The date of March 31 2026, functions as a critical deadline which small business owners in India use for their tax planning activities. The GST Composition Scheme for the financial year 2026-27 allows you to make your final choice which will decrease your tax obligations while making compliance requirements easier to handle.
The Goods and Services Tax (GST) Composition Scheme provides small taxpayers with a solution to avoid the difficulties which come with standard GST filing procedures because it enables them to pay taxes at reduced rates. However, understanding whether this scheme is right for your business requires careful consideration of eligibility criteria, benefits, limitations, and filing procedures. The complete guide we provide will show you all necessary information about the GST Composition Scheme for 2026, which will help you make your decision before the last date arrives.
What is the GST Composition Scheme?
The GST Composition Scheme provides businesses with an easier method to pay taxes which the CGST Act 2017 Section 10 established. Small businesses that meet the eligibility requirements can choose to pay taxes based on a fixed percentage of their annual revenue instead of paying standard GST rates for each transaction.
Small traders, manufacturers and service providers can use this system which functions as a flat-rate tax system to concentrate on business expansion instead of dealing with excessive paperwork requirements. The scheme requires you to submit quarterly reports, which need fewer documents than the standard GST system and monthly reporting requirements.
Key Features at a Glance
- Lower tax rates mean you pay a part of what your business makes. This can be, between 1 percent and 6 percent of what your business brings in. It depends on what kind of business you have.
- Quarterly filing: File just one quarterly return (CMP-08) instead of multiple monthly returns.
- Annual return: Submit GSTR-4 once a year by June 30th of the following financial year (June 30, 2027, for FY 2026-27).
- Simplified compliance: Minimal record-keeping requirements
- No tax invoices: Issue Bills of Supply instead of tax invoices
Critical Deadline: Why March 31, 2026 Matters
People who pay taxes and are already signed up for GST need to send in Form CMP-02 before March 31 2026. This is so they can choose the Composition Scheme for the year 2026-27. They really need to do this on time. If they do not do this, they will have to follow the GST rules. The regular GST rules are not easy to follow. GST taxpayers will have to pay tax and do a lot of paperwork every month for the whole year. GST taxpayers who want to avoid all this hassle should send in Form CMP-02 to choose the Composition Scheme for GST.
New businesses registering for GST can opt for the Composition Scheme directly through Form GST REG-01 during registration. The March 31st deadline must be met by you if you want to switch from your current regular scheme registration to another scheme. The window opening for taxpayers usually takes place at early February, which provides them with approximately two months to make their crucial decision. Taxpayers who face uncertainty about switching should consult with a tax professional while planning their future business operations.
Eligibility Criteria: Can Your Business Qualify?
You need to check your business's eligibility requirements before you schedule March 31st. The Composition Scheme has restricted access because it requires specific limitations to apply.
Turnover Limits
The primary eligibility factor is your aggregate annual turnover:
For Manufacturers and Traders:
- Regular states execute their operations at maximum limits of ₹1.5 crore.
- Special category states (Himachal Pradesh and North-Eastern states) operate their businesses at maximum limits of ₹75 lakh.
For Service Providers:
- All States: Up to ₹50 lakh
The turnover calculation is critical here. "Aggregate turnover" means the total value of all supplies made by you across all business verticals registered under the same PAN. Your total business operations from all locations provide the data for this calculation which includes all taxable supplies, exempt supplies and export shipments and interstate shipments.
Who Can Apply?
The following business types can apply for eligibility:
- Manufacturers of goods (excluding notified items)
- Traders and wholesalers dealing in goods
- Restaurants that do not serve alcoholic beverages
- Service providers who fulfill particular requirements established by Notification No. 2/2019-Central Tax (Rate)
- Mixed suppliers who provide both goods and services, but their services do not exceed 10% of their turnover or their ₹5 lakh threshold which applies first
Who Cannot Apply?
