Key Takeaways
- The GST Composition Scheme lets eligible small businesses with aggregate turnover up to Rs 1.5 crore (Rs 75 lakh in special category states, Rs 50 lakh for service providers) pay a fixed rate of GST (1% to 6%) instead of regular slab rates.
- Composition dealers cannot claim Input Tax Credit (ITC), make inter-state outward supplies, or issue tax invoices.
- Quarterly CMP-08 statements are due by the 18th of the month after each quarter; annual GSTR-4 is due by June 30 of the following financial year (Notification 12/2024-CT).
- Opt in by filing Form CMP-02 before March 31 of the previous financial year. If turnover crosses the cap mid-year, file CMP-04 within 7 days.
- On exit, you can claim ITC on stock and capital goods through Form GST ITC-01 within 30 days, with capital goods ITC reduced by 5% per quarter from the invoice date.
If you run a small trading or manufacturing business under Goods and Services Tax (GST), maintaining the full compliance cycle of regular returns, ITC matching, and detailed invoicing adds operational burden. The Composition Scheme under Section 10 of the Central Goods and Services Tax (CGST) Act, 2017 offers a simpler alternative: lower tax rates, fewer returns, and reduced record-keeping.
This guide covers who qualifies, the exact rates, filing obligations, key restrictions, and how to exit cleanly if your business scales past the threshold.
Looking for expert help with GST composition scheme eligibility, rates, and CMP-08 filing for small businesses? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Who Is Eligible for the Composition Scheme?
The Composition Scheme is available to registered persons whose aggregate turnover in the preceding financial year did not exceed the prescribed limit (Section 10(1), CGST Act 2017).
Turnover Limits
| Business Type | Turnover Limit |
|---|---|
| Goods manufacturers and traders (general states) | Rs 1.5 crore (Notification 14/2019-CT, w.e.f. 01.04.2019) |
| Goods manufacturers and traders (special category states) | Rs 75 lakh |
| Service providers and mixed suppliers (Section 10(2A)) | Rs 50 lakh (all states) |
Special category states with the Rs 75 lakh limit: Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand.
Aggregate turnover is defined under Section 2(6) of the CGST Act. It includes all taxable, exempt, and export supplies across all GSTINs registered under the same PAN. It excludes taxes charged under CGST, SGST, UTGST, and IGST.
Who Cannot Opt In
Even if your turnover is below the limit, you cannot opt for composition if you are:
- A casual taxable person or a non-resident taxable person
- A manufacturer of ice cream, pan masala, or tobacco products (Notification 08/2017-CT)
- Making inter-state outward supplies of goods
- Supplying goods through e-commerce operators required to collect TCS under Section 52
- Engaged in supply of goods that are not leviable to tax under the CGST Act
Composition Scheme Tax Rates
Tax Rate Chart
GST Composition Scheme Tax Rates 2026
Fixed rates on turnover in the State or UT — paid by the dealer, not collected from customers
Manufacturers (other than notified goods)
0.5% CGST + 0.5% SGST — Section 10(1), CGST Rule 7
Traders and other eligible suppliers
0.5% CGST + 0.5% SGST — Section 10(1), CGST Rule 7
Restaurant services (Schedule II, para 6(b))
2.5% CGST + 2.5% SGST
Service providers (Section 10(2A))
3% CGST + 3% SGST — turnover limit Rs 50 lakh
Source: CGST Act 2017 Section 10; CGST Rule 7; Notification 14/2019-CT
Composition dealers pay tax as a fixed percentage of their turnover in the State or Union Territory. The rate is lower than regular GST, but the dealer cannot collect this tax separately from customers.
| Category | CGST | SGST or UTGST | Total |
|---|---|---|---|
| Manufacturers (other than notified goods) | 0.5% | 0.5% | 1% |
| Traders and other eligible suppliers | 0.5% | 0.5% | 1% |
| Restaurant services (Schedule II, para 6(b)) | 2.5% | 2.5% | 5% |
| Service providers (Section 10(2A)) | 3% | 3% | 6% |
Example. A textile trader in Hyderabad with quarterly turnover of Rs 30 lakh pays Rs 30,000 as total GST (Rs 15,000 CGST + Rs 15,000 SGST), instead of computing GST at the applicable regular slab rate (5% or 18%) on each invoice.
How to Opt Into the Composition Scheme
Existing Registered Taxpayers
File Form GST CMP-02 on the GST portal before March 31 of the financial year preceding the year in which you want to avail the scheme. To be a composition dealer from FY 2026-27, file CMP-02 by March 31, 2026.
The portal blocks the opt-in link once the new financial year starts. You cannot switch mid-year.
New Registrants
Choose composition at the time of GST registration by selecting the option in Part B of Form GST REG-01.
After Opting In
Once approved, you must:
- Issue Bills of Supply instead of tax invoices.
- Mention "Composition Taxable Person, not eligible to collect tax on supplies" at the top of every bill.
- Display "Composition Taxable Person" on your signboard at every place of business.
Filing Requirements for Composition Dealers
Composition dealers have two filing obligations instead of the monthly GSTR-1 and GSTR-3B that regular taxpayers handle.
