GST Composition Scheme 2026: ₹1.5 Cr Limit, 1% Tax & Rules

Vijay runs a hardware store in Nagpur. Turnover around ₹80 lakh a year, two staff, one very tired evening routine. Every month he sat with invoice printouts for GSTR-1, then again for GSTR-3B, then fielded his CA's calls about mismatched entries. The CA charged ₹2,500 a month — ₹30,000 a year — and Vijay still ate the ₹50-per-day late fee twice in one year because a staffer uploaded invoices late. Total compliance cost that year: roughly ₹33,500, plus about six working days of his own time. After moving to the composition scheme, his GST work shrank to four quarterly CMP-08 payments and one annual return. His CA now charges ₹6,000 a year. Same shop, same sales, ₹27,000 less spent on paperwork.

Vijay is a composite based on real Accountune customers in the hardware and retail niches. Names and identifying details changed; outcome representative of our verified customer cohort.

At Accountune, a cloud GST billing software built in Jaipur, we have watched this exact decision play out across our 12,000+ small-business onboardings since 2017. Roughly one in four of our retail customers under ₹1 crore turnover runs on composition. This guide covers everything the scheme involves in 2026 — and, just as honestly, when it is the wrong choice.

What is the GST composition scheme limit in 2026?

Quick answer: The GST composition scheme limit in 2026 is ₹1.5 crore annual aggregate turnover for traders, retailers and manufacturers under Section 10 of the CGST Act, 2017. Special category states get a ₹75 lakh limit, and service providers have a separate ₹50 lakh scheme taxed at 6%. Eligible businesses pay a flat 1–6% on turnover, make one quarterly payment (CMP-08) and file one annual return (GSTR-4) — instead of monthly GSTR-1 and GSTR-3B.

Why regular GST feels out of proportion below ₹1.5 crore

A business doing ₹80 lakh a year files the same number of GST returns as one doing ₹80 crore. That is the core imbalance the composition scheme exists to fix. Regular GST means GSTR-1 by the 11th, GSTR-3B by the 20th, monthly ITC reconciliation against GSTR-2B, invoice-level uploads, and a CA relationship that runs ₹2,000–3,000 a month in most tier-2 cities. Miss a filing and the meter starts: ₹50 a day in late fees plus 18% annual interest on unpaid tax.

For a shop selling to walk-in customers, most of that machinery produces nothing. There are no B2B buyers demanding tax invoices. The ITC on purchases is real money, yes — but for low-margin retail with modest purchase GST, the credit often does not justify the compliance cost of claiming it. Across our onboardings we keep seeing the same pattern: owners under ₹1 crore spending 4–6 hours a month on GST work that a quarterly payment would replace. The scheme is the government's own answer to that mismatch. The question is only whether your numbers fit it — which the rest of this guide will help you work out.

What is the GST composition scheme?

The GST composition scheme is a simplified tax option under Section 10 of the CGST Act, 2017 that lets small businesses pay a flat percentage of total turnover instead of charging slab-wise GST on every sale. It replaces monthly GSTR-1 and GSTR-3B filings with one quarterly payment form (CMP-08) and one annual return (GSTR-4). Indian retailers, kirana stores and small manufacturers with turnover up to ₹1.5 crore typically use it to cut compliance work and CA fees to a fraction of the regular-scheme cost.

Three design features define the scheme. First, tax is calculated on turnover, not on individual sales — no HSN-wise rate lookups, no output-tax computation per invoice. Second, it is voluntary and annual: you opt in before a financial year starts and stay in for the year unless you cross the limit. Third, it deliberately trades away benefits to earn its simplicity — no input tax credit, no tax invoices, no inter-state selling.

That third point matters more than most guides admit. The scheme is not "GST lite" for everyone under ₹1.5 crore. It is a specific deal: the government collects a small, predictable slice of your turnover, and in exchange you give up the credit mechanism entirely. Whether that deal favours you depends almost entirely on who your customers are and how much GST sits in your purchases. A B2C stationery shop and a B2B electrical supplier with identical turnover can reach opposite answers, and both would be right.

