Rules for E-commerce Sellers and Online Retailers](https://busy.in/gst/gst-composition-scheme-rules-for-e-commerce-sellers-and-online-retailers/)
- [Impact of the GST Composition Scheme on Startups and MSMEs](https://busy.in/gst/impact-of-the-gst-composition-scheme-on-startups-and-msmes/)
- [How to Opt-Out of the Composition Scheme?](https://busy.in/gst/how-to-opt-out-of-the-composition-scheme/)
- [Complete Guide to GST Composition Scheme (Updated 2026)](https://busy.in/gst/complete-guide-to-gst-composition-scheme/)
- [What are GST Composition Scheme Rules?](https://busy.in/gst/what-are-composition-scheme-rules-under-gst/)