1. CMP-08: Quarterly Self-Assessed Statement
| Detail | Requirement |
|---|---|
| What | Quarterly statement of self-assessed tax |
| Frequency | Every quarter |
| Due date | 18th of the month following the quarter |
| Content | Outward supplies, inward supplies attracting reverse charge, tax payable |
Quarterly due dates:
- April to June quarter: July 18
- July to September quarter: October 18
- October to December quarter: January 18
- January to March quarter: April 18
You can file a Nil CMP-08 through SMS if there were no outward supplies, no reverse-charge inward supplies, and no tax liability during the quarter.
Late filing of CMP-08. The CGST Act read with notifications provides for a late fee of Rs 200 per day (Rs 100 CGST + Rs 100 SGST), capped at Rs 5,000, plus interest at 18% per annum on unpaid tax. As a practical matter, the GST Portal currently does not auto-calculate the CMP-08 late fee, so taxpayers may file delayed CMP-08 without the system blocking them. Do not treat this as a permanent waiver. Underlying interest on unpaid tax still accrues, and a notification can re-enable enforcement at any time. File on time.
2. GSTR-4: Annual Return
| Detail | Requirement |
|---|---|
| What | Annual return summarising the full year |
| Due date | June 30 of the following financial year (Notification 12/2024-CT) |
| Late fee | Rs 50 per day (Rs 25 CGST + Rs 25 SGST), maximum Rs 2,000; Nil returns capped at Rs 500 |
| Prerequisite | All four CMP-08 statements for the year must be filed first |
The GSTR-4 due date was extended from April 30 to June 30 starting FY 2024-25 onwards (CGST Notification 12/2024 dated July 10, 2024). For FY 2025-26, the due date is June 30, 2026.
Key Restrictions to Understand
The lower rates and simpler compliance come with trade-offs.
1. No Input Tax Credit. You cannot claim ITC on any purchase. The GST you pay on raw materials, equipment, or services is a cost, not a credit. If your business has high input costs, regular registration may save you more money despite the higher compliance burden.
2. No inter-state supplies. You can only sell within your state or Union Territory. If you receive orders from other states, you must either decline them or exit the composition scheme.
3. No tax invoices. You issue Bills of Supply, which means your buyers cannot claim ITC on purchases from you. Business-to-business (B2B) customers may prefer buying from regular dealers for this reason.
4. No e-commerce supplies. If you sell through platforms like Amazon, Flipkart, or Swiggy (which are required to collect TCS under Section 52), you cannot be a composition dealer.
5. Reverse charge still applies. If you receive supplies from an unregistered supplier that attract reverse charge under Section 9(4), you must pay GST on those supplies at the applicable regular rate, not the composition rate.
What Happens When Your Turnover Crosses the Limit?
If your aggregate turnover exceeds Rs 1.5 crore (or Rs 75 lakh / Rs 50 lakh for applicable categories) at any point during the financial year:
- File Form GST CMP-04 within 7 days from the date the limit is crossed.
- You automatically exit the composition scheme from that date.
- Start filing regular returns (GSTR-1 and GSTR-3B) from the next applicable period.
- Begin issuing tax invoices instead of bills of supply.
- Claim ITC on stock and capital goods held on the date of exit by filing Form GST ITC-01 within 30 days (Section 18(1)(c) of the CGST Act read with Rule 40 of the CGST Rules).
Claiming ITC at Exit (Section 18(1)(c) and Rule 40)
When you transition from composition to regular registration, you can claim ITC on:
- Inputs held in stock as of the transition date.
- Inputs contained in semi-finished and finished goods held in stock.
- Capital goods held on the transition date, with the credit reduced by 5% per quarter (or part thereof) from the invoice date of the capital goods up to the transition date (CGST Rule 40).
Important caveat. If you have already claimed depreciation on the GST component of any capital good under the Income Tax Act, you cannot also claim ITC on that GST component. Choose one or the other.
Example. If you bought machinery 8 quarters before exit, the ITC you can claim on its GST component is reduced by 8 × 5% = 40%, leaving 60% available. File Form ITC-01 within 30 days of becoming a regular taxpayer, with a CA's certification if the ITC claim exceeds Rs 2 lakh.
Practical example of CMP-04 timing. If your cumulative turnover crosses Rs 1.5 crore on November 15, file CMP-04 by November 22. From December onward you operate as a regular taxpayer, and your ITC-01 claim deadline runs to mid-December.
Common Mistakes to Avoid
1. Forgetting to include all GSTINs in aggregate turnover. If you have multiple registrations under the same PAN across states, the turnover of all registrations is added together. A business with Rs 80 lakh turnover in Tamil Nadu and Rs 80 lakh in Karnataka has an aggregate turnover of Rs 1.6 crore and does not qualify.
2. Including GST in turnover calculation. Aggregate turnover is calculated exclusive of CGST, SGST, UTGST, and IGST (Section 2(6)). If your total receipts including tax are Rs 1.6 crore but the pre-tax turnover is Rs 1.45 crore, you still qualify.
