GST composition scheme: turnover limit, tax rates, who can opt, rules and returns

The GST composition scheme lets small businesses pay GST at a low flat rate on their turnover. The limit is ₹1.5 crore of turnover in the last financial year (₹75 lakh in 8 States). Traders and manufacturers pay 1%, restaurants pay 5%, and service providers with turnover up to ₹50 lakh pay 6%. You file a CMP-08 every quarter and a GSTR-4 once a year.

In return, you cannot charge GST to your customers, you cannot claim input tax credit, and you cannot sell to other States. This guide explains who can join, the rates with an example, the rules, the returns, how to opt in or out, and how it compares with regular GST.

What is the composition scheme in GST?

The composition scheme is an optional, simpler way to pay GST for small businesses. The law calls it the composition levy, and it is in section 10 of the CGST Act, 2017. A business in the scheme is called a composition dealer, a composition taxpayer or a composition taxable person.

Under normal GST, you charge GST on every sale, claim credit for the GST you paid on purchases, and file GSTR-1 and GSTR-3B every month or quarter. Under the composition scheme:

• You pay a fixed small percentage of your turnover as tax, from your own pocket.
• You do not charge GST to your customers, and you do not claim input tax credit.
• You file one short statement each quarter (CMP-08) and one return each year (GSTR-4).

People often search for "composite GST" or "composite scheme". They mean the composition scheme. "Composite supply" is a different GST term, for goods and services sold together as one bundle, and it has nothing to do with this scheme.

Turnover limit for the composition scheme

The limit is checked on your aggregate turnover in the last financial year (the year before the one in which you use the scheme).

What "aggregate turnover" means. It is the total value of your taxable sales, exempt sales, exports and sales to other States, for all GST registrations on your PAN across India, without counting the GST itself. So if you have one GSTIN in Delhi and one in Haryana, both count together.

The ₹75 lakh rule is about the 8 States above only. It is not a limit for service providers. Himachal Pradesh, Assam and Jammu and Kashmir are not on the list, so the ₹1.5 crore limit applies there.

If you cross the limit during the year. Your composition option ends on the day your aggregate turnover for the current year goes above the limit (section 10(3)). From that day you pay normal GST, and you must file Form CMP-04 within 7 days (see the opt-out section below).

Example. A shop in Pune had a turnover of ₹1.2 crore in 2025-26, so it can use the scheme in 2026-27. If its sales for 2026-27 cross ₹1.5 crore on 10 February 2027, it moves to normal GST from 10 February 2027.

A little service income is allowed. A trader or manufacturer in the scheme can also supply some services (other than restaurant service), up to 10% of last year's turnover in the State or ₹5 lakh, whichever is higher. For example, a hardware shop with ₹60 lakh turnover last year can also earn up to ₹6 lakh from repair or fitting work this year and stay in the scheme. With ₹30 lakh turnover, the cap is ₹5 lakh (because ₹5 lakh is higher than 10%).

GST rates under the composition scheme

These are the rates in rule 7 of the CGST Rules. Half goes to the Centre (CGST) and half to your State (SGST or UTGST).

Example. In the October to December 2026 quarter:

• A grocery shop sells ₹30 lakh of taxable goods. Tax: 1% = ₹30,000 (₹15,000 CGST and ₹15,000 SGST).
• A small restaurant has ₹20 lakh of sales. Tax: 5% = ₹1,00,000 (₹50,000 CGST and ₹50,000 SGST).
• A mobile repair shop under section 10(2A) earns ₹8 lakh. Tax: 6% = ₹48,000 (₹24,000 CGST and ₹24,000 SGST).

They pay this from their own money by 18 January 2027 with Form CMP-08. They do not add it to their customers' bills.

Who cannot opt for the composition scheme?

You cannot use the scheme under section 10(1) if any of these is true:

• You mainly supply services. Only restaurants, and the small service allowance above, are allowed. Other service providers use the 6% scheme under section 10(2A) instead.
• You sell goods or services that are outside GST. For example, alcohol for drinking, petrol, diesel, aviation fuel, natural gas or crude oil.
• You sell to buyers in other States (inter-State outward supplies). Buying from other States is allowed.
• You supply services through an e-commerce operator that collects tax at source (TCS) under section 52.
• You manufacture any of these goods: ice cream and other edible ice, pan masala, tobacco and tobacco substitutes, aerated water, fly ash bricks, aggregates and blocks, bricks of fossil meals, building bricks, and earthen or roofing tiles. Traders who only sell these goods are not barred.
• You are a casual taxable person or a non-resident taxable person.
• Another GSTIN on your PAN is not in the scheme. All registrations on the same PAN must opt in together, or none can.

Selling online. Since 1 October 2023, a composition dealer can sell goods through an e-commerce operator (such as an online marketplace), but only within its own State. The operator collects TCS on these sales and must not allow sales to other States. Supplying services through such an operator is still not allowed.

Composition scheme for service providers (6%)

Service providers can use a separate scheme under section 10(2A) of the CGST Act. It applies if:

• your aggregate turnover in the last financial year was up to ₹50 lakh, and
• you cannot use the main scheme (for example, because you supply services).

You pay 6% (3% CGST and 3% SGST) on your turnover in the State. The other rules are the same as for the main scheme: no input tax credit, no GST on your bills, no sales to other States, no supplies through an e-commerce operator that collects TCS, and all GSTINs on your PAN must opt in together. If your turnover crosses ₹50 lakh during the year, you leave this scheme that day.

Our reading: the 6% scheme suits small service businesses that sell mainly to consumers, such as coaching classes, salons or repair shops, because their customers cannot use input tax credit anyway. If most of your clients are GST-registered businesses, the regular scheme is usually better, because they want a tax invoice to claim credit.