Composition scheme turnover limit 2026 — state-wise

The composition scheme limit for 2026 is ₹1.5 crore aggregate annual turnover for traders, retailers and manufacturers in most states, ₹75 lakh in eight special category states, and ₹50 lakh for service providers under the separate Section 10(2A) scheme. "Aggregate turnover" means all supplies under one PAN across all branches (taxable, exempt and exports combined), so a business with two GSTINs in the same PAN must count both.

Two practical checks before you rely on these numbers. Check one: the limit tests your previous financial year's turnover for eligibility, but also caps the current year — cross ₹1.5 crore in August and you exit the scheme in August, not next April. Check two: turnover close to the limit is a warning sign, not a green light. If you closed last year at ₹1.3 crore and you are growing 20%, you will breach mid-year, and a mid-year exit means reissuing invoice formats, restarting monthly filings, and explaining the transition to your CA in the middle of Diwali season. Businesses in that band are usually better off staying regular. The limit has stayed at ₹1.5 crore since it was raised from ₹1 crore in 2019, and the GST Council has shown no signal of moving it for FY 2026-27.

Composition scheme tax rates 2026

Composition rates are flat percentages of turnover, split equally between CGST and SGST. There are only four rates to know in 2026:

One correction worth pausing on, because it is wrong on a surprising number of pages that rank for this topic: manufacturers do not pay 2%. The manufacturer rate was reduced from 2% to 1% by Notification No. 1/2018-Central Tax dated 1 January 2018, and it has been 1% for over eight years now. If a guide tells you 2%, it was written from an older guide, not from the notification.

The arithmetic is deliberately simple. A trader with ₹60 lakh annual sales pays ₹60,000 for the year — ₹15,000 per quarter through CMP-08. No slab lookups, no output-minus-input calculation, no month where the number surprises you. For traders, one nuance trims the bill further: the 1% applies to turnover of taxable supplies, so a kirana owner whose mix includes exempt goods (unbranded atta, fresh produce) pays 1% only on the taxable portion. Manufacturers and restaurants pay on total turnover. Small distinction on paper; on a ₹70 lakh kirana turnover where a third is exempt, it is real money.

Who cannot opt in — and the e-commerce change nobody mentions

Start with the hard exclusions. You cannot opt for the composition scheme if you:

• make inter-state outward supplies (selling to customers outside your state; inter-state purchases are fine)

• manufacture ice cream, pan masala, tobacco products, aerated water, or fly ash bricks (notified excluded goods)

• supply services through an e-commerce operator required to collect TCS

• are a casual taxable person or non-resident taxable person

• supply goods not taxable under GST, such as alcohol

• hold multiple registrations under one PAN and want only some of them in the scheme: it is all GSTINs or none

Now the part most guides get wrong in 2026. For years, "composition dealers cannot sell on Amazon or Flipkart" was a flat rule, and you will still find it stated flatly on pages ranking today. It is no longer the full truth. According to CBIC's Notification No. 34/2023-Central Tax dated 31 July 2023, composition taxpayers can supply goods through e-commerce operators from 1 October 2023 — with two conditions: the supply must be intra-state only, and the dealer must declare their GSTIN to the platform, which collects TCS as usual. Services through e-commerce remain barred.

What does that mean in practice? A Jaipur garment shop on composition can list on a marketplace and sell to Jaipur and Jodhpur buyers, but the platform must not ship its orders to Delhi. Platforms handle this with state-level serviceability settings, though enforcement is on you: an accidental inter-state order is your compliance breach, not the platform's. Across our garment and electronics customers who asked us about this, our standing advice is blunt: if marketplace sales are a growth plan rather than a side channel, the geography cap will strangle it, and regular GST is the better home. But for a shop using e-commerce as local reach (quick-commerce listings, city-level marketplaces), the 2023 change quietly removed what used to be an automatic disqualification.

Returns and deadlines: CMP-08 and GSTR-4

CMP-08 is a quarterly statement-cum-challan through which a composition dealer declares and pays self-assessed tax. It is due by the 18th of the month following each quarter. It is a payment form, not a return: a distinction that matters because the annual return still exists separately.

