GST Composition Scheme 2026: Eligibility, Rates, CMP-08, GSTR-4
A practical guide to India's GST composition scheme for small businesses: who qualifies, tax rates, filings and when it is worth opting in.
The GST composition scheme lets small businesses pay tax at a flat, low percentage of turnover, file one quarterly payment statement and one annual return, and skip most of the monthly paperwork that regular taxpayers deal with. This guide covers who is eligible in 2026, the turnover limits and tax rates, how CMP-02, CMP-08 and GSTR-4 work, and an honest look at when the scheme helps and when it quietly costs you business.
Key Takeaways
- Turnover limit for goods suppliers is Rs 1.5 crore in general states and Rs 75 lakh in special category states. Service providers under Section 10(2A) have a Rs 50 lakh limit.
- Rates are 1% for manufacturers and traders, 5% for restaurants (not serving alcohol) and 6% for service providers under Section 10(2A), split equally between CGST and SGST.
- You pay tax quarterly through CMP-08 by the 18th of the month after each quarter, and file the annual GSTR-4 by 30 June after the financial year ends.
- You cannot claim input tax credit, cannot charge GST on your bill, and cannot make inter-state sales of goods.
- The scheme suits B2C shops with thin compliance teams. It is often a poor fit if most of your buyers are GST-registered businesses.
Updated November 2026. GST rules and notifications change often. Check the current position on the GST portal or with a chartered accountant before you opt in or out.
What the GST composition scheme is, in plain words
Under normal GST, a business charges tax on every invoice, claims credit for GST paid on purchases, and files returns every month or quarter. That works for larger firms with an accountant on payroll. For a kirana store in Nashik or a small hardware dealer in Coimbatore, it can feel like more paperwork than business.
The composition scheme, set out in Section 10 of the CGST Act, is the simpler alternative. Instead of tracking tax invoice by invoice, you pay a fixed percentage of your turnover every quarter from your own pocket. You do not collect GST from customers, you do not claim input tax credit, and your filing burden drops to a quarterly statement and one annual return.
The trade-off is flexibility. You give up input credit, inter-state sales of goods and the ability to pass tax credit to your buyers. Whether that trade is worth it depends on who your customers are.
Eligibility and turnover limits in 2026
Eligibility is based on your aggregate turnover in the preceding financial year, calculated on an all-India basis for all registrations under the same PAN. It includes taxable, exempt and export supplies.
| Type of business | Turnover limit (general states) | Turnover limit (special category states) |
|---|---|---|
| Manufacturers and traders of goods | Rs 1.5 crore | Rs 75 lakh |
| Restaurants (not serving alcohol) | Rs 1.5 crore | Rs 75 lakh |
| Service providers and mixed suppliers under Section 10(2A) | Rs 50 lakh | Rs 50 lakh |
These thresholds are taken from the GST portal’s own user manual on composition (CMP-02). Special category states are mainly north-eastern and hill states; confirm your state’s status on the portal, because the list has changed since GST began.
Goods suppliers can also supply a little service
A composition dealer of goods may also supply services (other than restaurant service) up to 10% of the previous year’s turnover or Rs 5 lakh, whichever is higher. For example, a hardware shop in Rajkot that also does small fitting jobs can stay in the scheme as long as the service portion stays within that limit.
Who cannot opt for the composition scheme
- Businesses making inter-state outward supplies of goods (buying from other states is allowed; selling to other states is not)
- Casual taxable persons and non-resident taxable persons
- Suppliers of goods not taxable under GST, such as alcohol for human consumption or petrol
- Manufacturers of notified goods, including ice cream, pan masala, tobacco products and aerated water
- Service providers above the Rs 50 lakh limit, and suppliers of services through e-commerce operators that collect TCS
- Persons opting for different schemes under the same PAN: if one registration opts in, all registrations under that PAN must follow
E-commerce rules for composition dealers of goods were relaxed from October 2023 for intra-state sales through marketplaces, subject to conditions. If you plan to sell on Amazon, Flipkart or Meesho, confirm the current position with the platform’s seller support and your CA before you opt in.
