Composition Scheme under GST: Eligibility, Tax Rates, Turnover Limits & Rules (2026)
A complete 10-minute guide to the GST Composition Scheme: turnover limits, concessional tax rates (1%, 5%, 6%), Bill of Supply rules, and comparing Composition vs Regular GST.
For small retailers, local manufacturers, restaurants, and service providers, managing monthly GST invoice matching and filing complex GSTR-1 and GSTR-3B returns can be overwhelming.
The GST Composition Scheme was introduced under Section 10 of the CGST Act as a simple, hassle-free option for small businesses to pay tax at a fixed concessional rate of turnover and file quarterly summary statements (CMP-08) instead of monthly returns.
In this comprehensive 10-minute compliance guide, we break down Composition Scheme eligibility rules, turnover limits, applicable tax rates, restrictions, Bill of Supply requirements, and a head-to-head comparison between Composition and Regular GST registration.
1. What is the GST Composition Scheme?
The Composition Scheme allows eligible small taxpayers to pay tax as a fixed percentage of their quarterly gross turnover without maintaining detailed item-wise Input Tax Credit (ITC) ledgers.
Regular GST Scheme GST Composition Scheme
┌──────────────────────────────┐ ┌──────────────────────────────────┐
│ Collect GST from Customers │ │ Cannot Collect GST from Customers│
│ Claim Input Tax Credit (ITC) │ ─────────────► │ Pay Concessional Tax Rate (1-6%) │
│ Monthly GSTR-1 & GSTR-3B │ │ Quarterly CMP-08 Payment Return │
└──────────────────────────────┘ └──────────────────────────────────┘
2. Turnover Limits for Composition Scheme Eligibility
To opt into the Composition Scheme, your aggregate annual turnover in the preceding financial year must satisfy the statutory thresholds:
| Business Location | Maximum Aggregate Turnover Limit |
|---|---|
| Standard Indian States & UTs | Up to ₹1.5 Crore |
| Special Category States (Assam, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Tripura, Sikkim, Himachal Pradesh) | Up to ₹75 Lakhs |
| Service Providers (Section 10(2A)) | Up to ₹50 Lakhs |
3. Applicable Composition Tax Rates
Composition taxpayers pay tax at reduced concessional rates on their total turnover:
| Category of Business | Total GST Rate | CGST Share | SGST Share |
|---|---|---|---|
| Manufacturers & Traders (Goods) | 1% | 0.5% | 0.5% |
| Restaurants (Not serving Alcohol) | 5% | 2.5% | 2.5% |
| Other Service Providers | 6% | 3.0% | 3.0% |
4. Key Rules and Compliance Restrictions
While the Composition Scheme reduces compliance burdens, it comes with strict legal restrictions:
- No Input Tax Credit (ITC): Composition dealers cannot claim ITC on input purchases or capital goods.
- No Tax Collection from Customers: You cannot charge GST on sales invoices issued to customers.
- No Inter-State Sales: Composition dealers are restricted to Intra-State (within state) sales only.
- Issue "Bill of Supply" Instead of Tax Invoice: Must issue a Bill of Supply containing the mandatory declaration: "Composition taxable person, not eligible to collect tax on supplies."
- No E-Commerce Sales: Selling goods through platforms like Amazon, Flipkart, or Swiggy disqualifies a dealer from the Composition Scheme.
5. Comparison: Composition Scheme vs Regular GST Registration
| Feature | Composition Scheme | Regular GST Scheme |
|---|---|---|
| Tax Rates | Low (1%, 5%, 6%) | Standard (5%, 12%, 18%, 28%) |
| Input Tax Credit (ITC) | Not Available | Full Credit Available |
| Inter-State Sales | Restricted (Intra-State only) | Allowed Nationwide |
| Filing Frequency | Quarterly (CMP-08) + Annual (GSTR-9A) | Monthly (GSTR-1 & GSTR-3B) |
| Target Business | Small B2C Retail & Restaurants | B2B Traders, Wholesalers & Corporate |
6. Frequently Asked Questions (FAQ)
Q1: Can a business switch from Regular GST to Composition Scheme?
Yes! A registered taxpayer can opt into the Composition Scheme at the beginning of any financial year by filing Form GST CMP-02 on the GST Portal before 31st March.
Q2: What happens if turnover crosses ₹1.5 Crore during the year?
The moment aggregate turnover exceeds ₹1.5 Crore during a financial year, the Composition Scheme automatically lapses, and the dealer must switch to Regular GST within 7 days by filing Form GST CMP-04.
7. Conclusion
The GST Composition Scheme offers a streamlined tax solution for small B2C retailers, local food outlets, and shopkeepers. However, if your customer base includes B2B clients who demand ITC tax invoices or if you plan to expand inter-state, a Regular GST registration is necessary.
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