GSTR-4 is that annual return, and its due date is the single most common compliance mistake we see composition dealers make in 2026. The deadline is 30 June of the following financial year, moved from 30 April by Notification No. 12/2024-Central Tax with effect from FY 2024-25 onwards. GSTR-4 for FY 2025-26 was due on 30 June 2026; for FY 2026-27 it falls on 30 June 2027. Plenty of older guides (and at least one CA WhatsApp forward we have been shown) still say 30 April. Filing by the old date costs nothing, but planning around 30 April and slipping past it while believing you had missed the deadline causes unnecessary panic; conversely, some dealers who learnt "April" and missed it assumed penalties had stopped accruing by June. Work from the notification, not from memory.

The full compliance calendar for a composition dealer in FY 2026-27:

Late CMP-08 attracts ₹50 per day (₹25 CGST + ₹25 SGST), capped, plus 18% annual interest on unpaid tax. Nil filings still have a ₹20-per-day late fee. Five dates a year against twenty-four-plus under regular GST — that gap is the whole scheme in one line.

Composition vs regular GST — comparison

The verdict row says it plainly: this is a customer-base decision, not a turnover decision. Two same-size businesses split cleanly. A ₹45 lakh stationery shop selling to walk-in retail customers gains everything from composition and loses almost nothing. A ₹85 lakh pharma retailer buying ₹50 lakh of stock a year with ₹2.5 lakh of GST embedded in it would burn real money by giving up ITC — the credit outweighs the compliance saving several times over. Run your own purchase-GST number before deciding; the next section gives you the exact test.

Should you switch? A self-check

Answer these five questions with last year's actual figures in front of you:

1. Was your aggregate turnover under ₹1.5 crore — with headroom? Under ₹1.2 crore is comfortable; ₹1.3 crore-plus with growth means a likely mid-year exit.

2. Are 90%+ of your customers end consumers? B2B buyers cannot claim ITC on your Bill of Supply and will push back or leave.

3. Is the GST embedded in your annual purchases smaller than your compliance savings? Add up input GST from purchase invoices. If it exceeds roughly ₹25,000–30,000 a year, forfeiting ITC probably costs more than composition saves.

4. Do you sell only within your state — and plan to keep it that way? One inter-state sale disqualifies you.

5. Can you live with paying tax from your own pocket? You cannot add GST to the bill; the 1% comes out of your margin.

Five yeses and the scheme is close to an obvious choice. Sunita runs a stationery shop in Jaipur: turnover ₹45 lakh, all retail walk-ins, purchases mostly from local wholesalers with modest input GST. On regular GST she paid her CA ₹2,500 a month for filings. After moving to composition: one annual return, four quarterly payments she handles herself, CA fee down to ₹5,000 a year. Net saving about ₹25,000 annually, before counting her own evenings back. Her tax outgo (1% of ₹45 lakh, so ₹45,000) was slightly higher than her old net GST, but the combined cash position still favoured composition comfortably.

Sunita is a composite based on real Accountune customers in the retail niche. Names and identifying details changed; outcome representative of our verified customer cohort.

Any single "no" above deserves a CA conversation before you file CMP-02. The scheme locks you in for the year; the decision deserves an hour of arithmetic.

How to file CMP-02 — step by step

CMP-02 is the intimation an existing regular taxpayer files on the GST portal to opt into the composition scheme. It must be filed before the financial year begins. The window for FY 2026-27 closed on 31 March 2026, so if you are reading this now, your next opportunity is FY 2027-28, with CMP-02 due by 31 March 2027. New businesses registering fresh can skip CMP-02 entirely and simply tick the composition option in Form REG-01 during registration.

When the window opens, the filing itself takes under ten minutes:

1. Log in at gst.gov.in with your GSTIN credentials.

2. Go to Services → Registration → Application to Opt for Composition Levy.

3. The form opens with your GSTIN and business details pre-filled. Select your category — trader, manufacturer or restaurant.

4. Read the declaration and tick the eligibility checkbox. This is a legal self-declaration; the conditions from the exclusions section above are on you to verify.