Composition scheme for restaurants (5%)

Restaurants, dhabas, cafes and other places that serve food or non-alcoholic drinks as a service can opt for composition if their turnover was up to ₹1.5 crore last year (₹75 lakh in the 8 States). They pay 5% of turnover (2.5% CGST and 2.5% SGST).

A composition restaurant cannot charge GST on its bills. Its menu prices are final, and the 5% is paid by the owner from those sales. Under normal GST, a standalone restaurant also charges 5% but collects it from the customer. Read more on our GST for restaurants page.

Our reading: a restaurant that also sells alcohol for drinking cannot opt, because alcohol is outside GST, and selling anything outside GST bars the scheme (section 10(2)(b)).

Rules you must follow in the composition scheme

1. Issue a bill of supply, not a tax invoice. Section 31(3)(c) says so. Write these words at the top of every bill: "composition taxable person, not eligible to collect tax on supplies".
2. Show "composition taxable person" on your signboard. It must be on the board or notice at your main place of business and every other place of business.
3. Do not collect GST from customers. Do not show GST on your bills (section 10(4)).
4. No input tax credit. You cannot claim credit for GST paid on your purchases, rent or expenses (section 10(4)).
5. Pay reverse charge tax. If you buy something on which the buyer must pay GST under reverse charge, you still pay it, at the normal rate for that supply (rule 5(1)(d)).
6. No sales to other States. You can buy from other States, but the IGST you pay is a cost, because you cannot claim it.
7. Your business buyers cannot claim input tax credit on what they buy from you, because your bill shows no GST (our reading of section 10(4)).

Returns and payment under the composition scheme

A composition dealer does not file GSTR-1 or GSTR-3B. Instead:

Next dates: CMP-08 for October to December 2026 is due on 18 January 2027. GSTR-4 for 2026-27 is due on 30 June 2027.

• CMP-08: file it on the GST portal under Services, Returns, Returns Dashboard, even if you had no sales. If you had no outward supplies in the quarter, you can file it as nil, even by SMS. See our nil return guide.
• Paying the tax: you pay in cash, because there is no input tax credit to use. If you pay late, interest at 18% a year applies under section 50. Our GST interest calculator works it out.
• GSTR-4: you file it for each year, or for the part of the year you were in the scheme. A late GSTR-4 can attract a late fee under section 47.

All GST due dates are on our GST return due dates page. These are the dates in the rules on 20 October 2026. The government sometimes extends a date, so check the GST portal's news before the deadline.

How to opt for the composition scheme

If you are already registered under normal GST:

1. File Form CMP-02 on the GST portal before the start of the financial year you want to join from. To pay composition from 1 April 2027, file it by 31 March 2027. You cannot join in the middle of a year.
2. Within 60 days from the start of that year, file Form ITC-03. In it, you pay back the input tax credit you took on the stock you hold, because composition dealers cannot keep that credit.

The scheme then applies from the start of the financial year.

How to file CMP-02 on the GST portal:

1. Log in at www.gst.gov.in.
2. Go to Services, Registration, Application to Opt for Composition Levy.
3. Tick the composition declaration and the verification box.
4. Choose the authorised signatory and enter the place.
5. Submit with DSC, e-signature or EVC. You get an ARN by email and SMS.

If you are applying for a new GST registration: you can choose composition in Part B of the registration form (REG-01) itself. That choice counts as your intimation, so you do not file CMP-02. See our GST registration guide for the full process.

How to opt out of the composition scheme

There are three ways to leave.

After you leave:

• From the date you leave, you charge GST on tax invoices and file GSTR-1 and GSTR-3B like any regular taxpayer.
• Within 30 days, you can file Form ITC-01 to claim input tax credit on the stock you hold on that date.
• You still file CMP-08 and GSTR-4 for the part of the year you were in the scheme.
• Leaving for one GSTIN counts for all GSTINs on your PAN.

How to file CMP-04 on the GST portal: log in, go to Services, Registration, Application for Withdrawal from Composition Levy, choose the date and the reason, tick the verification, and submit with DSC or EVC. After it is processed, your taxpayer type in your profile changes from "Composition" to "Regular".

Penalty for using the scheme when not eligible. If the officer finds you paid composition tax when you were not eligible, you pay the full normal tax plus a penalty (section 10(5)).

Composition scheme vs regular GST

Our reading: when composition suits you.

• You sell mostly to consumers (B2C), such as a local shop, kirana store or small restaurant.
• Your input tax credit is small, because you add a lot of value or buy from unregistered sellers.
• You sell only in your own State.
• You want fewer returns and simple books.

When regular GST suits you better.

• Most of your buyers are GST-registered businesses that want input tax credit.
• You pay a lot of GST on purchases and want to use that credit.
• You sell, or plan to sell, to other States.

Regular taxpayers with turnover up to ₹5 crore can also file quarterly under the QRMP scheme, which cuts down returns without the composition limits.

How to check if a business is in the composition scheme

• On the GST portal (no login needed): go to Search Taxpayer, Search Composition Taxpayer, choose opted in or opted out, enter the GSTIN and the captcha, and click Search. After login, the same search is under Services, User Services, Search Taxpayer Opted In / Out of Composition.
• On the bill: it should say "composition taxable person, not eligible to collect tax on supplies" at the top, and show no GST.
• At the shop: the signboard should say "composition taxable person".

If a composition dealer charges you GST on a bill, it is collecting tax it is not allowed to collect, and you cannot claim that GST as credit.

Frequently asked questions