Last updated: 8 April 2026. The GST Composition Scheme allows eligible small businesses to pay GST at a flat 1–6% of turnover instead of standard rates, with only 5 filings per year instead of 25 for monthly filers (12 GSTR-1 + 12 GSTR-3B + 1 GSTR-9 annual return). The opt-in deadline for FY 2026-27 was 31 March 2026 — if you missed it, this guide helps you plan for FY 2027-28 and understand whether the scheme suits your business.
Applicability Note: This guide is based on GST provisions applicable as of 8 April 2026, including Section 10 of the CGST Act and CGST Rule 3. Always verify the current position on gst.gov.in or with a GST professional before taking action. The opt-in window for a financial year opens from 1 January and closes on 31 March of the preceding year.
Who Should Care?
This guide applies to:
- Small business owners with aggregate turnover under ₹1.5 crore considering simplified GST compliance
- Service providers with turnover under ₹50 lakh who want to reduce their filing burden
- Current regular GST filers evaluating whether to switch to composition for FY 2027-28
- New GST registrants deciding between regular and composition registration
1. What Is the GST Composition Scheme?
The Composition Scheme, governed by Section 10 of the CGST Act 2017, allows eligible small taxpayers to pay GST at a flat percentage of their turnover instead of computing tax on each invoice. Rather than filing monthly returns and reconciling ITC, composition dealers file simplified quarterly and annual returns.
The trade-off is clear: you give up Input Tax Credit (ITC) and some business flexibility in exchange for a dramatically lower compliance burden and a reduced effective tax rate.
2. Who Qualifies?
| Category | Turnover Limit (Regular States) | Turnover Limit (Special Category States) |
|---|---|---|
| Manufacturers and Traders (Goods) | ₹1.5 crore | ₹75 lakh |
| Restaurants (Not Serving Alcohol) | ₹1.5 crore | ₹75 lakh |
| Service Providers | ₹50 lakh | ₹50 lakh |
Special category states (₹75 lakh threshold): Arunachal Pradesh, Assam, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
Note on Assam: While Assam opted for the higher ₹40 lakh registration threshold (same as general states), verify whether the ₹75 lakh composition scheme limit applies in Assam. State-specific notifications may differ — check with your state GST department or on gst.gov.in.
Aggregate Turnover Rule: Aggregate turnover includes taxable supplies, exempt supplies, exports, and inter-state supplies across all GSTINs under the same PAN — but excludes GST itself. If your combined turnover across all registrations exceeds the threshold, none of them can be on composition.
3. Tax Rates Under the Composition Scheme
These are flat rates applied to your total turnover for the quarter — not on individual transactions:
| Category | CGST | SGST/UTGST | Total Rate |
|---|---|---|---|
| Manufacturers and Traders (Goods) | 0.5% | 0.5% | 1% |
| Restaurants (Not Serving Alcohol) | 2.5% | 2.5% | 5% |
| Service Providers | 3% | 3% | 6% |
Compare: standard GST rates range from 5% to 28% on most goods and services. For B2C businesses with low input costs, the composition rates represent a significant reduction in effective tax outflow.
4. What You Cannot Do Under Composition
- No ITC: GST paid on all purchases, raw materials, rent, and business expenses is a sunk cost — it cannot be offset against your tax liability
- No tax invoice: You must issue a Bill of Supply instead. This does not show GST separately because composition dealers do not collect GST from customers — the tax comes from your own turnover
- No inter-state outward supply: Composition dealers cannot make inter-state outward supplies of goods or services. If your business involves selling to buyers in other states — whether goods or services — the Composition Scheme is not suitable.
- No e-commerce supply: Selling through Amazon, Flipkart, Meesho, Swiggy, or any e-commerce operator that collects TCS under Section 52 is not permitted
- No supply of non-taxable goods or services: Businesses dealing in alcohol for human consumption, petroleum products, or other items outside GST scope are ineligible
5. Filing Requirements: Dramatically Simplified
A composition dealer has just 5 filings per year versus 25 for monthly regular taxpayers (12 GSTR-1 + 12 GSTR-3B + 1 GSTR-9 annual return):
| Form | Frequency | Due Date | What It Covers |
|---|---|---|---|
| CMP-08 | Quarterly (4 times/year) | 18th of month following quarter-end | Turnover declaration + tax payment for the quarter |
| GSTR-4 | Annual (1 time/year) | 30 June of the following year | Annual return covering all composition transactions |
CMP-08 due dates for FY 2026-27:
- Q1 (April–June 2026): 18 July 2026
- Q2 (July–September 2026): 18 October 2026
- Q3 (October–December 2026): 18 January 2027
- Q4 (January–March 2027): 18 April 2027
GSTR-4 for FY 2026-27: 30 June 2027
6. How to Opt In — Deadline Is 31 March Each Year
To opt into the Composition Scheme from the start of a financial year, you must file Form CMP-02 on the GST portal before 31 March of the preceding year. This is governed by CGST Rule 3.
