Side by side
| Composition (section 10) | Regular | |
|---|---|---|
| Who can opt | Turnover up to ₹1.5 crore (₹75 lakh in some states); services up to ₹50 lakh under section 10(2A) | Anyone registered |
| Tax rate | 1% traders and manufacturers, 5% restaurants, 6% services (CGST + SGST, on turnover) | The item's GST rate (5%, 18% or 40% for most items) |
| Charge GST to customers | No; issue a bill of supply | Yes; issue a tax invoice |
| Input tax credit | Not available | Available |
| Inter-state sales | Not allowed, including exports | Allowed |
| Selling on e-commerce platforms | Goods within the state allowed since 1 October 2023; services through platforms collecting TCS not allowed | Allowed |
| Returns | CMP-08 every quarter (18th after the quarter) and GSTR-4 yearly (30 June) | GSTR-1 and GSTR-3B monthly or quarterly, GSTR-9 above the limit |
| Bookkeeping | Simpler | Fuller: invoices, credit matching, reconciliation |
The composition limits and rates come from section 10 of the CGST Act, Rule 7 of the CGST Rules and Notification 2/2019-Central Tax (Rate). The rates did not change when the main GST slabs were rationalised on 22 September 2025. The lower ₹75 lakh limit applies in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand.
Who cannot opt for composition
- Anyone making inter-state outward supplies, including exports
- Suppliers of services through e-commerce operators that collect tax at source
- Casual taxable persons and non-resident taxable persons
- Manufacturers of ice cream and edible ice, pan masala, tobacco and its substitutes, aerated waters and certain bricks
- Suppliers of goods not taxable under GST
The option applies to every registration under the same PAN. You cannot keep one state's GSTIN on composition and another on regular.
A worked example
A trader in Kolkata sells ₹60 lakh of goods a year, all to consumers in West Bengal, and buys ₹45 lakh of stock on which suppliers charged 5% GST (₹2,25,000).
Composition: tax is 1% of ₹60 lakh, or ₹60,000, paid from the trader's margin. The ₹2,25,000 GST on purchases is a cost, as no credit is allowed.
Regular, at 5% on sales: output tax is ₹3,00,000, collected from customers on top of the price. Credit of ₹2,25,000 is set off, leaving ₹75,000 to pay in cash. Prices to customers are 5% higher.
For a shop selling to consumers in a competitive market, composition keeps prices lower and paperwork lighter. If the same trader sold mainly to registered businesses, those buyers would want a tax invoice to claim credit, and composition would cost sales. Use our GST calculator to run your own figures.
Switching between the schemes
- New business: choose composition in the GST registration application itself.
- Regular to composition: file CMP-02 before the financial year starts (by 31 March), and reverse credit on stock in ITC-03. There is no mid-year entry.
- Composition to regular: file CMP-04 to opt out; the option also lapses automatically the day turnover crosses the limit or you make a supply composition does not allow. You can then claim credit on stock in ITC-01 within 30 days.
Talk to Regikart
We compare both schemes on your actual sales and purchases before you choose, register or opt in, and file the returns. Composition registration or CMP-02 opt-in is ₹999, with no government fee. See GST composition, GST registration and GST return filing. Not sure you need GST at all? See GST registration limit 2026.
Frequently asked questions
Which is better, composition or regular GST?
Composition is better for a small business selling within its state to consumers, with low GST on its purchases. Regular is better if your customers are GST-registered businesses, you sell to other states or abroad, or you pay a lot of GST on purchases.
What are the composition scheme rates?
1% of turnover for traders and manufacturers, 5% for restaurants not serving alcohol, and 6% for service providers under section 10(2A), split equally between CGST and SGST.
Can a composition dealer charge GST on the bill?
No. A composition dealer issues a bill of supply and pays the tax from its own funds.
Can a composition dealer sell on Amazon or Flipkart?
Since 1 October 2023 a composition dealer can sell goods through e-commerce platforms within its own state. Services through platforms that collect tax at source are still not allowed.
What returns does a composition dealer file?
CMP-08 every quarter by the 18th of the month after the quarter, and GSTR-4 once a year by 30 June.
When can I switch from regular to composition?
Only from the start of a financial year, by filing CMP-02 before it begins and reversing credit on stock in ITC-03.
About the author
Regikart CA Team
Chartered Accountants at Regikart. Want to discuss this in the context of your business?
