Quick answer: The GST composition scheme lets a small registered business pay tax at a flat rate on turnover instead of regular GST: 1% for traders and manufacturers and 5% for restaurants, if last year’s turnover was up to ₹1.5 crore (₹75 lakh in some hill and north-eastern states). Service providers with turnover up to ₹50 lakh have a separate 6% option. In return you cannot charge GST, cannot claim input tax credit and cannot sell goods to other states. Figures are as of October 2026.
Who can opt in
The scheme sits in Section 10 of the CGST Act. There are two versions.
| Main composition scheme | Composition for services | |
|---|---|---|
| Legal basis | Section 10(1) | Section 10(2A) |
| Who | Traders, manufacturers, restaurants (no alcohol) | Service providers, and others not eligible for the main scheme |
| Turnover limit, previous financial year | ₹1.5 crore (₹75 lakh in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand) | ₹50 lakh |
| Small side services allowed | Up to 10% of turnover in the state or ₹5 lakh, whichever is higher | Not applicable |
Turnover is counted across all registrations under one PAN, all India. If you hold two GSTINs under the same PAN, both must opt in or neither can.
You cannot opt in if you:
- make inter-state outward supplies of goods (buying from other states is fine)
- supply goods or services not taxable under GST, such as alcohol for human consumption
- supply services through an e-commerce operator that collects tax at source (TCS) under Section 52
- are a casual taxable person or non-resident taxable person
- manufacture notified goods: ice cream, pan masala, tobacco products, aerated water, and fly ash or clay bricks and tiles
Rates as of October 2026
| Type of business | Rate on turnover | Split |
|---|---|---|
| Manufacturer (other than notified goods) | 1% | 0.5% CGST + 0.5% SGST |
| Trader | 1% of taxable turnover | 0.5% + 0.5% |
| Restaurant service (no alcohol) | 5% | 2.5% + 2.5% |
| Service provider under Section 10(2A) | 6% | 3% + 3% |
The September 2025 GST rate rationalisation changed the main GST slabs but did not change composition rates or limits, which have stayed the same since 2019-20.
The e-commerce rule: what changed in 2023
Older articles still say composition dealers cannot sell on Amazon, Flipkart or Meesho. That is out of date for goods.
- Goods: the Finance Act, 2023 removed “goods” from the e-commerce bar in Section 10(2)(d). From 1 October 2023, a composition dealer can sell goods through e-commerce platforms, as long as every sale is within your own state. Under CBIC Notification 36/2023-Central Tax, platforms must block inter-state orders from composition sellers and collect TCS on these sales.
- Services: the bar remains. If you sell services through a platform that collects TCS, you cannot be in the scheme.
If you sell goods online within one state and are below the GST registration threshold, you may not need GST at all. Since October 2023, such sellers can use a GST enrolment number instead of registering.
Rules you must follow once you opt in
- No GST on your bill. You issue a bill of supply, not a tax invoice, with the words “composition taxable person, not eligible to collect tax on supplies” at the top.
- Signboard. Display “composition taxable person” at every place of business.
- No input tax credit. GST you pay on purchases becomes a cost. Your business buyers also cannot claim credit on what they buy from you.
- Reverse charge in cash. Where reverse charge applies, you pay it at the normal rate, in cash, with no credit.
- Stock on joining. If you switch from regular GST, you reverse the credit on stock held, using ITC-03 within 60 days of the start of the year.
How to opt in and file, step by step
- New registration: choose composition in Part B of the GST registration application (REG-01).
- Already registered: file CMP-02 on the GST portal before the financial year starts. For FY 2027-28, that means by 31 March 2027.
- Every quarter: pay tax through CMP-08 by the 18th of the month after the quarter (18 July, 18 October, 18 January, 18 April).
- Every year: file the annual return GSTR-4 by 30 June after the financial year ends (this date applies from FY 2024-25).
- If you cross the limit: the option ends on the day your turnover crosses it. File CMP-04 within 7 days and move to regular returns and tax invoices.
- On exit: you can claim credit on stock in hand through ITC-01 within 30 days.