Important: The CMP-02 opt-in deadline for FY 2026-27 was 31 March 2026 — this date has now passed. If you are reading this in April 2026, you cannot switch to composition for FY 2026-27 unless you are a new registrant. To opt in for FY 2027-28, file CMP-02 by 31 March 2027.
For new GST registrants: you can opt for composition at the time of registration, effective from the date of registration. There is no need to wait for the March 31 window.
To file CMP-02: Log in to gst.gov.in → Services → Registration → Application to Opt for Composition Levy → Form CMP-02. No approval is required — the option becomes effective from the start of the financial year.
To exit composition (if turnover exceeds the limit or you choose to switch back): file Form CMP-04. You will need to pay regular GST on all supplies made after the date of crossing the threshold, including on stock held on the date of exit.
7. Is the Composition Scheme Right for You?
| Composition Scheme | Regular GST | |
|---|---|---|
| Ideal for | B2C businesses, local retailers, food outlets | B2B businesses, exporters, high-input-cost manufacturers |
| Tax rate | 1–6% of turnover (flat) | 5–28% on supply value (standard rates) |
| ITC available? | No | Yes |
| Filings per year | 5 (4 × CMP-08 + 1 × GSTR-4) | 25 (12 GSTR-1 + 12 GSTR-3B + 1 GSTR-9 annual return) |
| Inter-state supply? | Not permitted | Permitted |
| E-commerce selling? | Not permitted | Permitted |
Key Takeaways
- Composition Scheme eligibility: turnover ≤ ₹1.5 crore for goods/restaurants (₹75 lakh in special category states) and ≤ ₹50 lakh for service providers
- Tax rates are 1% (goods traders), 5% (restaurants), and 6% (service providers) — significantly below standard GST rates
- CMP-02 opt-in deadline is 31 March of the preceding year under CGST Rule 3 — not April 30
- The FY 2026-27 opt-in window has passed (deadline: 31 March 2026); to plan for FY 2027-28, file CMP-02 by 31 March 2027
- New registrants can opt for composition at any time during the registration process
- Composition dealers cannot claim ITC, issue tax invoices, make inter-state supplies, or sell through e-commerce operators — evaluate these restrictions carefully before opting in
Frequently Asked Questions
What is the turnover limit for the GST Composition Scheme in 2026?
The turnover limit is ₹1.5 crore for manufacturers and traders dealing in goods, and for restaurants not serving alcohol. For service providers, the limit is ₹50 lakh. In special category states (Arunachal Pradesh, Assam, Himachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand), the limit for goods businesses is ₹75 lakh. Aggregate turnover is calculated across all GSTINs under the same PAN.
What is the deadline to opt into the Composition Scheme?
Under CGST Rule 3, the deadline to file Form CMP-02 for opting into the Composition Scheme for a financial year is 31 March of the preceding year. For FY 2026-27, the deadline was 31 March 2026. New registrants can opt for composition at the time of their original GST registration without waiting for the March 31 window.
Can a composition dealer claim Input Tax Credit?
No. A composition dealer cannot claim ITC on any purchases — purchases of goods, raw materials, rent, utilities, or services. All GST paid on inputs is an outright cost to the business. This is the primary reason composition is less attractive for B2B businesses or those with high input costs.
Can a composition dealer sell goods to buyers in other states?
No. Composition dealers cannot make inter-state outward supplies of goods or services. If your business involves selling to buyers in other states — whether goods or services — the Composition Scheme is not suitable for you.
What is Form CMP-08 and when is it due?
CMP-08 is the quarterly statement-cum-challan through which composition dealers declare their turnover and pay the flat-rate GST due for the quarter. It is due on the 18th of the month following each quarter-end: 18 July (Q1), 18 October (Q2), 18 January (Q3), and 18 April (Q4). It is separate from GSTR-4, which is the annual return due on 30 June of the following year.
Disclaimer: This article is for informational purposes only and does not constitute professional tax advice. GST rules are subject to frequent changes through notifications and circulars. Please consult a qualified tax professional or verify the current provisions on the official GST portal (gst.gov.in) before making any compliance decisions.
Have a specific question about the Composition Scheme or whether it suits your business? Our GST experts can help → gstconsultancy.com