GST Composition Scheme: Detailed Rates, Benefits, Restrictions (2026)

What is Composition Scheme?

Composition Scheme under Section 10 of CGST Act offers a simplified tax compliance mechanism for small businesses. Instead of regular GST returns (GSTR-1, GSTR-3B monthly), composition dealers pay a fixed % on turnover quarterly (CMP-08) and file simple annual return (GSTR-4).

The scheme is voluntary — eligible small businesses can opt in. Once in, restrictions apply (limited interstate trade, no ITC, no e-commerce).

Tax rates under composition

• 1% of turnover — Traders / dealers (50% CGST + 50% SGST)
• 5% of turnover — Restaurants & food service (CGST 2.5% + SGST 2.5%)
• 6% of turnover — Other service providers (CGST 3% + SGST 3%) — Section 10(2A)
• 1% on turnover of taxable supply only — Manufacturers (mostly merged with traders)

Tax is on TURNOVER (not profit) — even if you sell below cost, you pay GST.

Eligibility thresholds

• Goods (manufacturers / traders / restaurants): Annual aggregate turnover ≤ ₹1.5 crore (₹75 lakh in special category states)
• Services: Annual aggregate turnover ≤ ₹50 lakh (under Section 10(2A))
• Mixed (some goods + some services): Combined limit ₹1.5 crore (with service ≤ ₹5 lakh OR 10% whichever higher)

'Aggregate turnover' is PAN-level (all GSTINs combined), including exempt and non-GST supplies.

Restrictions on composition dealer

• Cannot make interstate outward supplies — Only intrastate sales allowed (interstate purchases OK)
• Cannot supply through e-commerce (Amazon, Flipkart, Meesho) where TCS u/s 52 applies — even Meesho-like marketplaces
• Cannot collect GST from customers — Must absorb the tax in pricing
• Cannot claim Input Tax Credit (ITC) — Tax paid on purchases is sunk cost
• Cannot issue tax invoice — Issue 'Bill of Supply' instead
• Must display 'Composition Taxable Person' at business premises and on bills
• Cannot deal in tobacco, pan masala
• Cannot be casual or non-resident taxable person

Returns and payment

• CMP-08 — Quarterly tax payment, due 18th of next quarter month. Calculate tax, pay challan.
• GSTR-4 — Annual return, due 30 April of next FY. Summary of turnover and taxes.
• CMP-03 — Intimation on opting in (or exiting). Done at start of FY.

Much simpler than regular GST (which has GSTR-1 + GSTR-3B monthly + GSTR-9 annual).

When to opt in vs not

Opt for composition if:

• Mostly B2C business (customers don't need ITC)
• Mostly intrastate sales
• Limited input purchases (low ITC anyway)
• Want to minimize compliance burden
• Small business with limited resources

Don't opt for composition if:

• B2B business — customers want ITC, will refuse to buy at bill of supply
• Interstate sales — composition restriction kills the business
• E-commerce seller — disqualified
• High input GST — losing ITC is expensive
• Planning to scale quickly past ₹1.5 cr