GST Composition Scheme: Who Should Opt In, Rates, Limits and the Catches

You can opt for the GST composition scheme if your aggregate turnover in the preceding financial year was up to ₹1.5 crore as a manufacturer, trader or restaurant (₹75 lakh in certain special-category States), or up to ₹50 lakh as another service provider. You then pay a flat 1% (manufacturers and traders), 5% (restaurants) or 6% (services) of turnover, file a quarterly CMP-08 and an annual GSTR-4, but cannot charge GST, claim input tax credit or sell to other States. It suits small businesses selling locally to consumers; it usually hurts those selling to other businesses.

Sources checked: 20 October 2026

Facts checked on 20 October 2026 against section 10 of the CGST Act on the CBIC tax information portal, Notifications 14/2019 and 36/2023-Central Tax and the CBIC composition FAQs.

Key facts

	Section 10(1) — goods and restaurants	Section 10(2A) — services
Turnover limit (preceding FY)	₹1.5 crore (₹75 lakh in certain special-category States)	₹50 lakh
Who	Manufacturers, traders, restaurants (not serving alcohol)	Service providers and mixed suppliers not covered by 10(1)
Rate on turnover	Manufacturers and traders 1%; restaurants 5%	6%
Services allowed alongside	Up to 10% of turnover or ₹5 lakh, whichever is higher	—
Quarterly payment	CMP-08 by the 18th of the month after the quarter	Same
Annual return	GSTR-4 by 30 June after the financial year	Same

The trader's 1% is charged on turnover of taxable supplies only; the manufacturer's and restaurant's rate is on total turnover in the State.

Who can opt for composition?

Registered manufacturers, traders and restaurants within the ₹1.5 crore limit, and other service providers within ₹50 lakh — provided they are not in an excluded category below. Eligibility is per PAN: if one registration under the PAN opts in, all must.

Who cannot opt for composition?

• Anyone making inter-State outward supplies of goods or services (section 10(2)(c)).
• Anyone supplying services through an e-commerce operator that collects TCS. (Goods may be sold within your own State through an operator since 1 October 2023; the operator blocks inter-State orders and collects TCS.)
• Manufacturers of ice cream, pan masala, tobacco and a few other notified goods.
• Casual taxable persons and non-resident taxable persons.
• Suppliers of goods or services that are not taxable under GST (for example petrol or alcohol for human consumption).

What are the CMP-08 and GSTR-4 due dates?

The quarterly payment is made in Form CMP-08 by the 18th of the month after each quarter, and the annual return is Form GSTR-4 by 30 June after the financial year. The compliance calendar lists each date. Other routine rules:

• Opting in: in Part B of Form REG-01 when you apply for registration, or in Form CMP-02 before the start of a financial year if already registered; reverse ITC on stock in ITC-03 within 60 days.
• Invoices: issue a bill of supply that says "composition taxable person, not eligible to collect tax on supplies", and show "composition taxable person" on your signboard.
• Reverse charge still applies on notified inward supplies — you pay it at normal rates and cannot claim it back.

When does composition help?

• Your customers are consumers who cannot use input tax credit anyway.
• Your inputs carry little GST (fresh produce, low-rate inputs, labour), so giving up ITC costs little.
• You value four payments and one return a year over the monthly cycle.

A trader with ₹1 crore of taxable turnover pays ₹1 lakh a year under composition (1%). Under the regular scheme they would charge tax on the full sale price and recover the tax on purchases — the net cost depends on the margin and the rates.

When does composition hurt?

• B2B customers. They lose ITC on what they buy from you, so they pay you less or buy elsewhere.
• Inter-State sales, including selling to other States online — barred outright.
• High-GST inputs with thin margins. You cannot recover the GST charged on your inputs; the 1% on output is the smaller problem.
• Exports — an export is an inter-State supply, so composition dealers cannot export.

How do I leave the scheme?

You can withdraw voluntarily at any time in CMP-04, and must do so within seven days of crossing the limit or becoming ineligible. If an officer believes you were ineligible, a CMP-05 show cause notice gives you 15 days to reply (how GST notices work); an adverse order in CMP-07 can apply the regular rate and add penalty. On leaving, claim ITC on stock in ITC-01 within 30 days.

The decision in one line

Sell locally to consumers with low-GST inputs → composition is worth a close look. Sell to businesses or across State lines → stay regular.

Unsure which is cheaper for your numbers? Our GST services compare composition and regular GST on your actual purchases and sales — ask our expert team.