GST Composition Scheme: eligibility and opt in - citizen guide 2026

If your yearly business turnover is under 1.5 crore and you are tired of monthly returns and complicated input tax credit maths, the GST composition scheme lets you pay one small flat percentage of turnover and file just one quarterly payment plus one annual return. Here is who can join, the exact rates, and how to opt in before 31 March.

The GST composition scheme is a simplified tax route for small businesses. Instead of charging GST on every sale and claiming input tax credit, you pay a fixed low percentage of your total turnover and file far fewer returns. You cannot collect GST from customers or claim credit, but your paperwork and tax rate both drop sharply.

The scheme sits in Section 10 of the CGST Act 2017, with the detailed machinery in Rules 3 to 7 of the CGST Rules 2017. The composition levy for service providers up to 50 lakh comes from Notification 2/2019-Central Tax (Rate) read with Section 10(2A). The annual return due date was extended from 30 April to 30 June by Notification 12/2024-Central Tax dated 10 July 2024, following the 53rd GST Council meeting, and applies from financial year 2024-25 onward.

The administering authority is the Central Board of Indirect Taxes and Customs (CBIC), and all forms are filed on the GST portal at https://www.gst.gov.in . The signboard and bill disclosure duty comes from Rule 18 of the CGST Rules 2017.

1. Log in to the GST portal at https://www.gst.gov.in with your GSTIN and password.
2. Go to Services, then Registration, then Application to opt for Composition Levy.
3. Fill Form GST CMP-02. This must be filed before the start of the financial year in which you want the scheme, that is by 31 March for the year ahead.
4. Submit using DSC or EVC. The scheme then applies from the first day of the new financial year.
5. If you were a regular taxpayer holding input tax credit on stock, reverse it by filing Form GST ITC-03 within 60 days from the start of that financial year. Any balance in your electronic credit ledger lapses after this.
6. Going forward, pay tax each quarter with Form GST CMP-08 by the 18th of the month after the quarter ends, and file the annual return Form GSTR-4 by 30 June of the next financial year.

You cannot join, or you lose the scheme, if you:

• make any inter-state outward supply of goods
• supply through an e-commerce operator that collects tax at source
• manufacture notified goods such as ice cream, pan masala or tobacco
• are a casual taxable person or a non-resident taxable person

While in the scheme you cannot collect GST from your customers and cannot claim input tax credit. You issue a bill of supply, not a tax invoice, and you must show the words “composition taxable person” on every bill of supply and on the signboard at your principal place of business under Rule 18.

• Charging GST on your bills. A composition dealer issues a bill of supply and cannot add GST. Doing so attracts penalty under the CGST Act.
• Selling across state lines. Even one inter-state outward supply of goods disqualifies you from the scheme.
• Listing on a tax-collecting marketplace. Supplying through an e-commerce operator covered by TCS breaks eligibility.
• Missing the CMP-02 window. You must opt in before the financial year begins, by 31 March. There is no mid-year entry for an existing regular taxpayer.
• Forgetting ITC-03. If you held credit on stock, not reversing it within 60 days leaves you non-compliant.
• Using the old 30 April date for GSTR-4. The annual return is now due 30 June from FY 2024-25 onward.

To: My GST accountant
Subject: Opting for composition scheme FY 2026-27

My turnover this year is about 80 lakh, all sales within the state,
no e-commerce, no inter-state supply. Please:
1. File Form GST CMP-02 before 31 March 2026.
2. File Form GST ITC-03 to reverse stock credit within 60 days.
3. Set up quarterly CMP-08 reminders (due 18th after each quarter).
4. Diarise the annual GSTR-4 due 30 June 2027.
From April my bills must say "composition taxable person".

For goods, up to 1.5 crore in most states and 75 lakh in the North-Eastern states and Himachal Pradesh. A separate service-provider route allows up to 50 lakh.

Manufacturers and traders pay 1 percent of turnover, restaurants not serving alcohol pay 5 percent, and the special service-provider route is 6 percent.

File Form GST CMP-02 on the GST portal before the financial year starts, that is by 31 March for the year ahead. If you held input credit on stock, also file Form GST ITC-03 within 60 days.

No. You cannot claim input tax credit and you cannot collect GST from customers. In return you pay a low flat rate and file far fewer returns.

No. Any inter-state outward supply of goods disqualifies you. The scheme is meant for businesses selling within their own state.

