GST Composition Scheme vs Regular Scheme: Rates, Limits and Trade-offs (2026)
GST composition vs regular: 1% for traders, 5% restaurants, 6% services up to ₹50 lakh, no input credit or inter-state sales. Who should opt in.
Short answer
Choose the composition scheme if you sell mostly to consumers within one state, have low input costs and want quarterly compliance with a flat tax: 1% for manufacturers and traders, 5% for restaurants. Stay regular if you sell to GST-registered businesses, make inter-state supplies, or have significant input tax credit, because composition dealers cannot claim credit or charge GST.
- Turnover limit (goods, restaurants)
- ₹1.5 crore (₹75 lakh in specified states)
- Service providers' scheme limit
- ₹50 lakh at 6%
- Rate for manufacturers and traders
- 1% of turnover
- Restaurants (no alcohol)
- 5% of turnover
- Quarterly payment
- CMP-08 by 18th after the quarter
- Annual return
- GSTR-4 by 30 April
How does each scheme work?
Under the regular scheme you charge GST on each sale at the applicable rate, claim input tax credit on purchases, issue tax invoices and file GSTR-1 and GSTR-3B monthly, or quarterly under QRMP. Your buyers can claim credit for the GST you charge.
Under the composition scheme you pay a flat percentage of turnover from your own pocket, cannot collect GST from customers, cannot claim input tax credit, and issue a bill of supply marked as a composition taxable person. You pay tax quarterly through CMP-08 and file one annual return, GSTR-4.
Side-by-side comparison
The table shows the main operational and cost differences. Rates are the combined central and state rates on turnover, and limits are based on aggregate turnover across all registrations under the same PAN.
| Factor | Composition scheme | Regular scheme |
|---|---|---|
| Eligibility | Turnover up to ₹1.5 crore (₹50 lakh for service providers' scheme) | Any registered person |
| Tax rate | 1% traders and manufacturers, 5% restaurants, 6% services | Applicable GST rate on each supply |
| Input tax credit | Not available | Available |
| Collect GST from buyer | No, bill of supply only | Yes, tax invoice |
| Inter-state outward supply | Not allowed | Allowed |
| Returns | CMP-08 quarterly, GSTR-4 annually | GSTR-1 and GSTR-3B monthly or quarterly |
| Buyer can claim credit | No | Yes |
| Excluded businesses | Ice cream, pan masala, tobacco manufacturers and others notified | None |
| Opting in | CMP-02 before the financial year starts | Default |
Where do the numbers favour each scheme?
Composition is attractive when your margins are thin relative to turnover and your purchases carry little GST. A neighbourhood trader paying 1% of turnover usually pays less than 18% or 5% on value added, and spends far less on compliance.
For restaurants the gap is narrower than it looks. Most standalone restaurant services under the regular scheme are taxed at 5% without input tax credit, so composition at 5% mainly saves on paperwork rather than tax. Service providers under the 6% scheme should compare it with charging 18% to business clients who can claim it back; for B2B services, regular registration usually keeps you competitive.
What restrictions catch businesses out?
Composition dealers cannot make inter-state outward supplies, cannot supply goods that are not leviable to GST, such as alcohol for human consumption, and must display 'composition taxable person' at their premises. Turnover is counted across all businesses on the same PAN, so one large unit can disqualify the others.
If turnover crosses the limit during the year, you move to the regular scheme from the day it is crossed and must file the intimation and start charging GST. Plan stock and pricing before you approach the limit.
Which should you choose?
Use these rules to decide, and revisit the choice before each financial year, because the option is exercised annually through CMP-02 and your customer mix, suppliers and markets may change over time.
- Selling mainly to consumers within one state with low input GST: composition.
- Selling to GST-registered businesses who want credit: regular.
- Any inter-state sales or online exports: regular.
- High input costs carrying GST, such as machinery or raw material: regular, to recover credit.
- Restaurant without alcohol and limited inputs: composition can reduce compliance at the same 5% rate.
Related services
Sources
- GST composition scheme rates, limits and returns (ClearTax)
- GST registration threshold and aggregate turnover (TaxGuru)
- GSTN FAQs on QRMP scheme and IFF
Written by the Refogo Editorial Team from the official sources above and checked on 2026-10-31. Laws, rates and due dates change, and authorities often extend deadlines, so confirm your own case with a qualified professional. This is general information, not legal or tax advice. Read our editorial policy or report an error to support@refogo.com.
Common questions
Can a composition dealer sell outside the state?
No. Composition dealers cannot make inter-state outward supplies of goods or services. Inter-state purchases are allowed.
What is the composition rate for traders in 2026?
1% of turnover of taxable supplies (0.5% CGST and 0.5% SGST). Manufacturers also pay 1%, restaurants 5% and service providers under the separate scheme 6%.
Can I switch from composition to regular in the middle of the year?
Yes. You can opt out at any time by filing the prescribed form, and you must move out if you cross the limit or become ineligible. Returning to composition is possible only from the next financial year.
Do composition dealers file monthly returns?
No. They pay tax quarterly using CMP-08 by the 18th of the month after each quarter and file GSTR-4 annually by 30 April.