GST Composition Scheme 2026: Eligibility, Rates & Filing Guide

Most small business owners in India are on the regular GST regime when they don't need to be. If your turnover is under ₹1.5 crore and you are selling goods locally, the GST Composition Scheme can cut your compliance burden by 70% — fewer filings, no monthly GSTR-1 or GSTR-3B, and a flat tax rate on your turnover instead of complex invoice-level calculations.

Yet thousands of eligible traders and restaurateurs miss this option every year, either because they weren't told about it or because they assume opting in is complicated. Your CA's job — and the purpose of this guide — is to make the decision clear. Here is everything you need to know about the GST Composition Scheme in 2026: who qualifies, what you pay, what you give up, and exactly how to opt in.

What Is the GST Composition Scheme?

The GST Composition Scheme is a simplified tax regime under Section 10 of the CGST Act, 2017. Instead of collecting GST from customers on each invoice, tracking input tax credit (ITC), and filing monthly returns, you pay a flat percentage of your aggregate turnover as GST directly to the government.

The core trade-off: you get dramatically simpler compliance, but you cannot claim ITC on your purchases and you cannot charge GST on your invoices to customers.

If your margins are healthy enough to absorb the flat tax rate, and most of your customers are end consumers who do not need tax invoices, the composition scheme is almost always the better choice for your business.

Eligibility: Who Can Opt In?

Registered Persons Who Qualify

The eligibility thresholds for FY 2026-27 are:

Special category states with the ₹75 lakh threshold: Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand, and Himachal Pradesh.

The service-provider composition option — introduced via the CGST (Amendment) Act, 2018 and operationalised through Notification No. 2/2019-CT dated 07 March 2019 — lets service businesses with turnover up to ₹50 lakh pay 6% GST on aggregate turnover with zero ITC benefit.

Who Cannot Use the Composition Scheme

The scheme is closed to any business that:

• Makes inter-state outward supplies (you may only sell within your state of registration)
• Supplies goods or services through an e-commerce operator — Amazon and Flipkart sellers are excluded by Section 10(2)(d)
• Manufactures notified goods: ice cream, pan masala, tobacco, and aerated drinks under Schedule II of the notification
• Is a non-resident taxable person or casual taxable person
• Has any other GSTIN under the same PAN on the regular scheme — all PAN-linked registrations must be on composition together or not at all

That last point catches many multi-state businesses. If you have one GSTIN in Maharashtra on the regular scheme, you cannot put your Gujarat GSTIN on composition.

Tax Rates Under the Composition Scheme

These rates apply on your aggregate turnover — total sales including exempt and nil-rated supplies — not just on taxable supplies or your profit margin. No IGST is applicable since inter-state supply is not permitted under this scheme.

What Composition Dealers Cannot Do

1. 1No ITC claims. GST paid on all purchases — materials, freight, packaging — is a cost to the business, not a credit.
2. 2No GST on customer invoices. Issue a Bill of Supply, not a Tax Invoice. Your customers receive no GST credit from you.
3. 3No inter-state sales. All outward supplies must be within the same state.
4. 4No e-commerce supply. You cannot sell through platforms like Amazon, Flipkart, or Meesho.
5. 5Mandatory disclosure. Print "Composition Taxable Person, not eligible to collect tax on supplies" on every bill and on your premises signboard.

Should You Opt In? A Real-Number Comparison

Consider a goods trader in Pune with annual turnover of ₹90 lakh and purchases of ₹65 lakh, selling primarily to retail customers (B2C).

Under the regular GST scheme:

• GST collected on sales (assuming average 18%): ₹16.2 lakh
• ITC on purchases (assuming 18%): ₹11.7 lakh
• Net GST payable: ₹4.5 lakh
• Compliance: 24 returns per year (12 GSTR-1 + 12 GSTR-3B)
• Estimated CA compliance cost: ₹18,000–₹24,000 per year

Under the composition scheme:

• GST payable: 1% × ₹90 lakh = ₹90,000 for the entire year
• Filings: 4 CMP-08 quarterly statements + 1 GSTR-4 annual return
• Estimated CA compliance cost: ₹6,000–₹9,000 per year

Composition saves ₹3.6 lakh in tax and up to ₹15,000 in professional fees — but only because the customer base is retail (B2C) with no ITC requirement.

The calculation reverses for a B2B-heavy business. If your customers are registered GST businesses who need Tax Invoices to claim ITC, issuing a Bill of Supply instead makes you commercially unviable. For B2B-heavy businesses, the regular scheme almost always wins.

