GST Composition Scheme 2026 — Eligibility, Rates & Benefits
By Parul Singh, GST Practitioner · GST Schemes · Updated June 2026
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What is the GST Composition Scheme?
About 40% of my Delhi clients opt for composition scheme. It reduces compliance dramatically, but limits ITC and inter-state sales. The composition scheme under Section 10 allows small taxpayers to pay tax at a fixed rate on total turnover instead of the regular GST rates. No detailed invoice-wise reporting, no monthly GSTR-1, no ITC matching.
Official Reference: Section 10 of the CGST Act 2017 provides the composition levy. The thresholds and rates are specified under Section 10(1), 10(2) and notified via notifications. Rule 3-7 of the CGST Rules detail the procedure. The current threshold is ₹1.5 crore (₹75 lakh for special category states).
Composition Scheme Tax Rates
| Category | Tax Rate |
|---|---|
| Manufacturers & Traders (goods) | 1% (0.5% CGST + 0.5% SGST) |
| Restaurant services | 5% (2.5% CGST + 2.5% SGST) |
| Service providers (turnover ≤ ₹50 lakh) | 6% (3% CGST + 3% SGST) |
📍 Real Example -- Chandni Chowk Retailer on Composition
A readymade garment retailer in Chandni Chowk with ₹80 lakh annual turnover opted for composition at 1%. His annual tax: ₹80 lakh × 1% = ₹80,000. Under regular GST, he would pay ₹80 lakh × 5% = ₹4,00,000 minus ITC of approximately ₹2,40,000 = ₹1,60,000. Composition saves him ₹80,000 per year in tax alone, plus ₹15,000+ in compliance costs.
Eligibility for Composition Scheme
- Aggregate turnover ≤ ₹1.5 crore in previous financial year
- Not engaged in inter-state supply of goods
- Not engaged in supply of non-taxable goods
- Not a casual taxable person or non-resident
- Not engaged in manufacturing of ice cream, pan masala, tobacco products
- Not an e-commerce operator
- Service providers with turnover ≤ ₹50 lakh (under Section 10(2A))
⚠️ Common Mistake: The biggest limitation: you CANNOT make inter-state sales under composition scheme. If you are a trader in Delhi supplying even one invoice to a buyer in Haryana, you must register under the regular scheme. Many of my clients learned this the hard way when they lost out on large orders from out-of-state buyers.
Pros & Cons of Composition Scheme
| Pros | Cons |
|---|---|
| Very low tax rate (1% for traders) | No ITC on purchases |
| Quarterly filing (CMP-08) | Cannot make inter-state sales |
| Simplified compliance | Cannot issue tax invoices |
| Less record-keeping needed | "Composition taxable person" on invoices |
| Lower professional fees | Buyers cannot claim ITC on your supply |
💡 Pro Tip from Parul: If your major customers are B2B businesses who need ITC, composition scheme will drive them away -- they lose ITC on your supplies. Composition works best for B2C businesses like retail shops, restaurants, and small service providers where end consumers do not care about ITC.
Filing Requirements
- CMP-08: Quarterly return by 18th of the month after quarter
- GSTR-4: Annual return by 30th April of next financial year
- No GSTR-1, no GSTR-3B, no monthly filing
💡 Pro Tip from Parul: Want to know if composition scheme is right for your business? I analyze your turnover, customer mix, and ITC needs to recommend the best option -- free consultation. Call/WhatsApp: +91 95401 04776
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Frequently Asked Questions
Can I switch from regular to composition scheme?
Yes, you can opt for composition scheme at the beginning of any financial year by filing CMP-02 by 31st March. You must reverse all ITC on stock and capital goods held on the date of switchover under Section 18(3).
Can composition dealers sell online?
Yes, but only if they sell through their own website. Selling through e-commerce operators like Amazon, Flipkart is NOT allowed for composition taxpayers as it requires TCS collection under Section 52.
What if my turnover exceeds ₹1.5 crore?
You must switch to the regular scheme from the next month. File intimation in form CMP-04 and pay tax under regular scheme from that date. All ITC on stock held becomes available from the date of switch.
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