GST Composition Scheme: Limits, Rates, Eligibility and How to Opt In (FY 2027-28)
The GST Composition Scheme lets a registered business pay a flat percentage of turnover (1%, 5%
or 6%, depending on what you do) instead of the normal GST rates, file one return each quarter,
and skip most invoicing and ledger work. In exchange, you give up input tax credit, cannot
charge GST to customers, and must stay inside the turnover limit (₹1.5 crore for goods, ₹50 lakh
for services in most states).
The scheme is a bargain for some businesses and a trap for others. This page covers who
qualifies, what you pay, what changes in your day-to-day compliance, and how to file
CMP-02 before the window closes.
Flat Tax Rates
1% / 5% / 6% of Turnover
Turnover Limit
₹1.5 Cr Goods, ₹50 Lakh Services
CMP-02 Deadline (FY 2027-28)
31 March 2027
Key takeaways
Goods traders and manufacturers pay 1% of turnover, restaurants without alcohol
service pay 5%, and eligible service providers pay 6%.
Eligibility is tested on last financial year's turnover. To start FY 2027-28, file
CMP-02 by 31 March 2027.
You cannot claim input tax credit, cannot collect GST from buyers, and cannot make
inter-state sales.
Crossing the limit during the year ends your eligibility on that day, and you must
file CMP-04 within 7 days.
Selling mainly to GST-registered businesses is the single biggest reason
composition backfires.
What the GST Composition Scheme is
The scheme sits in Section 10 of the CGST Act, 2017, and the government built it for taxpayers
whose compliance cost would otherwise swallow a large part of their margin. Under the normal
system, you charge GST on each sale, claim credit for GST on purchases, and pay the difference
after filing monthly or quarterly returns. Under composition, you pay a fixed slice of your
turnover and nothing else. There is no credit calculation.
Because you pay the tax out of your own pocket rather than collecting it, your selling prices
have to absorb the GST cost. That one fact explains most of the scheme's advantages and most of
its drawbacks.
GST composition scheme limit
Two thresholds apply, and both look at your aggregate turnover in the preceding financial year,
calculated on a PAN basis across India. All GST registrations under one PAN are counted
together, and every one of them must opt in or none can.
| Who you are |
Turnover limit (preceding FY) |
Legal basis |
| Manufacturer, trader of goods, or restaurant |
₹1.5 crore |
Section 10(1) |
| Service provider (not restaurant) |
₹50 lakh |
Section 10(2A) |
| Business in a notified special category state |
₹75 lakh for goods |
State-specific notification |
Commentary on the scheme puts the goods limit at ₹1.5 crore, dropping to ₹75 lakh in certain
special category states. Check the notification for your own state before relying on the higher
figure.
Aggregate turnover includes taxable sales, exempt sales and exports, and leaves out the GST
charged and any tax you pay under reverse charge. Include every stream. A trader who also earns
commission income through a second registration under the same PAN must add both.
One more
rule catches people mid-year. The composition option lapses on the day your turnover for the
year goes past the limit, and no grace period exists. Track your running total monthly, not at
year-end.
Composition scheme tax rates
You pay the rate on your turnover in the state, split equally between CGST and SGST (or UTGST
in union territories).
| Business type |
Total rate |
CGST + SGST |
Example turnover |
Annual tax |
| Manufacturer or trader of goods |
1% |
0.5% + 0.5% |
₹80 lakh |
₹80,000 |
| Restaurant (no alcohol service) |
5% |
2.5% + 2.5% |
₹40 lakh |
₹2,00,000 |
| Service provider under 10(2A) |
6% |
3% + 3% |
₹30 lakh |
₹1,80,000 |
Older guides still mention a 2% manufacturer rate. That rate, along with the earlier blanket ban
on e-commerce supplies and the 30 April GSTR-4 date, appears in superseded guidance that keeps
circulating. The current manufacturer rate is 1%.
A goods dealer who also provides some services stays on the goods rate as long as the services
are incidental. As I read Notification 2/2019-Central Tax, the cap is the higher of ₹5 lakh or
10% of the previous year's turnover. Confirm the wording against the notification for your case.
Tax is due on all turnover, including sales you made at a discount or gave as free samples where
GST law treats them as supplies. Exempt supplies are the exception and sit outside the taxable
turnover base.
Who is not eligible for the composition scheme
A turnover under the limit is necessary but not sufficient. You cannot opt in if you:
Make inter-state outward supplies of goods or services. This covers courier-dispatched
orders to other states and, in practice, exports.
Supply goods not taxable under GST (petrol and liquor for human consumption are the
usual examples).
Are a casual taxable person or a non-resident taxable person.
Manufacture ice cream, pan masala or tobacco products.
Supply services through an e-commerce operator. Goods suppliers have been allowed
to stay in composition since 1 October 2023, but only for intra-state sales. The
operator must block inter-state supplies by a composition dealer, collect tax at
source and report in GSTR-8.
