GST Composition Scheme 2026: Eligibility, Rates & Latest Rules

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By Raseed Raseed Editorial Team

Last Updated Nov 3, 2026 · 3:39 PM

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GST can become a lot to keep up with when you are running a small business. There are sales to record, purchases to track, tax to calculate, and returns to file.

For eligible small businesses, the GST composition scheme offers a simpler way to handle GST. Instead of following the regular GST system in the same way as larger businesses, eligible taxpayers can pay tax at a prescribed rate based on turnover and follow a simpler compliance process.

The GST composition scheme is optional. It also comes with conditions, so it is important to understand who can use it and what changes once a business chooses the scheme.

What Is the GST Composition Scheme?

The GST composition scheme is an optional tax scheme under Section 10 of the CGST Act for eligible small taxpayers. It was introduced to reduce the compliance burden for businesses with relatively lower turnover.

A taxpayer under the GST composition scheme generally pays tax at a prescribed rate on turnover instead of charging GST to customers in the usual manner.

There is a trade-off, though. Composition taxpayers cannot claim Input Tax Credit on their purchases in the same way as regular taxpayers and must follow the restrictions that apply to the scheme.

GST Composition Scheme Turnover Limits

Eligibility for the GST composition scheme depends largely on aggregate turnover in the preceding financial year. The applicable limit also depends on the type of business and the relevant rules.

For businesses dealing in goods, the composition threshold has been increased to ₹1.5 crore in most states and Union Territories. Certain specified states have a lower threshold.

A separate composition option is available for certain service providers and mixed suppliers with turnover up to ₹50 lakh under the applicable provisions. Since eligibility can depend on the nature of supplies and state-specific provisions, businesses should check the current GST requirements before opting for the scheme.

GST Composition Scheme Rates for Different Businesses

The tax rate under the GST composition scheme varies according to the type of business.

For eligible traders and manufacturers, the commonly applicable composition rate is 1% of turnover. Restaurant services covered by the scheme are subject to a 5% rate, while the separate scheme for eligible service providers and mixed suppliers is generally 6%.

The applicable rate should always be checked for the specific business activity before calculating the tax payable.

Who Can Opt for the GST Composition Scheme?

The GST composition scheme is mainly intended for smaller businesses that meet the required turnover and other conditions. Eligible traders, manufacturers, and certain restaurant businesses can opt for the scheme. There is also a separate provision for eligible service providers and mixed suppliers within the prescribed turnover limit.

Being within the turnover limit alone does not automatically make a business eligible. Other conditions and restrictions also apply.

Who Cannot Use the GST Composition Scheme?

Certain businesses are not allowed to opt for the GST composition scheme.

The restrictions can apply to businesses making certain types of supplies, businesses that do not meet the prescribed conditions and specified categories of taxpayers. Casual taxable persons and non-resident taxable persons are among the categories excluded from the scheme.

Inter-State outward supplies can also affect eligibility under the composition provisions. Businesses should therefore check their sales pattern before choosing the scheme.

GST Composition Scheme Billing Requirements

A composition of taxpayer cannot issue a regular tax invoice for supplies covered by the scheme. Instead, the business issues a Bill of Supply.

The bill should also carry the prescribed composition-related declaration. This helps customers understand that the seller is operating under the GST composition scheme and is not collecting GST from them in a normal manner. This makes the billing format different from that used by a regular GST taxpayer.

GST Composition Scheme and Input Tax Credit

Input Tax Credit is one of the important differences between the regular GST system and the GST composition scheme. A composition taxpayer cannot claim Input Tax Credit on purchases in the same way as a regular taxpayer. This should be considered when comparing the scheme with regular GST registration.

For businesses with significant GST-bearing purchases, the impact of losing ITC can be important when deciding whether the scheme is suitable.

GST Composition Scheme Return and Tax Payment

Composition taxpayers follow a simplified compliance process compared with regular taxpayers. Tax is paid periodically based on the applicable composition rules, with quarterly payment through CMP-08 being part of the composition compliance framework.

The applicable annual return requirements should also be checked for the relevant financial year, as GST procedures and due dates can change. Keeping sales records updated throughout the year makes these filings easier to manage.

How to Opt for the GST Composition Scheme

A registered taxpayer who wants to move from the regular GST system to the GST composition scheme needs to submit the applicable declaration through the GST portal.

Form GST CMP-02 is used for an existing registered taxpayer opting for composition. The option is generally exercised before the beginning of the financial year, subject to the applicable rules and deadlines. Businesses should check the GST portal for the current filing period and applicable deadline before submitting the form.

What Happens When Turnover Crosses the Composition Limit?

The GST composition scheme is available only while the taxpayer continues to satisfy the applicable conditions.

If a business crosses the prescribed turnover limit or stops meeting another condition of the scheme, it can no longer continue under composition from the relevant point. The taxpayer must then move to the regular GST framework and complete the required withdrawal process.

Under the composition rules, Form GST CMP-04 is used for withdrawal in applicable cases, including when the taxpayer ceases to satisfy the conditions.

Manage GST Composition Billing with Raseed

Keeping track of sales and preparing the right billing documents becomes important when operating under the GST composition scheme.

Raseed billing software can help businesses maintain their sales and billing records in one place. Businesses can create bills of supply, record transactions, and maintain organized sales information for their regular accounting and GST-related work.

For small businesses, keeping these records updated throughout the year can make it easier to review turnover and prepare the information needed for compliance.

Make Everyday Billing Easier with Raseed

The GST composition scheme may simplify GST compliance, but businesses still need to maintain proper transaction records.

Raseed helps bring billing, sales, inventory and business records together in one system. This gives small businesses a more organized way to handle everyday transactions while keeping their GST-related records easier to review.

Before opting for the GST composition scheme, businesses should check their eligibility, applicable rate, turnover limit, and current GST requirements. Once the decision is made, keeping accurate records from the first transaction can make ongoing compliance much easier.