A quarterly payment statement, Form GST CMP-08, due the 18th of the month after each quarter, and one annual return, Form GSTR-4, due 30 June of the next financial year.

No. Supplying through an e-commerce operator that collects tax at source is not allowed for composition dealers.

Yes. Under Rule 18 you must issue a bill of supply that shows the words “composition taxable person”, and display the same words on the signboard at your principal place of business.

• CBIC and GST portal, https://www.gst.gov.in
• CGST Act 2017, Section 10 and Section 10(2A)
• CGST Rules 2017, Rules 3 to 7 and Rule 18
• Notification 2/2019-Central Tax (Rate), 6 percent service-provider route
• Notification 12/2024-Central Tax dated 10 July 2024, GSTR-4 due date moved to 30 June
• ClearTax, GST composition scheme guide, https://cleartax.in/s/gst-composition-scheme

• Use our AI tool to draft your RTI for any government office query.
• Read the RTI Act 2005 explained for your right to information.
• Learn the process with The RTI Playbook.

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1. Step 1: What is GST composition scheme and who is eligible? (a) Composition scheme: (i) simplified GST scheme for small taxpayers, (ii) turnover limit: Rs 1.5 crore (Rs 75 lakh for special category states), (iii) lower tax rate — 1% (manufacturers/traders), 5% (restaurants), 6% (service providers up to Rs 50 lakh), (b) eligibility: (i) turnover below Rs 1.5 crore, (ii) not engaged in inter-state supply, (iii) not selling through e-commerce operators, (iv) not dealing in exempt/pan masala/tobacco/ice cream, © benefits: (i) lower tax rate, (ii) less compliance — quarterly return GSTR-4, (iii) no input tax credit (ITC) — cannot claim, (d) authority: CBIC + GSTN, (e) law: CGST Act 2017 Section 10 + CGST Rules.
2. Step 2: Comparison table — composition scheme scenarios. (a) Manufacturer: (i) rate: 1% (0.5% CGST + 0.5% SGST), (ii) turnover: up to Rs 1.5 crore, (iii) return: GSTR-4 quarterly, (iv) example: manufacturer turnover Rs 80 lakh; paid Rs 80,000 tax, (b) Trader: (i) rate: 1%, (ii) turnover: up to Rs 1.5 crore, (iii) return: GSTR-4 quarterly, (iv) example: trader turnover Rs 1.2 crore; paid Rs 1.2 lakh tax, © Restaurant: (i) rate: 5% (2.5% CGST + 2.5% SGST), (ii) turnover: up to Rs 1.5 crore, (iii) return: GSTR-4 quarterly, (iv) example: restaurant turnover Rs 90 lakh; paid Rs 4.5 lakh tax, (d) Service provider: (i) rate: 6% (3% CGST + 3% SGST), (ii) turnover: up to Rs 50 lakh, (iii) return: GSTR-4 quarterly, (iv) example: service provider turnover Rs 40 lakh; paid Rs 2.4 lakh tax, (e) Ineligible: (i) issue: inter-state supplier or e-commerce, (ii) remedy: regular GST — monthly returns, (iii) example: trader selling inter-state; not eligible; regular GST. (Note: Composition scheme — 1% tax for small taxpayers up to Rs 1.5 crore turnover; quarterly GSTR-4.)
3. Step 3: How to opt into composition scheme. (a) Step 1: Check eligibility — turnover + business type, (b) Step 2: File CMP-02 on GST portal — before beginning of FY, © Step 3: Pay tax at composition rate — no ITC, (d) Step 4: File GSTR-4 quarterly — annual return, (e) Step 5: If exceeding turnover — switch to regular GST, (f) Step 6: RTI with CBIC for composition clarification.
4. Step 4: E-E-A-T signals. (a) Sources: cbic.gov.in, gst.gov.in, pib.gov.in, (b) Last reviewed: July 2026, © Author: RTI Wiki Editorial Team.
5. Step 5: Practical tips. (a) check turnover before opting, (b) no ITC — factor into pricing, © quarterly returns — less compliance, (d) cannot make inter-state supply, (e) Example: A trader with Rs 1 crore turnover opted for composition; paid 1% tax; filed quarterly returns; saved on compliance cost.
6. Step 6: Key provisions. (a) CGST Act Section 10: composition levy, (b) CGST Rules 2017: procedure, © GSTR-4: quarterly return, (d) CBIC: clarification, (e) RTI: file with CBIC.

See GST Composition and GST Jurisdiction and GST on Cars and How to File RTI.