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

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 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.

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.

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.

If a taxpayer has more than one GST registration under the same PAN , 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 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 , 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.

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

CMP-02 is filed before the start of the financial year. ITC-03 is used to reverse ITC 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 . 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.

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 . CMP-08 is due by the 18th day of the month after the end of the quarter.

GSTR-4 Due Dates

From FY 2024-25 onwards, GSTR-4 is due by 30 June after the end of the financial year. This change was made through Notification No. 12/2024-Central Tax.

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 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 under Rule 138E.

Composition Scheme vs Regular Scheme

Composition Scheme vs Regular Scheme: Comparison Table

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 .

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 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.