Section 10 composition levy — turnover caps, Rule 7 rates, CMP-08 and GSTR-4 duties, when composition is cheaper than the regular scheme, and when ITC loss makes it a false economy.
By Kanoons Editorial Team · 13 min read · Last verified 2026-10-06
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Summary
The GST composition levy under section 10 of the CGST Act lets eligible small taxpayers pay tax at a low fixed rate on turnover instead of charging output GST invoice-by-invoice. In return, you cannot collect tax from customers, cannot claim ITC, and must stay inside the scheme’s supply and turnover walls. For many neighbourhood traders and restaurants the arithmetic works; for B2B suppliers selling to ITC-hungry buyers it usually does not.
- Goods (section 10(1)): preceding-year aggregate turnover up to ₹1.5 crore in most States (₹75 lakh in notified special-category States) — Notification 14/2019-Central Tax.
- Services / mixed under section 10(2A): preceding-year aggregate turnover up to ₹50 lakh.
- You issue a bill of supply, not a tax invoice, and must display “composition taxable person” language as required by the Composition Rules.
- Compliance cadence: CMP-08 quarterly (18th of month after quarter) + GSTR-4 annually (due 30 June after FY-end from FY 2024-25).
- Compare against the regular scheme using your real ITC — then decide. Service path: GST Composition.
Eligibility snapshot
| Category | Preceding FY aggregate turnover | Typical rate (CGST+SGST / IGST as applicable) | Tax base (Rule 7 direction) |
|---|---|---|---|
| Manufacturer (other than notified goods) | ≤ ₹1.5 Cr (or ₹75 L special States) | 1% | Turnover in State/UT |
| Restaurant (Schedule II, para 6(b)) | Same as above | 5% | Turnover in State/UT |
| Other eligible goods suppliers / traders | Same as above | 1% | Taxable supplies of goods in State/UT |
| Section 10(2A) services / mixed | ≤ ₹50 L | 6% | Turnover in State/UT |
Rates above follow the Composition Rules / Rule 7 table structure and GSTN composition leaflets. Always read the live Rule 7 table on CBIC before filing CMP-02 — rate columns are law, not marketing.
Conditions that commonly block the scheme
Composition Rules (cbic-gst.gov.in/composition-rules.html) require, among other points, that the person:
- Is neither a casual nor a non-resident taxable person
- Does not manufacture goods notified as ineligible under section 10(2)(e)
- Mentions the prescribed composition legend on bills of supply and signboards
- Complies with reverse-charge payment obligations where applicable
Section 10 also restricts outward inter-State supplies of goods for persons under the main composition route, and limits the value of services a goods dealer may supply (generally the higher of 10% of turnover in the State/UT in the preceding FY or ₹5 lakh). Crossing those walls causes the option to lapse from the day of breach — with CMP-04 intimation due within seven days.
Opting in and leaving
| Action | Form | Timing |
|---|---|---|
| New registration | Part B of REG-01 | At registration |
| Existing regular taxpayer → composition | CMP-02 | Before the start of the financial year |
| Stock / ITC transition on entry | ITC-03 | Within 60 days of FY start (Composition Rules) |
| Quarterly tax | CMP-08 | 18th of month after quarter |
| Annual return | GSTR-4 | 30 June after FY-end (from FY 2024-25) |
| Withdrawal | CMP-04 | Within 7 days of the triggering event |
| ITC on closing stock after exit | ITC-01 | Within 30 days of withdrawal / denial |
Intimation for one place of business on a PAN is treated as intimation for all registrations under that PAN.
Worked decision frame (illustrative)
Suppose a Hyderabad goods trader has ₹90 lakh taxable outward supplies, almost all B2C, and recoverable ITC on purchases of roughly ₹1.2 lakh for the year under the regular scheme. Composition tax at 1% on taxable supplies is about ₹90,000 — lower than output tax minus ITC if the regular output liability would have been much higher than ₹2.1 lakh. Flip the facts: the same trader selling mostly to GST-registered distributors will lose those customers (or their margins) because composition bills of supply carry no ITC. The scheme is a pricing decision as much as a tax one.
