The GST composition scheme lets a small business pay GST as a small flat percentage of its sales, instead of charging GST on every bill and filing monthly returns. It is simpler and often cheaper. But it has strict rules, and for some businesses it costs more.
This post explains the rates, the limits, who cannot join, the filing dates, and a simple way to check whether it pays for your business.
This is informational, not tax advice. Check the latest rules on the GST portal, or with a CA, before you opt in or out.
How it works in one paragraph
A regular GST business adds GST to its bills, collects it from customers, subtracts the GST it paid on purchases (input tax credit, or ITC), and pays the difference every month. A composition business does none of that. It does not add GST to its bills, cannot claim ITC, and pays a flat percentage of its total sales every quarter from its own pocket.
Composition scheme rates
| Type of business | Rate on turnover | Split |
|---|---|---|
| Trader of goods | 1% | 0.5% CGST + 0.5% SGST |
| Manufacturer of goods | 1% | 0.5% CGST + 0.5% SGST |
| Restaurant (not serving alcohol) | 5% | 2.5% CGST + 2.5% SGST |
| Service provider or mixed supplier (Section 10(2A)) | 6% | 3% CGST + 3% SGST |
GST 2.0 (the 22 September 2025 rate change) changed the regular GST slabs, not these rates.
For traders, the 1% is charged only on sales of taxable goods, not on exempt goods like fresh vegetables or unbranded grains.
Turnover limits
The limit is based on your aggregate turnover in the previous financial year, for all businesses under the same PAN across India.
| Scheme | Limit |
|---|---|
| Goods (traders, manufacturers, restaurants) | ₹1.5 crore |
| Goods, in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand | ₹75 lakh |
| Services or mixed supplies (Section 10(2A)) | ₹50 lakh |
A goods composition dealer can also supply some services, up to 10% of turnover or ₹5 lakh, whichever is higher, without leaving the scheme.
Who cannot opt for composition
Turnover alone is not enough. You cannot use the scheme if you:
- Sell goods to another state. Buying from another state is fine; selling is not.
- Supply services through an e-commerce platform. Goods are different: since 1 October 2023, a composition dealer can sell goods on platforms like Amazon, Flipkart or ONDC, but only to buyers in the same state. The platform collects 1% TCS, which you can use against your composition tax.
- Make ice cream, pan masala, tobacco products or aerated water.
- Supply goods that are outside GST, such as alcohol for human consumption or petrol.
- Are a casual taxable person or a non-resident taxable person.
The rules you have to live with
- Bill of supply, not tax invoice. You must write "composition taxable person, not eligible to collect tax on supplies" on every bill.
- No GST shown to customers. The tax comes out of your margin.
- No input tax credit on anything you buy.
- A signboard. You must display "composition taxable person" at your place of business.
- Reverse charge still applies. Where GST is payable under reverse charge (for example, on some transport or legal services), you pay it at the normal rate, and you cannot claim it back.
Filing and payment dates
| What | When |
|---|---|
| CMP-08 (quarterly payment) for Apr–Jun | 18 July |
| CMP-08 for Jul–Sep | 18 October |
| CMP-08 for Oct–Dec | 18 January |
| CMP-08 for Jan–Mar | 18 April |
| GSTR-4 (annual return) | 30 June after the year ends |
The next CMP-08, for July–September 2026, is due on 18 October 2026. Late filing attracts a late fee and 18% interest on late tax. The GST Late Fee & Interest Calculator works out both.
When does composition actually pay?
Composition is not always cheaper. It depends on who your customers are and how big your margin is.
If you sell to consumers (B2C)
Take a shop that sells goods taxed at 18%. Its shelf prices are fixed, so the customer pays the same either way. In a year, it sells ₹50 lakh worth of goods and buys stock worth ₹35 lakh plus ₹6.3 lakh GST.
| Regular GST | Composition | |
|---|---|---|
| Sales (what customers pay) | ₹50,00,000 | ₹50,00,000 |
| GST inside the sales price | − ₹7,62,712 | — |
| Cost of stock | − ₹35,00,000 (GST claimed back as ITC) | − ₹41,30,000 (GST is a cost) |
| Composition tax at 1% | — | − ₹50,000 |
| Profit | ₹7,37,288 | ₹8,20,000 |
Here composition leaves the shop about ₹83,000 better off, and it files 5 returns a year (four CMP-08s and one GSTR-4) instead of the regular returns.
The gap narrows as margins get thinner. For goods at 18%, composition comes out ahead roughly while stock (before GST) costs less than about 79% of sales. For 5% goods, the break-even is around 75%. These figures assume the same shelf prices either way and that all stock is bought from GST-registered suppliers. Treat them as a rough guide and run your own numbers.
If you sell to other businesses (B2B)
This is where composition hurts. Your customers cannot claim ITC on your bills, because you don't charge GST. For a business buying from you, your goods effectively cost 5% to 18% more than a regular supplier's. Many B2B buyers simply won't buy from a composition dealer.
Restaurants
A regular restaurant (not in a hotel with high room rates) charges 5% GST without ITC. A composition restaurant pays 5% of turnover but cannot add it to the bill. So the regular restaurant passes the 5% to its customers, while the composition restaurant absorbs it. Unless the simpler filing is worth a lot to you, regular registration usually costs less for restaurants.
Joining and leaving the scheme
- New registration: choose composition in the registration form (REG-01).
- Existing regular business: file CMP-02 before the financial year starts. For FY 2027-28, that means by 31 March 2027. You must also reverse ITC on stock in hand through ITC-03.
- Leaving: file CMP-04. If your turnover crosses the limit during the year, you move to regular GST from that day and must file CMP-04 within 7 days. You can then claim ITC on stock in hand through ITC-01.
Worked example: quarterly tax
A kirana shop in Maharashtra has ₹6 lakh of taxable sales in July–September 2026.
- Composition tax: 1% × ₹6,00,000 = ₹6,000
- Split: ₹3,000 CGST + ₹3,000 SGST
- Pay through CMP-08 by 18 October 2026
Try your own figures in the GST Composition Scheme Calculator. It also shows your CMP-08 due date and whether you're within the turnover limit for your state.
Summary
- Composition means a flat 1% (goods), 5% (restaurants) or 6% (services) on turnover, paid quarterly.
- The limit is ₹1.5 crore for goods (₹75 lakh in eight states) and ₹50 lakh for services, based on last year's turnover.
- You cannot charge GST, claim ITC, or sell to other states. You can sell goods online, but only within your state.
- It usually pays for consumer-facing shops with decent margins, and usually doesn't for B2B sellers or restaurants.
- Opt in with CMP-02 before 31 March; opt out with CMP-04.
Sources
- GST: CBIC notifies new e-commerce rules for composition taxpayers (Notification 36/2023-CT) — TaxGuru
- GST Composition Scheme for FY 2026-27: Last Date to Opt Till 31 March 2026 — CA Guruji
- Composition Scheme under GST: Eligibility, Rates and Compliance for FY 2026-27 — CAclubindia
This post is correct as of 24 September 2026. GST rules change through notifications, so check the current position before opting in or out.