The GST Composition Scheme 2026 is a voluntary scheme for small taxpayers in India. Instead of regular GST, they pay a low fixed percentage of turnover (1% for manufacturers and traders, 5% for restaurants without alcohol, 6% for service providers) and file returns quarterly. The turnover limit is ₹1.5 crore for goods businesses, ₹75 lakh in Himachal Pradesh and the North-Eastern states, and ₹50 lakh for service providers. The trade-off is that composition taxpayers cannot claim input tax credit (ITC).
GST Composition Scheme at a Glance
| Detail | Information |
|---|---|
| Type | Voluntary, simplified GST option |
| Turnover limit (manufacturers, traders) | ₹1.5 crore |
| Turnover limit (Himachal Pradesh, North-Eastern states) | ₹75 lakh |
| Turnover limit (service providers) | ₹50 lakh |
| Tax rate: manufacturers and traders | 1% (0.5% CGST + 0.5% SGST) |
| Tax rate: restaurants without alcohol | 5% (2.5% + 2.5%) |
| Tax rate: service providers | 6% (3% + 3%) |
| Quarterly return | Form CMP-08 |
| Annual return | Form GSTR-4 |
| Input tax credit | Not allowed |
| Invoice type | Bill of Supply |
What Is the GST Composition Scheme?
The regular GST system asks businesses to file several detailed returns and track input tax credit. For a small shop or a local restaurant, that can mean more paperwork and accounting cost than the business can comfortably handle.
The composition scheme offers a simpler path. You pay a small fixed percentage of your turnover, deposit it every quarter, and file one annual return. The scheme is optional, so you choose whether it suits your business.
Eligibility: Who Can Opt for the Composition Scheme?
You can generally opt in if your aggregate annual turnover stays within the limit for your business type:
- Manufacturers and traders of goods: up to ₹1.5 crore
- Himachal Pradesh and the North-Eastern states: up to ₹75 lakh
- Service providers: up to ₹50 lakh
If your turnover crosses the limit during the year, you must move to the regular GST scheme.
Who Cannot Use the Scheme?
- Businesses supplying goods through e-commerce operators who must collect TCS under Section 52 of the CGST Act
- Businesses making interstate supplies
- Businesses dealing in non-taxable goods such as liquor
- Manufacturers of ice cream, pan masala or tobacco
- Casual taxable persons and non-resident taxable persons
These conditions keep the scheme limited to small, local businesses.
Tax Rates Under the Composition Scheme
| Business category | CGST | SGST | Total |
|---|---|---|---|
| Manufacturers and traders of goods | 0.5% | 0.5% | 1.0% |
| Restaurants not serving alcohol | 2.5% | 2.5% | 5.0% |
| Service providers | 3.0% | 3.0% | 6.0% |
A Simple Illustration
A trader with ₹10 lakh of sales in a quarter pays 1% of that turnover, which is ₹10,000. A restaurant with ₹10 lakh of sales in a quarter pays 5%, which is ₹50,000. These are only examples, so check your own figures before filing.
Benefits of the Composition Scheme
- Less compliance: you file one quarterly return instead of multiple monthly or detailed returns.
- Lower tax burden: you pay a low fixed rate instead of the standard GST slabs.
- Simple rules: you report turnover and pay the fixed rate.
- Better cash flow: a smaller tax outgo helps small businesses manage day-to-day finances.
Drawbacks of the Composition Scheme
- No input tax credit: you cannot set off the GST you paid on purchases, which can make your products slightly costlier.
- Limited growth room: once turnover crosses the limit, you must switch to regular GST.
- Restricted sectors: e-commerce sellers, interstate suppliers and sellers of liquor or other non-taxable items cannot opt in.
- No tax collection from customers: you issue a Bill of Supply, not a tax invoice, and cannot charge GST separately.
Filing CMP-08: Quarterly Return Explained
Composition taxpayers file Form CMP-08, a quarterly statement-cum-challan used to declare and pay self-assessed tax. The due date is the 18th day of the month after the quarter ends.
The form is auto-filled with your GSTIN, legal name and trade name. You enter:
- Total outward supplies (sales) for the quarter
- Purchases under reverse charge, if any
- Imports of goods or services, if applicable
CMP-08 Due Dates for FY 2026-27
| Quarter | Period | Due date |
|---|---|---|
| Q1 | April to June 2026 | 18 July 2026 |
| Q2 | July to September 2026 | 18 October 2026 |
| Q3 | October to December 2026 | 18 January 2027 |
| Q4 | January to March 2027 | 18 April 2027 |
These dates follow the standard “18th of the month after the quarter” rule. Check the GST portal for any extension notices.
Annual Return: GSTR-4
Besides CMP-08, composition taxpayers file an annual return in Form GSTR-4, which needs only basic details.
Penalties for Late Filing
The late fee is reported as ₹200 per day (₹100 CGST plus ₹100 SGST), up to a maximum of ₹5,000. Confirm the current amount on the GST portal. Delay of two quarters can also block e-way bill generation. To unblock it, you need to file Form GST EWB-05 and clear the pending returns.
When Should You Switch to Regular GST?
Consider moving out of the scheme if:
- Your turnover is close to the limit and about to cross it.
- You are setting up in other states or starting to sell through e-commerce platforms.
- Your customers want input tax credit, which composition dealers cannot pass on.
- You begin dealing in goods or services barred under the scheme, such as tobacco or pan masala.
Frequently Asked Questions
Who can opt for the GST Composition Scheme?
Goods businesses with turnover up to ₹1.5 crore (₹75 lakh in Himachal Pradesh and the North-Eastern states) and service providers with turnover up to ₹50 lakh.
Which businesses cannot use the scheme?
Interstate suppliers, businesses selling through e-commerce operators who collect TCS, non-resident taxable persons, casual taxable persons, and manufacturers of notified goods such as ice cream, pan masala and tobacco.
What are the tax rates?
1% for manufacturers and traders, 5% for restaurants not serving alcohol, and 6% for eligible service providers.
Can a composition dealer issue a tax invoice?
No. A composition dealer issues a Bill of Supply stating that they are a composition taxable person and cannot collect tax separately.
How often do composition taxpayers file returns?
Quarterly in Form CMP-08 and annually in Form GSTR-4.
When is CMP-08 due?
On or before the 18th of the month after the quarter ends. For July-September 2026, that is 18 October 2026.
Can I move to regular GST later?
Yes, particularly when your turnover crosses the limit or you take up interstate supply or other ineligible activities.
Can composition dealers claim input tax credit?
No.