3. Assuming composition works for e-commerce sellers. Selling through Amazon, Flipkart, or any platform that collects TCS makes you ineligible. Set up a separate GST registration for direct sales if you want to keep composition for the rest of your business.
4. Not filing CMP-08 for zero-activity quarters. Even if you had no business during a quarter, file a Nil CMP-08. Unfiled quarterly statements block your ability to file the annual GSTR-4.
5. Skipping ITC-01 at exit. When you exit composition, the 30-day window for Form ITC-01 is strict. Missing it means you forfeit the ITC on stock and capital goods that you would otherwise have been entitled to.
Should You Choose Composition or Regular GST?
The composition scheme works best when:
- Your customers are end consumers (B2C), not businesses that need ITC.
- Your input costs are low relative to turnover (so losing ITC does not hurt).
- You value simpler compliance over tax optimisation.
- You operate only within one state.
Regular registration is better when:
- You sell to other businesses that need ITC on your invoices.
- You have significant input costs where ITC recovery matters.
- You make or plan to make inter-state sales.
- You sell through e-commerce platforms.
For a deeper comparison and the broader GST landscape, see our GST Compliance Checklist for FY 2026-27 and our all GST and income tax changes from April 2026.
Let Tax Garden Handle Your Composition Scheme Compliance
Filing CMP-08 every quarter and GSTR-4 annually sounds simple, but missed deadlines mean late fees and potential scrutiny. Tax Garden tracks your turnover against composition limits, files your quarterly statements, prepares your annual return, and alerts you before you cross any threshold. See our GST compliance plans to get started.
Looking for expert help with composition scheme CMP-08 and GSTR-4 filing services for Indian small businesses? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant end-to-end: filings, notices, and advisory, all in one place.
Frequently Asked Questions
Who can opt for the GST Composition Scheme?
Registered persons with aggregate turnover (across all GSTINs under the same PAN) up to Rs 1.5 crore for goods (Rs 75 lakh in special category states), or Rs 50 lakh for service providers under Section 10(2A). Casual taxable persons, NRTPs, manufacturers of ice cream, pan masala, or tobacco, inter-state suppliers, and e-commerce sellers under Section 52 are excluded.
What are the GST rates under the composition scheme?
1% total (0.5% CGST + 0.5% SGST) for manufacturers and traders; 5% (2.5% + 2.5%) for restaurant services; 6% (3% + 3%) for service providers under Section 10(2A). The rate applies on turnover in the State or UT and is paid out of pocket by the dealer, not collected from the customer.
When are CMP-08 and GSTR-4 due?
CMP-08 is filed quarterly by the 18th of the month after the quarter ends (July 18, October 18, January 18, April 18). GSTR-4 is the annual return, due by June 30 of the following financial year (Notification 12/2024-CT). For FY 2025-26, GSTR-4 is due June 30, 2026.
Can a composition dealer claim Input Tax Credit?
No. Composition dealers cannot claim ITC on any purchase. GST paid on inputs and capital goods is treated as a cost. On exit from the scheme, you can claim ITC on stock and capital goods held by filing Form GST ITC-01 within 30 days (Section 18(1)(c) of the CGST Act read with Rule 40).
What happens if my turnover crosses Rs 1.5 crore mid-year?
File Form GST CMP-04 within 7 days of the date the limit is crossed. You exit the scheme from that date and start filing regular GSTR-1 and GSTR-3B from the next period. You also have 30 days from exit to file Form GST ITC-01 to claim ITC on stock and capital goods held.
Is there a late fee for missing CMP-08?
The Act provides for a late fee of Rs 200 per day (Rs 100 CGST + Rs 100 SGST), capped at Rs 5,000, plus interest at 18% per annum on unpaid tax. The GST Portal does not currently auto-calculate the CMP-08 late fee, but interest on unpaid tax still accrues and the late fee can be enforced via notification at any time. File on time.
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Sources
This guide is verified against the following primary sources. The CGST Act 2017 (Section 2(6) for aggregate turnover; Section 9(4) reverse charge on unregistered supplier; Section 10(1), 10(2A), 10(3), and 10(4) for composition scheme; Section 18(1)(c) for ITC on transition from composition; Section 52 for TCS by e-commerce operators). CGST Rules 2017 (Rule 7 for composition tax rates; Rule 40 for capital goods ITC reduction at 5% per quarter). CBIC Notification 08/2017-CT (excluded goods: ice cream, pan masala, tobacco). CBIC Notification 14/2019-CT dated 07.03.2019 (Rs 1.5 crore turnover limit, special category states list). CBIC Notification 12/2024-CT dated 10.07.2024 (GSTR-4 due date extended to June 30 from FY 2024-25 onwards). GST Portal tutorials and FAQs at tutorial.gst.gov.in for CMP-02 opt-in, CMP-04 exit, CMP-08 nil filing via SMS, and GSTR-4 annual return. Practitioner cross-checks via ClearTax, IndiaFilings, Tax2Win, and Taxmann. Always confirm specific figures against the live GST Portal (gst.gov.in) before filing.
