GST Composition Scheme: Eligibility, Rates & CMP-08

The composition scheme under Section 10 of the CGST Act lets small businesses pay GST at a low flat rate on turnover instead of charging tax invoice by invoice. Returns are lighter too: one payment statement a quarter and one annual return, instead of monthly GSTR-1 and GSTR-3B.

The trade-off is real. A composition dealer cannot claim input tax credit, cannot charge GST to customers, and cannot sell goods outside the state. For a kirana shop selling to local households, that may not matter. For a trader whose buyers are GST-registered businesses, it can cost sales.

The GST 2.0 rate changes that took effect on 22 September 2025 changed the regular slabs. They did not change the composition rates or turnover limits. This guide explains how the scheme works as of November 2026, who can use it, and what to watch for in the quarter ending December.

Two Routes: Section 10(1) and Section 10(2A)

There are two separate composition options.

The ₹1.5 crore limit applies in Chhattisgarh and Odisha. A lower limit of ₹75 lakh applies in certain special-category states.

The limit is tested on aggregate turnover, which is calculated on an all-India, PAN basis. If you have registrations in two states under the same PAN, the turnover of both counts towards the limit, and all registrations under that PAN must be in the scheme or none of them.

A goods dealer under Section 10(1) may also supply some services (other than restaurant services) without losing eligibility. The value allowed is up to 10% of the turnover in the state in the preceding year or ₹5 lakh, whichever is higher.

Who Cannot Opt In

You cannot use Section 10(1) if you:

• make inter-state outward supplies of goods
• supply goods not leviable to GST, such as petrol, diesel or alcohol for human consumption
• are a casual taxable person or non-resident taxable person
• manufacture notified goods: ice cream and other edible ice, pan masala, tobacco and manufactured tobacco substitutes, and other items added by later amendments, such as aerated waters and certain bricks and tiles

Selling through e-commerce platforms used to bar composition. Since 1 October 2023, composition dealers may sell goods through e-commerce operators, but only within the state. The platform collects TCS under Section 52, and the dealer can use that TCS from the electronic cash ledger to pay tax.

What You Give Up

Before opting in, be clear about these restrictions:

1. No input tax credit. GST paid on purchases, rent, freight and capital goods becomes a cost.
2. No GST on your bills. You issue a bill of supply, not a tax invoice. It must state: "composition taxable person, not eligible to collect tax on supplies". The 1%, 5% or 6% comes out of your own margin.
3. Your buyers get no ITC. Registered customers cannot claim credit on purchases from you. This is often why B2B traders find composition unsuitable.
4. Reverse charge still applies. Where tax is payable under RCM, such as on freight paid to a goods transport agency or on legal services from an advocate, you pay it at the normal rate. You cannot claim it back as credit.
5. Signboard requirement. You must display "Composition Taxable Person" on the signboard at every place of business.

Compliance Calendar

New applicants can opt for composition directly in their registration application in Form GST REG-01.

For the current year, CMP-08 for October–December 2026 is due on 18 January 2027. GSTR-4 for FY 2026-27 will be due on 30 June 2027.

Late fee and interest

• GSTR-4 late fee: ₹50 a day (₹25 CGST + ₹25 SGST). It is capped at ₹500 where there is no tax liability and ₹2,000 in other cases.
• Interest: 18% a year on tax paid late through CMP-08, calculated from the due date.

How Turnover Is Taxed: A Worked Example

This is a hypothetical illustration. Suppose a hardware trader in Bilaspur opted for composition for FY 2026-27. In the July–September 2026 quarter:

• taxable sales of goods: ₹28,00,000
• exempt sales (unbranded items that are nil-rated): ₹2,00,000
• freight paid to a GTA on which the trader pays GST under RCM at 5%: ₹40,000

Composition tax: For a trader, the 1% is levied on the turnover of taxable supplies only, so it is calculated on ₹28,00,000. The tax is ₹28,000, split ₹14,000 CGST and ₹14,000 SGST. A manufacturer, by contrast, pays 1% on total turnover in the state, including exempt supplies.

RCM: ₹2,000 on the freight is payable separately and reported in CMP-08. It is a cost, as no credit is available.

The trader pays ₹30,000 in total through CMP-08 by 18 October 2026. No GST appears on the trader's bills of supply.

Compare this with regular registration. If the goods were taxed at 18%, the trader would charge ₹5,04,000 in output tax and set off ITC on purchases. Whether composition is cheaper depends on the margin, how many customers are businesses wanting credit, and how much GST is paid on inputs.

When You Must Switch Out

You leave the scheme when:

• aggregate turnover crosses ₹1.5 crore (or ₹50 lakh under 10(2A)) during the year
• you start an inter-state sale, or a supply or manufacture that is not allowed
• you choose to leave voluntarily

When turnover crosses the limit, the option lapses from that day. File CMP-04 within seven days and start issuing tax invoices and filing GSTR-1 and GSTR-3B from then on. You can claim ITC on stock held on the day you switch out, and on capital goods, by filing Form ITC-01 within 30 days.

Once you leave, you can only opt in again from the start of a later financial year, by filing CMP-02 on time.

Common Mistakes

• Making a single inter-state sale, often a one-off order from a customer in Odisha or Madhya Pradesh, which ends eligibility from that date.
• Charging "GST" on the bill. A composition dealer who collects tax from customers still owes it to the government and may face penalties.
• Ignoring other registrations under the same PAN, which count towards the turnover limit.
• Missing the 31 March CMP-02 date and having to stay under regular GST for another full year.
• Forgetting RCM, especially on freight and legal fees.
• Filing CMP-08 on time but skipping GSTR-4, which attracts a late fee even when all tax has been paid.
• Not tracking turnover month by month, so the switch-out date is missed and invoices for the rest of the year have to be reissued.

Frequently Asked Questions

Is composition suitable for a trader who sells mainly to businesses? Usually not. B2B buyers cannot claim ITC on purchases from a composition dealer, so they often prefer a regular supplier.

Can a composition dealer import goods? Yes. Imports are inward supplies and do not affect eligibility. The IGST paid on import becomes a cost, since no credit is available.

Do I file GSTR-1 or GSTR-3B? No. A composition dealer files CMP-08 each quarter and GSTR-4 once a year. GSTR-4 also captures inward supplies, including purchases on which RCM was paid.

Did GST 2.0 change composition rates? No. The 1%, 5% and 6% rates and the turnover limits stayed the same after the September 2025 rate rationalisation.

This guide reflects Section 10 of the CGST Act, the CGST Rules and the notifications in force as of November 2026. Rates, limits, due dates and late-fee caps change through notifications and GST Council decisions. Confirm the current position on the GST portal or with your advisor before opting in or out.

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Related Advisory Services & Practice Guides

• Assistance with GST registration, including opting for composition, in Chhattisgarh and Odisha.
• Support with GST return filing, including CMP-08 and GSTR-4.
• Background reading: GST 2.0 explained: the new 5%, 18% and 40% slabs.
• Background reading: the GST reverse charge (RCM) list and self-invoicing.