Certain categories of taxpayers are explicitly barred from the Composition Scheme:
- Interstate Suppliers: Businesses which provide goods to other states
- E-commerce Sellers: Those who sell products through e-commerce platforms, which need TCS collection according to Section 52 of CGST Act
- Manufacturers of notified goods: Ice cream, pan masala, tobacco, and tobacco products
- Suppliers of non-taxable Goods: Such as petroleum products and alcohol
- Casual Taxable Persons and non-resident taxable persons
If even one of your business verticals under the same PAN is ineligible, your entire business cannot opt for the Composition Scheme.
GST Composition Scheme Tax Rates for 2026
The Composition Scheme attracts most of its customers because it offers them a major tax rate reduction. The GST system requires composition taxpayers to pay only a small portion of their total revenue instead of the standard GST rates that reach 28%.
Current Tax Rate Structure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
How Tax is Calculated
So when we talk about GST the tax is figured out for each invoice. For composition taxpayers, they do things a bit differently. They calculate the tax on their turnover for each quarter. Let me show you how this works with an example.
- A trader with ₹60 lakh annual turnover would pay: 1% of ₹60,00,000 = ₹60,000 annually
- A restaurant with ₹80 lakh annual turnover would pay: 5% of ₹80,00,000 = ₹4,00,000 annually
Important Note: You cannot collect this tax separately from your customers. The tax must be paid from your own pocket, making it a business expense rather than a pass-through charge.
Benefits of the GST Composition Scheme
The assessment of benefits will show you whether the program meets your business objectives.
1. Significantly Lower Tax Burden
The most obvious benefit is paying substantially less tax. The standard taxpayers face GST rates between 5% and 28% which depends on their product category. composition dealers pay a maximum of 6% with most of them choosing 1%.
2. Reduced Compliance Requirements
Composition taxpayers can skip GSTR-1 and GSTR-3B monthly requirements because they must only complete the following tasks:
- Submit Form CMP-08 on a quarterly basis which should be done before the 18th day of each following month from each quarter.
- Submit GSTR-4 on a yearly basis which must be completed before June 30th of the next financial year.
3. Lower Accounting and Operational Costs
The process of keeping track of all transaction details and creating tax documents and verifying input tax credits needs both time resources and software tools and typically requires expert assistance. Composition dealers can prevent these expenses through their practice of basic record keeping, which enables them to issue Bills of Supply instead of tax invoices.
4. Better Cash Flow Management
Your business retains additional cash when you choose to pay taxes at lower quarterly rates instead of monthly payments, which use regular rates. The improved cash flow enables you to purchase inventory while making timely payments to suppliers and efficiently running your daily activities.
5. Time Savings
The process of tax compliance needs less time, which enables you to focus on essential activities that will help your business grow through customer acquisition and product enhancement and business development.
Limitations and Drawbacks to Consider
The Composition Scheme has attractive benefits, yet it creates major restrictions which do not match all business models.
1. No Input Tax Credit (ITC)
Composition dealers cannot claim credit for the GST paid on their purchases and expenses. The purchase of raw materials or goods worth ₹10 lakh with 18 GST results in a tax liability of ₹1.8 lakh which cannot be used for offsetting purposes. Your product prices will become higher because you cannot use ITC deductions, which regular GST dealers have, which will reduce your ability to compete in B2B markets.
2. Restricted to Intra-State Business
You cannot supply goods or services to other states. All your business operations need to stay within the state where your business registration exists. The restriction prevents businesses from entering new markets which creates a major obstacle for companies that want to expand across the country.
3. No E-commerce Platform Sales
The restriction prevents you from selling products through Amazon and Flipkart, but selling through own website is allowed, as long as no TCS is involved. The current digital restrictions create serious obstacles which businesses need to overcome to achieve their full growth potential.
4. Limited B2B Appeal
Your business customers cannot claim input tax credit on their purchases because you do not issue tax invoices. The majority of B2B buyers choose suppliers who provide tax invoices which will decrease your customer base while diminishing your negotiating authority.
5. Turnover Cap Constraints
Your business must switch to the regular scheme after you exceed the turnover limit during the current fiscal year. Businesses need to complete Form CMP-04 within seven days, which creates difficult administrative tasks.
6. PAN-Level Restriction
The entire business operation under your PAN must select a single scheme for all activities. You need to choose between two options, which determine whether your business units will use composition or regular GST.