Costs, interest and late fees
| Item | Amount |
|---|---|
| Opting in | No government fee |
| Late GSTR-4 | ₹50 per day (₹25 CGST + ₹25 SGST), capped at ₹2,000 |
| Late nil GSTR-4 | ₹20 per day, capped at ₹500 |
| Late tax payment | 18% a year interest, counted from the CMP-08 due date |
From the July 2025 tax period, returns cannot be filed more than three years after their due date, so do not let old returns pile up.
Pros and cons
| Pros | Cons |
|---|---|
| Low, flat tax: 1% for most traders and manufacturers | No input tax credit, so GST on rent, raw material and packaging is a cost |
| Quarterly payment and one annual return instead of monthly filing | Cannot sell goods to other states, including online |
| Lower accounting and CA fees | B2B buyers cannot claim credit, so they may prefer regular suppliers |
| Simpler invoicing | Cannot collect GST from customers, so the 1% to 6% comes out of your margin |
| Can now sell goods online within your state | Cannot sell services through TCS-collecting platforms |
Is it right for your business?
Usually a good fit if you sell mainly to end consumers in your own state: a boutique, a kirana or gift shop, a home bakery with a shop counter, a small cafe, a local tailoring unit selling ready garments, or a beauty products reseller. Your customers do not need GST invoices and your purchase GST is modest.
Usually a poor fit if you supply businesses that want tax invoices, you buy a lot of inputs carrying 12% or 18% GST, you plan to ship across India, or you sell services through platforms. A home-based designer selling to corporate clients, for example, will often be better off in regular GST.
For first-time founders: do the arithmetic before opting. Compare (a) composition tax on your expected turnover plus GST paid on purchases that you cannot recover, with (b) regular GST on your margin after input credit. Many small sellers find composition cheaper; many B2B sellers find the opposite.
Common mistakes
- Accepting one order from another state. Even a single inter-state sale breaks the conditions.
- Writing “GST” on the bill or collecting tax from customers. Composition dealers cannot collect tax.
- Missing the CMP-02 deadline and then being stuck in regular GST for the year.
- Forgetting that turnover is per PAN. A second business in your name counts.
- Assuming the 6% services option covers selling through Urban Company-type or other platforms that collect TCS. It does not.
FAQ
Q: Can I sell on Amazon or Meesho under the composition scheme?
A: Yes for goods, from 1 October 2023, but only to buyers in your own state. Platforms must block inter-state orders. Services through TCS-collecting platforms are still not allowed.
Q: I run a beauty parlour. Which rate applies?
A: Services are not covered by the 1% scheme. If your turnover was up to ₹50 lakh and you meet the other conditions, you can opt for the 6% services scheme.
Q: Can I buy raw material from another state?
A: Yes. Inter-state purchases are allowed. Only outward inter-state supply of goods is barred.
Q: What happens if I cross ₹1.5 crore mid-year?
A: The option lapses on the day you cross it. File CMP-04 within 7 days and switch to regular GST from then.
Q: Does a restaurant serving alcohol qualify?
A: The 5% rate applies to restaurant service. Supplying alcohol, which is outside GST, makes you ineligible.
Q: Which returns do I file?
A: CMP-08 every quarter by the 18th, and GSTR-4 every year by 30 June.
Official links
- GST portal (opt in, CMP-08, GSTR-4): https://www.gst.gov.in
- CBIC GST information and notifications: https://cbic-gst.gov.in
- GST portal tutorials: https://tutorial.gst.gov.in
Last checked: October 2026. Rules, limits and fees change; confirm with the official source before you apply. This guide is general information, not legal, tax or financial advice.
Sources: CGST Act Section 10 as amended, Chhattisgarh GST Department (July 2025); CBIC Notification 36/2023-Central Tax via Taxmann (August 2023); CAclubindia, Composition scheme for FY 2026-27 (2026); CBIC Notification 14/2019-Central Tax (March 2019); CBIC Notification 2/2019-Central Tax (Rate) (March 2019); West Bengal Commercial Taxes, Composition Scheme FAQ (2017, for background).