The composition scheme is ideal for: local grocery and general stores, small restaurants and dhabas, tailors, plumbers, electricians and local service providers under ₹50 lakh, small manufacturers selling directly to consumers, and seasonal or festival traders.

How to Register: CMP-02 Filing Step by Step

For Existing Registered Taxpayers

1. 1Log in to the GST portal at www.gst.gov.in.
2. 2Go to Services → Registration → Application to Opt for Composition Levy.
3. 3File Form CMP-02 — your formal declaration to enter the composition scheme.
4. 4Deadline: 31st March of the financial year before you want to switch. To join for FY 2026-27, the deadline was 31 March 2026. For FY 2027-28, file by 31 March 2027.
5. 5Within 60 days of switching, file Form ITC-03 to reverse all ITC previously claimed on:

- Closing stock of inputs and inputs embedded in semi-finished or finished goods

- Capital goods (proportionate ITC for the remaining useful life)

The ITC reversal creates a liability in your electronic cash ledger — you pay it back to the government. This is often the biggest one-time cost of switching to composition, and your CA must compute it accurately before you commit.

For New GST Registrations

Select the composition option within Form REG-01 at the time of first registration. No separate CMP-02 is needed. If you miss this at registration, file CMP-02 before 31 March and join from the next financial year.

Compliance Calendar Under the Composition Scheme

CMP-08 is not a GST return — it is a quarterly statement of tax due and payment made. You calculate your composition tax (1%, 5%, or 6% on the quarter's aggregate turnover) and pay through the electronic cash ledger. No ITC offset is allowed.

GSTR-4 is the single annual return that consolidates all four CMP-08 payments, declares your total aggregate turnover, and reconciles tax paid versus tax due. The late fee is ₹50 per day (₹25 CGST + ₹25 SGST), capped at ₹2,000. This is the entire annual compliance obligation — no GSTR-1, no GSTR-3B, no e-invoice.

When the Composition Scheme Lapses

Your composition registration lapses automatically — or you must exit voluntarily — when:

• Turnover crosses ₹1.5 crore (or ₹50 lakh for service providers) during the financial year
• You begin making inter-state supplies
• You issue a Tax Invoice instead of a Bill of Supply (even one instance can trigger a notice)
• You start supplying notified ineligible goods

On crossing the threshold or becoming ineligible, file Form CMP-04 within 7 days to give notice of withdrawal. Then apply for regular GST registration and begin issuing Tax Invoices. Continuing to operate under composition after becoming ineligible attracts penalty under Section 122 of the CGST Act — the higher of ₹10,000 or 10% of the tax evaded.

When you exit voluntarily, file Form ITC-01 to claim ITC on all inputs, work-in-progress, and capital goods held on the exit date — the mirror image of the ITC-03 you filed on entry.

Key Takeaways

• Eligibility thresholds are PAN-wide: ₹1.5 crore for goods and restaurants; ₹50 lakh for the special service provider scheme — every GST registration under the same PAN must be on composition together.
• Flat tax on aggregate turnover: 1% for traders, 5% for restaurants, 6% for service providers — calculated on total sales, not profit margin or taxable value alone.
• Three hard restrictions to verify before advising any client: no ITC, no inter-state sales, and no supply through e-commerce operators — all three must be clear.
• Opt-in deadline is 31 March: missing it means waiting another 12 months; new registrations can opt in at the time of registration with no separate filing.
• Compliance load is minimal: one CMP-08 per quarter and one GSTR-4 per year — five filings annually versus twenty-four under the regular scheme.

How corpus Helps

corpus makes composition scheme management seamless across your entire client portfolio. When you configure a GSTIN as a composition taxpayer in corpus, the platform automatically generates Bills of Supply — never Tax Invoices — eliminating the most common compliance error that triggers demand notices. The quarterly CMP-08 computation is fully automated: corpus calculates 1%, 5%, or 6% on aggregate turnover, pre-fills the statement, and prepares the payment challan for your review. Come April, the GSTR-4 annual return is auto-populated from all four CMP-08 payments with a single review-and-submit workflow.

For CAs evaluating scheme options for clients, corpus's built-in tax liability comparison tool lets you model regular versus composition tax for any client's projected turnover in under two minutes — the kind of value-added advisory that builds long-term client relationships and differentiates your firm from competitors who only do compliance.

Review your client list this quarter. Every trader under ₹1.5 crore selling primarily to retail consumers is a composition scheme candidate — and moving them now could save thousands in tax and compliance costs before FY 2026-27 is out.