GST Composition Scheme: Limit, Rates, Rules (2026)

What is the composition scheme?

The composition scheme is the simple route in GST for small businesses. Instead of charging GST on every bill, claiming input tax credit and filing monthly returns, a composition dealer:

• pays a small flat percentage of its turnover as tax,
• does not charge GST to customers,
• does not claim input tax credit on purchases, and
• files one quarterly payment form and one annual return.

It is found in section 10 of the CGST Act.

Who can opt: turnover limits

Business	Limit (aggregate turnover, previous year)
Manufacturers, traders, restaurants	₹1.5 crore
Same, in certain special-category states	₹75 lakh
Service providers and mixed suppliers (section 10(2A))	₹50 lakh

Aggregate turnover counts every GSTIN on the same PAN, across states. Once turnover crosses the limit during the year, the business must move to the regular scheme from that point.

Composition tax rates

Type of business	Rate on turnover	Split
Manufacturers (other than notified goods)	1%	0.5% CGST + 0.5% SGST
Traders	1% (on turnover of taxable goods)	0.5% + 0.5%
Restaurants not serving alcohol	5%	2.5% + 2.5%
Service providers (section 10(2A))	6%	3% + 3%

Worked example: composition vs regular

A kirana store in Madhya Pradesh sells ₹60 lakh a year, almost all to consumers. Its purchases are ₹50 lakh.

Under composition: tax = 1% of ₹60 lakh = ₹60,000 a year, paid quarterly through CMP-08. No GST on its bills, no ITC on its purchases.

Under the regular scheme: suppose its goods carry an average 5% GST. Output GST on ₹60 lakh = ₹3,00,000. Input GST on ₹50 lakh of purchases = ₹2,50,000. Net payable ≈ ₹50,000, but the store must charge GST on every bill, file GSTR-1 and GSTR-3B, reconcile ITC with GSTR-2B every month, and its prices to consumers include GST.

What the comparison shows:

• The cash tax can be close under both schemes. Composition is not automatically cheaper.
• Under composition, the GST on purchases (₹2.5 lakh here) becomes a cost, because it cannot be claimed back.
• Composition buys simplicity: fewer returns, no ITC matching, simpler bills.
• If your buyers are GST-registered businesses, composition hurts them: they get no ITC on your bill and may prefer a regular supplier.

Run your own numbers with your CA before choosing. The GST calculator helps with the per-bill sums.

Who cannot opt for composition

• Businesses that make inter-state outward supplies of goods
• Non-resident taxable persons and casual taxable persons
• Suppliers of goods through e-commerce operators across state lines (intra-state supply through e-commerce operators is allowed)
• Manufacturers of certain notified goods (such as ice cream, pan masala and tobacco products)
• Suppliers of goods not taxable under GST (for example alcohol for human consumption)
• Service providers above the ₹50 lakh limit, under the services route

If any one GSTIN on your PAN opts out, all of them must.

The rules once you are a composition dealer

1. Issue a bill of supply, not a tax invoice. No GST is shown on it. See bill of supply vs tax invoice.
2. Print the declaration. Every bill carries “composition taxable person, not eligible to collect tax on supplies”.
3. Display it. Write “Composition taxable person” on the signboard at your place of business.
4. No ITC. GST paid on purchases is a cost.
5. Reverse charge still applies. Where a purchase falls under reverse charge, the composition dealer pays it at the normal rate, without ITC. See reverse charge in GST.
6. Pay from your own pocket. The composition tax is on your turnover; you cannot add it to the customer’s bill as GST.

Returns and due dates

Form	What	When
CMP-08	Quarterly statement and tax payment	18th of the month after the quarter
GSTR-4	Annual return	30 April after the financial year
CMP-02	Opting in (existing taxpayer)	Before the start of the financial year (by 31 March)
CMP-04	Opting out voluntarily	When you leave the scheme

A composition dealer does not file GSTR-1 or GSTR-3B. For how those work for regular taxpayers, see GSTR-1 vs GSTR-3B.

Is composition right for your shop?

Composition usually suits you if:

• you sell mostly to consumers (B2C), within one state,
• your margins are healthy and purchases carry low GST,
• you want the fewest returns possible.

Stay regular if:

• many of your buyers are GST-registered and want ITC,
• you sell or plan to sell to other states,
• you buy capital goods or high-GST inputs whose credit you would lose,
• your turnover is close to the limit and likely to cross it.

Billing as a composition dealer in VyapRise

In VyapRise, set the company’s GST type to composition and every sales invoice prints as a BILL OF SUPPLY with 0% tax and the composition declaration — on every plan, including Free. If you later move to the regular scheme, change the GST type and the next bills become tax invoices. For a shop deciding which software to use, kirana store billing software covers what to look for.

Limits, rates and the excluded list are as of October 2026 and change by notification. Confirm your eligibility and the numbers for your state with your CA before opting in or out.