Have more than one registration under the same PAN and want to opt in with only
some of them.
Do not meet the turnover test for the previous year.
For service businesses, the intra-state requirement is the one that most often closes the door.
A consultant with one client in another state fails it.
If an officer finds you opted in without qualifying, expect the department to demand tax at
regular rates and possibly a penalty. Section 10(5) and the demand provisions of Sections 73 and
74 apply. Getting eligibility right at the start costs far less than defending it later.
Composition scheme vs regular scheme
| Point |
Composition |
Regular |
| Tax payable |
Fixed % of turnover |
Output tax less input credit |
| Input tax credit |
Not available |
Available |
| Charge GST on invoices |
No, issue a bill of supply |
Yes, tax invoice |
| Returns each year |
4 CMP-08 + 1 GSTR-4 |
Monthly or quarterly GSTR-1 and 3B, plus annual return
|
| Inter-state sales |
Not allowed |
Allowed |
| Turnover cap |
Yes |
None |
| Buyer gets ITC on your sale |
No |
Yes |
Whether composition is cheaper is a question about your customers, not your rate. Consider a
retailer selling packaged goods at a printed MRP. Selling prices are fixed, so the retailer
keeps the whole sale value and pays 1% of it. Under the regular scheme, GST is carved out of the
MRP and passed on. That is the situation composition suits best, and it is my own illustration
of the mechanics, not a statistic.
Now consider a wholesaler selling to GST-registered shops. Those shops want credit on what they
buy. A composition supplier cannot give it, so buyers drift to registered competitors, or demand
a price cut equal to the credit they lose. For this business, the 1% rate rarely compensates.
Also factor in purchases. Under composition, GST paid on inputs becomes a pure cost. A
manufacturer with heavy input purchases from registered suppliers should model both routes
before deciding.
Compliance rules once you are in
Composition changes how you bill and what you display, not just what you pay.
Bill of supply, not tax invoice. Charge no GST on it.
Mandatory wording. Each bill of supply should carry the words
"composition taxable person, not eligible to collect tax on supplies." The same
wording goes on a notice at your premises.
Reverse charge. You still pay GST at normal rates on any
reverse-charge purchase.
Quarterly payment. File CMP-08 with the payment by the 18th after
each quarter: 18 July, 18 October, 18 January and 18 April.
Annual return. GSTR-4 moved from 30 April to 30 June of the
following financial year starting FY 2024-25 (Notification 12/2024-Central Tax).
Interest runs from the quarterly date, whatever date you file the annual
return.
No e-invoicing. Composition dealers are outside the e-invoice
requirement.
Keep purchase bills, stock registers and a running turnover sheet. The scheme is light, but the
department can still ask how you computed your limit.
CMP-02 opt-in process
You file Form GST CMP-02 to move from the regular scheme to composition.
Timing. File before the financial year starts. For FY 2027-28, the last date is
31 March 2027. Anyone who misses the window must file regular returns and pay at normal rates
for the year. New registrants can elect composition on the registration application itself.
Steps on the GST portal:
1
Log in at gst.gov.in with your credentials.
2
Go to Services → Registration → Application to Opt for Composition Levy.
3
Select the financial year and choose your business category.
4
Tick the declarations on eligibility and confirm that every registration under your PAN
is opting in.
5
Verify with EVC or DSC and submit. Note the ARN.
After switching:
ITC-03 reverses credit on stock and capital goods held on the day you switch. The
deadline is 60 days.
CMP-03 declares the stock position. File within 90 days of the start of the
scheme.
You cannot claim credit on inputs from the switch date.
Opting out: CMP-04 and ITC-01
You can leave voluntarily or because you lose eligibility. Either way, file CMP-04. If you are
leaving because you crossed the limit or broke an eligibility rule, the deadline is 7 days from
that event. After exit, you issue tax invoices and file GSTR-1 and GSTR-3B.
To claim credit on stock held at the date of exit, file ITC-01. Do it promptly, and keep your
purchase invoices ready.
Frequently asked questions
₹1.5 crore of preceding-year turnover for goods dealers and restaurants, and ₹50
lakh for most service providers. Special category states have a lower goods
threshold.
Yes, under Section 10(2A) up to ₹50 lakh, at 6%, and only if all supplies stay
within the state.
No. GST paid on purchases becomes part of your cost.
No. Issue a bill of supply and absorb the tax in your pricing.
Goods suppliers can sell through e-commerce operators within their own state.
Services through operators are not allowed.
You exit on the date you cross. File CMP-04 within 7 days and issue tax invoices
from then on.
You stay on the regular scheme for that entire financial year.
Mostly yes, except certain special category states with a ₹75 lakh goods limit.
Verify yours.
Yes, if eligible each time, though each switch triggers ITC reversal or reclaim
work.
No. It suits retail and small manufacturers selling to consumers, and costs more
where B2B buyers need credit.