GST Composition Scheme 2026: Opt In, Opt Out, Turnover Limit & Return Filing Guide
The GST Composition Scheme is a simplified taxation scheme for small taxpayers in India. It allows businesses with small turnover to pay GST at a fixed rate and file quarterly returns instead of multiple monthly returns.
This scheme reduces compliance burden for small businesses such as traders, manufacturers and restaurants.
Jump to Section
- What is GST Composition Scheme
- Eligibility for Composition Scheme
- Turnover Limit
- Composition Scheme Tax Rates
- How to Opt-In Composition Scheme
- How to Opt-Out Composition Scheme
- Returns Under Composition Scheme
- Advantages and Disadvantages
- FAQ
What is GST Composition Scheme?
The GST Composition Scheme is designed for small taxpayers whose turnover is within the prescribed limit. Under this scheme, businesses pay GST at a fixed percentage of turnover instead of normal GST rates.
Composition taxpayers cannot collect GST separately from customers and cannot claim input tax credit. They must issue a Bill of Supply instead of a tax invoice.
Eligibility for Composition Scheme
The following taxpayers can opt for the composition scheme if they meet the turnover limit:
- Small traders
- Manufacturers
- Restaurants not serving alcohol
However, some businesses cannot opt for the scheme:
- Businesses making inter-state supply
- E-commerce sellers
- Manufacturers of tobacco, pan masala or ice cream
Turnover Limit for Composition Scheme
The aggregate turnover limit for composition scheme is:
- ₹1.5 crore for most states
- ₹75 lakh for special category states
If the turnover crosses the limit during the financial year, the taxpayer must switch to the regular GST scheme.
Composition Scheme Tax Rates
The GST rates under the composition scheme are fixed:
- Manufacturers – 1%
- Traders – 1%
- Restaurants – 5%
The tax is calculated on total turnover.
How to Opt-In Composition Scheme
If a taxpayer wants to opt for the composition scheme for the current financial year, the application must be filed before 31 March of the previous financial year.
Steps to opt in:
- Login to the GST Portal
- Go to Services
- Select Registration
- Click Application for Composition Levy
- Submit the form before 31 March
Once approved, the taxpayer will be treated as a composition dealer from 1 April.
How to Opt-Out Composition Scheme
A taxpayer may need to opt out of the composition scheme in the following situations:
- Turnover exceeds ₹1.5 crore
- Business wants to switch to regular GST scheme
- Business starts inter-state supply
After opting out, the taxpayer must follow normal GST rules and file monthly returns.
Returns Under Composition Scheme
Composition taxpayers must file the following returns:
- CMP-08 – filed quarterly for tax payment
- GSTR-4 – filed annually
This makes compliance much simpler compared to regular taxpayers.
Advantages and Disadvantages
Advantages
- Lower compliance burden
- Simple tax calculation
- Lower tax rates
- Ideal for small businesses
Disadvantages
- No input tax credit
- No inter-state sales allowed
- Cannot sell through e-commerce platforms
FAQ – GST Composition Scheme
1. What is GST Composition Scheme?
It is a simplified GST scheme for small taxpayers where tax is paid at fixed rates and returns are filed quarterly.
2. What is the turnover limit?
The turnover limit is ₹1.5 crore for most states.
3. Can I opt out anytime?
Yes, taxpayers can voluntarily opt out by filing an application on the GST portal.
4. Which returns are filed?
CMP-08 is filed quarterly and GSTR-4 is filed annually.
5. Can composition dealers claim ITC?
No, composition taxpayers cannot claim Input Tax Credit.
6. Can composition dealers sell outside the state?
No, inter-state supply is not allowed under the composition scheme.
7. Is composition scheme beneficial?
Yes, it is beneficial for small businesses with low turnover and simple operations.