By S&S Co. Advocates & Solicitors · Published 20 September 2026 · Informational content, not legal advice — see our disclaimer
Eligibility
Eligibility under Section 10 of the CGST Act is capped at Rs. 1.5 crore aggregate turnover in the preceding financial year — Rs. 75 lakh for specified special-category states. A business at or below this threshold can consider the composition scheme as an alternative to the standard GST regime.
Opting In
Existing regular taxpayers switch into the scheme for a financial year by filing Form GST CMP-02 before the start of that financial year, by 31 March; new registrants opt in at the time of registration itself, without needing a separate switching application.
Rates and Simplified Filing
Composition dealers pay concessional rates — commonly cited as 1% for traders, 2% for manufacturers, 5% for restaurants not serving alcohol, and 6% for specified service providers — and file quarterly payment via CMP-08 plus an annual return GSTR-4, instead of the monthly GSTR-1 and GSTR-3B filings a regular taxpayer must handle. Composition tax rate percentages are set by notification and can change, so the current rate should be re-verified against the current CBIC notification.
The Real Trade-Off: No ITC, No Inter-State Sales
Composition dealers cannot collect GST from customers, cannot claim input tax credit, cannot make inter-state outward supplies, and generally cannot supply goods through e-commerce operators required to collect TCS. These restrictions are the real cost of the scheme's lower compliance burden and concessional rate, and a business should weigh them carefully against its actual customer base and supply chain before opting in.
Exiting the Scheme
If turnover crosses the threshold mid-year, or a scheme condition is violated, the dealer must file Form GST CMP-04 within 7 days of the triggering event, and pays tax as a regular taxpayer from that date; CMP-04 is also used for voluntary exit. Continuing in the scheme after becoming ineligible, or wrongly availing it, can trigger a tax demand plus interest and penalty under the relevant CGST Act provisions — so a business approaching the threshold should monitor turnover closely rather than discovering the breach only at year-end.
Frequently Asked Questions
What is the turnover limit for the GST composition scheme?
Rs. 1.5 crore aggregate turnover in the preceding financial year (Rs. 75 lakh for specified special-category states).
Can a composition dealer claim input tax credit?
No. Composition dealers cannot claim ITC, cannot collect GST from customers, cannot make inter-state outward supplies, and generally cannot sell through e-commerce operators required to collect TCS.
What happens if my turnover crosses the threshold mid-year?
You must file Form GST CMP-04 within 7 days of the triggering event and begin paying tax as a regular taxpayer from that date — continuing in the scheme after becoming ineligible can trigger a tax demand plus interest and penalty.
References & Further Reading
This article references the following statutory provisions. Readers should always verify current rules, fees and timelines against the applicable statute and rules as amended, since these are revised from time to time.
- Central Goods and Services Tax Act, 2017, Section 10, as amended.
- Current CBIC notification on composition tax rates, which should be verified at the time of opting in.