Composition scheme tax rates
| Category | Total rate | CGST | SGST/UTGST | Rate applied on |
|---|---|---|---|---|
| Manufacturers (other than notified goods) | 1% | 0.5% | 0.5% | Turnover in the state |
| Traders | 1% | 0.5% | 0.5% | Turnover of taxable supplies |
| Restaurants not serving alcohol | 5% | 2.5% | 2.5% | Turnover in the state |
| Service providers under Section 10(2A) | 6% | 3% | 3% | Turnover in the state |
Two things trip up first-timers. First, the tax comes out of your margin because you cannot add it to the customer’s bill. Second, you still pay GST at normal rates on any purchases covered by reverse charge, such as certain legal or goods transport services, and you cannot claim credit for it.
Worked example: a trader in Indore
Take an illustrative stationery shop in Indore with a turnover of Rs 90 lakh in FY 2025-26, all taxable goods, all sold within Madhya Pradesh to walk-in customers.
- Composition tax for the year: 1% of Rs 90 lakh = Rs 90,000, paid in four quarterly instalments through CMP-08.
- Paperwork: four CMP-08 statements and one GSTR-4, instead of monthly or quarterly GSTR-1 and GSTR-3B filings.
- What the shop gives up: credit on GST paid on purchases from wholesalers, and the ability to sell to a school in Gujarat that wants a GST invoice.
If almost all customers are students and parents who do not claim GST credit, the scheme probably saves both tax and accounting fees. If half the turnover comes from offices and schools that want tax invoices, the shop may lose those orders. You can run the regular-scheme numbers for comparison with our GST calculator.
How to opt in: CMP-02 step by step
The timing depends on whether you are already registered.
New registrations
If you are applying for GST registration for the first time, you can choose composition directly in the registration application (Form REG-01). The option takes effect from your date of registration.
Existing regular taxpayers
An existing taxpayer can switch only from the start of a financial year. File Form GST CMP-02 on the portal before the financial year begins, in practice by 31 March, to be in the scheme from 1 April. You must also file Form GST ITC-03 within 60 days of the start of the year to reverse input tax credit on stock held on the day before you switch.
- Log in at gst.gov.in and go to Services, then Registration, then Application to Opt for Composition Levy.
- Select the category (manufacturer, trader, restaurant or 10(2A) supplier) and confirm the declarations.
- Verify with DSC or EVC and submit.
- Download the acknowledgement and keep it in your compliance file.
- Within 60 days, file ITC-03 for stock on hand if you had claimed credit on it.
Plan this in February or March, not on 31 March night, when the portal is busy with year-end filings.
Returns and deadlines: CMP-08 and GSTR-4
| Form | What it is | Frequency | Due date |
|---|---|---|---|
| CMP-08 | Statement-cum-challan to declare turnover and pay composition tax | Quarterly | 18th of the month after the quarter: 18 July, 18 October, 18 January, 18 April |
| GSTR-4 | Annual return with turnover, purchases and tax paid | Yearly | 30 June after the financial year (from FY 2024-25; earlier it was 30 April) |
| CMP-02 | Intimation to opt in | Once | Before the start of the financial year |
| CMP-04 | Intimation to opt out or on becoming ineligible | When needed | Within 7 days of crossing the limit or becoming ineligible |
| ITC-01 | Claim credit on stock when leaving the scheme | When needed | Within 30 days of becoming eligible to claim |
The GSTR-4 date was moved to 30 June through a CBIC notification issued in July 2024 (Notification 12/2024-Central Tax). You can check the full list of notifications on the GST Council’s CGST notification page. For the current quarter, the next CMP-08 due date is 18 January 2027 for the October to December 2026 quarter.
CMP-08 must be filed even if your turnover in the quarter was zero. Late filing attracts interest on unpaid tax and late fees on returns, so put all four dates on your calendar now.
Day-to-day rules you must follow
- Issue a bill of supply, not a tax invoice. Write “composition taxable person, not eligible to collect tax on supplies” at the top of every bill.