When composition saves money
Composition tends to win when:
- Most sales are B2C (customers do not need ITC)
- Purchase GST is low relative to sales (thin taxable purchase base)
- Compliance bandwidth is limited and quarterly CMP-08 is cheaper than monthly GSTR-1 + GSTR-3B discipline
- Restaurant / small trader margins fit the fixed rate better than slab-wise output tax
It tends to lose when:
- Customers are GST-registered businesses who demand tax invoices and ITC — they will price you out or force you onto the regular scheme
- You need inter-State outward supplies of goods
- You are scaling toward e-commerce / marketplace models that conflict with composition conditions
- Input tax on rent, goods and services is large enough that forgone ITC exceeds the composition levy
Worked approach (not a quote): compute (a) composition tax on eligible turnover at the Rule 7 rate, versus (b) regular output tax minus eligible ITC after GSTR-2B matching. Use the same FY assumptions on both sides. If you are still undecided on registration itself, start from GST registration thresholds and GST Registration.
Compliance calendar discipline
Missing CMP-08 does not only attract late fee and interest — it breaks the “quiet small taxpayer” advantage that composition is meant to buy. GSTR-4 late fee is commonly described as ₹50/day (₹25 CGST + ₹25 SGST) with a monetary cap (and a lower track for nil returns), plus 18% interest on unpaid tax; confirm the live late-fee notification before communicating a figure to a client.
Pair composition with clean books. Even a low-rate scheme fails audits when cash and UPI receipts are undocumented — see also GST notices and UPI payments.
Mid-article CTA: Check if composition fits your business → Cross-sell: Bookkeeping, GST Registration.
Related reading on this site
- GST registration threshold limits
- Input tax credit basics
- Calculators hub: /calculators (GST / late-fee tools where relevant)
Primary sources
- CBIC — Composition Rules
- CGST Act, section 10 (composition levy) and section 10(2A)
- Notification 14/2019-Central Tax (turnover limit enhancement)
- Notification 12/2024-Central Tax (GSTR-4 due-date shift to 30 June)
- GST portal and GSTN composition leaflets
Disclaimer
General information only — not legal or tax advice. Kanoons is not a law firm or accounting firm. Confirm Rule 7 rates and State-specific turnover caps on CBIC before opting in or out. See our Disclaimer.
Frequently asked questions
What is the GST composition turnover limit for goods suppliers?
For eligible suppliers of goods under section 10(1), the notified aggregate turnover limit in the preceding financial year is ₹1.5 crore in most States/UTs (raised by Notification No. 14/2019-Central Tax). A lower ₹75 lakh limit applies in the notified special-category States (including Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand). Confirm the current notification text for your State before opting in.
Can composition taxpayers claim input tax credit?
No. Composition taxpayers pay tax at the notified composition rate on turnover and cannot collect tax from customers or claim ITC on inward supplies (subject to the reverse-charge and stock-transition rules in the Composition Rules).
What returns does a composition dealer file?
Quarterly statement-cum-challan in FORM GST CMP-08 (due by the 18th of the month after the quarter) and annual return in FORM GSTR-4. Following Notification No. 12/2024-Central Tax implementing the 53rd GST Council recommendation, GSTR-4 is due by 30 June following the end of the financial year (from FY 2024-25 onwards).
Can a service provider opt for composition?
Restaurant services covered by paragraph 6(b) of Schedule II sit inside section 10(1). Other service providers (and mixed suppliers not eligible under 10(1)) may use section 10(2A) where preceding-year aggregate turnover did not exceed ₹50 lakh and other conditions are met, at the prescribed rate not exceeding 6%.
When does composition stop being a saving?
When your B2B customers need tax invoices and ITC, when you make outward inter-State supplies of goods that the scheme forbids, or when purchase GST is high relative to the composition levy you would otherwise pay. Run both scenarios with real purchase and sales mixes before filing CMP-02.