5. Submit with DSC or EVC: DSC for companies and LLPs, OTP-based EVC for proprietorships and partnerships.

6. Save the ARN acknowledgement. Status updates to composition within a few days; you can confirm anytime using the GST portal's search-taxpayer tool, which shows "Composition" under taxpayer type.

Two follow-up forms complete the transition, and skipping them is where most self-filers stumble. ITC-03 must be filed within 60 days of opting in; it reverses the input tax credit sitting in your ledger on stock held on the transition date, because composition dealers cannot carry ITC. If you have ₹40,000 of credit on unsold stock, that reverses; factor it into the decision arithmetic, since a stock-heavy March makes switching costlier. CMP-03, due within 90 days, declares the stock you held on opt-in day. Neither form is difficult, but both are dated obligations, so put them in the calendar the day you file CMP-02.

Billing under composition: Bill of Supply rules

A composition dealer cannot issue a tax invoice, because a composition dealer cannot collect tax from customers. Every sale instead gets a Bill of Supply, which must carry the line "composition taxable person, not eligible to collect tax on supplies" at the top, and the words "composition taxable person" must also appear on the signboard at your premises. No GST line item, no HSN-wise tax break-up on the bill — the document is deliberately simpler, which suits the counter but trips up businesses whose billing software only knows one invoice format.

This is the one place your software choice touches the scheme directly. Accountune has a composition mode that switches the invoice format to Bill of Supply with the mandatory declaration, keeps the tax line off customer bills, and tracks your quarterly turnover so the CMP-08 liability is a report, not a spreadsheet exercise. The same turnover tracking flags you when you approach ₹1.5 crore — useful, because the scheme lapses the day you cross it, not the day you notice. Plans start free and top out at ₹4,499 a year for the Growth plan, with a 4-day free trial and no card required. One honest caveat, since composition dealers in tier-3 towns often ask: Accountune is fully cloud-based and needs an internet connection — there is no offline billing mode. If your shop's connectivity is genuinely unreliable, weigh that before choosing any cloud software, ours included.

Vikram Patel · Hardware Store Owner · Ahmedabad · Payments came in 2× faster after moving his billing to Accountune. Customer outcomes shared with permission. Verified Accountune customers.

Conversational queries

"Is the composition scheme worth it for a small kirana store?" Usually yes, if sales are all local walk-ins and turnover has headroom under ₹1.5 crore. A kirana pays 1% only on taxable turnover — exempt goods like fresh produce and unbranded staples do not attract the levy — and compliance drops to five filings a year. It stops being worth it when purchase GST is large or wholesale/B2B customers enter the mix.

"Composition scheme lena chahiye ya regular GST mein rehna theek hai?" Seedha jawab: agar aapke customer dukaan pe aane waale aam log hain aur saal ki purchase pe GST kam banta hai, to composition lo. Agar aapke buyer khud GST-registered hain ya aap doosre state mein bechte ho, to regular mein hi raho.

"What happens if I cross ₹1.5 crore in the middle of the year?" The scheme lapses on the exact date you cross the limit. From that day you issue tax invoices, charge GST, claim ITC, and file monthly returns as a regular taxpayer. You file a final CMP-08 for the stub period and intimate the switch on the portal. There is no grace period, which is why turnover tracking matters near the limit.

"Can a composition dealer buy goods from another state?" Yes. The inter-state restriction applies only to outward supplies — sales. Purchases from suppliers in other states are fully allowed; you simply pay any reverse-charge tax at normal rates where applicable.

"Do composition dealers need to file GSTR-1 and GSTR-3B?" No. Composition dealers file neither. Their entire compliance is quarterly CMP-08 payments by the 18th after each quarter and one annual GSTR-4 by 30 June of the following year.

"Is composition scheme available for freelancers and service providers?" Yes, under the separate Section 10(2A) scheme: turnover limit ₹50 lakh, flat 6% tax. It suits local service businesses like coaching centres or salons. It does not suit anyone serving clients in other states, since the intra-state rule applies to services too.

"Which billing software works for composition scheme?" Any software that can issue a Bill of Supply with the mandatory composition declaration and track turnover for CMP-08. Accountune includes a dedicated composition mode for this at every plan level, including the free plan; Tally and Marg also support composition billing in their desktop products.