- Do not show GST on bills or collect it from customers in any form.
- Display “composition taxable person” on a signboard at your main place of business and every additional place of business.
- Keep records of purchases, sales and stock as usual. Composition reduces filings, not bookkeeping.
- Pay reverse charge tax where applicable, in cash.
- Watch your turnover every month. The scheme lapses from the day your aggregate turnover in the year crosses the limit.
Pros and cons of the composition scheme
| Advantages | Disadvantages |
|---|---|
| Low flat tax rate on turnover | No input tax credit on purchases, rent or capital goods |
| Fewer filings: 4 CMP-08 + 1 GSTR-4 a year | Buyers cannot claim credit, so B2B customers may avoid you |
| Lower accounting and CA fees | No inter-state sales of goods, which blocks online and wholesale growth |
| Simpler billing for counter sales | Tax comes out of your margin, not the customer’s pocket |
| Better cash flow planning with quarterly payment | Must exit mid-year if you cross the limit, with paperwork to follow |
Who usually benefits
- Neighbourhood retailers, kirana shops, sweet shops and small restaurants whose customers are mostly consumers
- Businesses with low purchase-side GST, where giving up input credit costs little
- Owners who sell only within one state and do not plan to sell online across states soon
Who should think twice
- Suppliers to companies, hospitals, schools or government buyers who want a tax invoice
- D2C brands planning to ship across India
- Businesses with large GST on inputs or machinery that they would otherwise claim as credit
- Firms close to the turnover limit, which may have to exit mid-year
Leaving the scheme: voluntary exit or crossing the limit
You can leave voluntarily at any time by filing CMP-04. You must leave if your turnover crosses the limit during the year or you start an ineligible activity, such as an inter-state sale of goods. In that case:
- File CMP-04 within 7 days of the event.
- From that date, issue tax invoices and file regular returns (GSTR-1 and GSTR-3B).
- File ITC-01 within 30 days to claim credit on inputs, semi-finished and finished goods and capital goods in stock on the day before you exit.
- File GSTR-4 for the period you were in the scheme.
Growth is a good problem to have. When you cross the limit and start selling to larger buyers, your next priorities are usually better invoicing, a current account and some public visibility; some founders mark the milestone with an announcement through a press release distribution service when they launch in a new market.
Frequently Asked Questions
What is the turnover limit for the GST composition scheme in 2026?
Rs 1.5 crore of aggregate turnover in the previous financial year for manufacturers, traders and restaurants in most states, and Rs 75 lakh in special category states. Service providers under Section 10(2A) have a Rs 50 lakh limit.
Can a composition dealer buy goods from another state?
Yes. The restriction applies to outward inter-state supplies of goods. You can purchase from suppliers in other states, but you cannot claim credit for the IGST you pay.
What is the due date for CMP-08?
The 18th of the month after each quarter: 18 July, 18 October, 18 January and 18 April. File it even if you had no sales in the quarter.
When is GSTR-4 due for FY 2025-26?
From FY 2024-25 onwards, the annual GSTR-4 is due by 30 June following the end of the financial year. For FY 2025-26 that was 30 June 2026, and for FY 2026-27 it will be 30 June 2027, unless the government extends it.
Can a composition dealer issue a tax invoice?
No. You issue a bill of supply with the declaration “composition taxable person, not eligible to collect tax on supplies”. Your buyer cannot claim input tax credit on it.
Can I switch to the composition scheme in the middle of the year?
Existing registered taxpayers can opt in only from the start of a financial year by filing CMP-02 before that year begins. New applicants can choose it at the time of registration.
Decide with your customer list in hand
The composition scheme is not a tax trick; it is a trade between simplicity and flexibility. Pull out last year’s sales register and see how much of it went to GST-registered buyers or out-of-state customers. If the answer is “very little”, the scheme can save real time and money. If it is “a lot”, stay regular and invest in clean bookkeeping instead. Either way, confirm the current rules on the GST portal or with your CA before February, so you are ready well before 31 March.
