GST Composition Scheme: Eligibility, Rates & Pros/Cons (2026)
Should you opt for composition scheme? Complete guide — eligibility limits, tax rates, filing (CMP-08), restrictions, and detailed comparison with regular scheme.
Reviewed by Vikram Mehta
Chartered Accountant · ICAI FRN 142087W
The Composition Scheme under GST is designed for small businesses that want minimal compliance burden. Pay a fixed percentage of turnover as tax, file just 4 returns a year, and avoid the complexity of invoice-level reporting. But it comes with significant trade-offs.
This guide covers eligibility, tax rates, restrictions, filing requirements, and helps you decide whether composition makes sense for your business.
What is the Composition Scheme?
Under Section 10 of the CGST Act, eligible taxpayers can opt to pay GST at a reduced flat rate on their turnover, without collecting tax from customers. In exchange:
- No ITC claim allowed
- Cannot make inter-state supplies
- Cannot sell through e-commerce platforms
- Must issue "Bill of Supply" (not tax invoice)
Eligibility
| Category | Turnover Limit |
|---|---|
| Manufacturers & traders | ₹1.5 crore (₹75 lakh for special category states) |
| Service providers (Section 10(2A)) | ₹50 lakh |
| Restaurants (not serving alcohol) | ₹1.5 crore |
Who CANNOT Opt for Composition
- Manufacturers of ice cream, pan masala, tobacco products
- Businesses making inter-state outward supplies
- Suppliers through e-commerce operators (Amazon, Flipkart)
- Casual or non-resident taxable persons
- Businesses supplying goods through an agent
Tax Rates Under Composition
| Category | CGST | SGST | Total |
|---|---|---|---|
| Manufacturers | 0.5% | 0.5% | 1% |
| Traders (goods) | 0.5% | 0.5% | 1% |
| Restaurants (non-alcohol) | 2.5% | 2.5% | 5% |
| Service providers (Section 10(2A)) | 3% | 3% | 6% |
Note: Tax is on total turnover, not on individual transactions. No tax breakup on bills.
Filing Requirements
| Return | Frequency | Due Date |
|---|---|---|
| CMP-08 | Quarterly | 18th of month after quarter |
| GSTR-9A | Annual | December 31 of next FY |
| GSTR-4 | Annual (erstwhile quarterly) | 30th of April following FY |
CMP-08: Simple challan-cum-statement showing self-assessed tax payable for the quarter. Just one page — turnover and tax. Takes 5 minutes to file.
Composition vs Regular: Detailed Comparison
| Factor | Composition | Regular |
|---|---|---|
| Tax rate | 1-6% of turnover | 5-28% of value (with ITC offset) |
| ITC claim | ❌ No | ✅ Yes |
| Inter-state sales | ❌ No | ✅ Yes |
| E-commerce sales | ❌ No | ✅ Yes |
| Tax collection from buyer | ❌ Cannot charge | ✅ Must charge |
| Invoice type | Bill of Supply | Tax Invoice |
| Returns per year | 4 (CMP-08) + 1 annual | 12-24 (GSTR-1 + 3B) |
| Buyer's ITC | ❌ Buyer cannot claim ITC | ✅ Buyer claims ITC |
| Best for | B2C, local retail, restaurants | B2B, manufacturing, services |
If you’re a composition dealer, your buyers cannot claim ITC on purchases from you. Most B2B customers will prefer regular-scheme vendors. Only choose composition if your customers are mostly end consumers (B2C).
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When you switch to regular scheme, 1010 auto-handles ITC claims, GSTR-1/3B filing, and e-invoicing — so compliance doesn’t scale with complexity.
Try 1010 FreeWhen Composition Makes Sense
- Local retail shops: Selling directly to consumers who don't need GST invoices
- Small restaurants: 5% without ITC is often cheaper than 5% with ITC (since restaurant ITC is limited)
- Businesses with very low input costs: If you don't have much ITC to claim anyway
- Compliance-averse owners: 4 returns vs 24 makes a real difference for small shops without accountants
When to Avoid Composition
- B2B businesses: Your buyers can't claim ITC on purchases from you — they'll buy from regular dealers instead
- High-input businesses: Manufacturing with expensive raw materials — losing ITC makes you uncompetitive
- Growth plans: If you're approaching ₹1.5 Cr or want to sell online/inter-state
- Export ambitions: Zero-rated exports need regular registration for refunds
How to Opt In/Out
Opting In (Before Start of FY)
- File CMP-02 on GST portal before March 31 (for next FY)
- Reverse all ITC in stock as on March 31 (file ITC-03 within 60 days)
- Cannot have any inter-state supply obligations
Opting Out (or Exceeding Limit)
- File CMP-04 (intimation of withdrawal)
- File ITC-01 within 30 days — claim ITC on stock as on date of exit
- Start filing regular returns (GSTR-1 + GSTR-3B) from exit date
Frequently Asked Questions
What is the turnover limit for composition scheme?
₹1.5 crore for manufacturers/traders, ₹75 lakh for special category states, ₹50 lakh for pure service providers.
Can composition dealer sell on Amazon/Flipkart?
No. E-commerce operators cannot facilitate supplies by composition dealers. You must opt for regular scheme to sell online.
Can composition dealer make inter-state sales?
No. All outward supplies must be intra-state (within the same state). Even one inter-state sale disqualifies you.
Does composition dealer need to file GSTR-1?
No. Composition dealers file CMP-08 (quarterly) and GSTR-4 (annual) instead of GSTR-1/GSTR-3B.
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