How to Opt for GST Composition Scheme: Step-by-Step Process
The Current Regular GST Registrants need to follow these steps for their tax return process.
Step 1: Log in to the GST Portal (www.gst.gov.in) using your credentials.
Step 2: Navigate to Services → Registration → Application to Opt for Composition Levy.
Step 3: Fill out Form GST CMP-02 with the following information:
- GSTIN details.
- Turnover of the previous financial year.
- Stock details (if applicable).
- Declaration confirming eligibility.
Step 4: Verify your application using OTP e-signature or Digital Signature Certificate (DSC) method.
Step 5: File Form GST ITC-03 within 60 days. This form reverses the input tax credit claimed on stock held when switching from regular to composition scheme.
Step 6: File Form GST CMP-03 within 90 days. This document informs the government about the stock you possessed on the day you joined the scheme.
The critical timeline requires CMP-02 to be filed between February and March 31 2026, for the fiscal year 2026-27.
For New Businesses
When registering for GST for the first time, simply select the Composition Scheme option in Form GST REG-01 during the registration process. The system will register you under the scheme without requiring you to complete CMP-02.
Important GST Composition Scheme Forms
The various forms require compliance through their specific requirements because understanding each form is necessary for compliance purposes
Form CMP-02
Purpose: The scheme aims to inform officials about their choice to participate in the Composition Scheme.
Deadline: Existing taxpayers who wish to switch from regular tax system to composition scheme must submit their application before March 31st of the previous financial year. The annual application requirement applies to taxpayers who stay in the tax scheme
Form CMP-03
Purpose: Form CMP-03 is required only for existing taxpayers switching from regular to composition, to declare stock details.
Deadline: It must be filed within 90 days from the date of opting, but this requirement has been merged operationally with ITC reversal compliance.
Frequency: Many current GST advisories treat ITC-03 as the primary compliance, and CMP-03 is not always separately enforced.
Form CMP-04
Purpose: The document serves as a request to exit the Composition Scheme.
When to File: The application must be submitted within a week after the applicant exceeds their turnover limit or decides to exit the program.
Note: The application can be submitted during the year if there are changes in the applicant's situation
Form CMP-08
Purpose: The document serves as a quarterly tax declaration which includes a tax payment schedule.
Deadline: The deadline for submissions falls on the 18th day of the month that comes after each quarterly period.
- The April to June quarter requires submission before July 18.
- The July to September quarter requires submission before October 18.
- The deadline for the October to December quarter is set for January 18.
- The January to March quarter requires submission before April 18.
The document includes information about turnover tax calculations.
Form GSTR-4
Purpose: The document serves as an annual report which contains a summary of all financial activities conducted throughout the year.
Deadline: The deadline for submissions occurs on June 30 of the upcoming financial year.
Note: The deadline is subject to government notifications, not permanently extended.
Form GST ITC-03
Purpose: The document serves as a formal announcement about ITC reversal which occurs when a business decides to join the composition scheme.
Deadline: The deadline for submission occurs 60 days after the applicant has submitted CMP-02.
The rule applies to taxpayers who switch from the regular tax system to the composition tax system.
Penalties for Non-Compliance
If you do not fulfil the requirements of the composition scheme, then you will face financial penalties.
- The CMP-08 late submission results in a daily fine of ₹50, which decreases to ₹20 for NIL returns and it reaches a total limit of ₹2,000.
- The GSTR-4 late submission results in a daily fine of ₹50, which decreases to ₹20 for NIL returns and it reaches a total limit of ₹2,000.
- The outstanding tax amount incurs an interest charge of 18 percent per year until payment is made.
- The tax authorities will require full tax payment at standard rates along with interest and penalties for incorrect scheme usage.
- Your e-way bill generation will be blocked because you did not file your reports for two straight quarters.
Switching from Composition to Regular Scheme
Sometimes businesses need to exit the Composition Scheme, either voluntarily or due to changed circumstances.
Mandatory Exit Situations
You must switch to regular GST if:
- Regular GST must be adopted by you when:
- Your business reaches the specified revenue threshold
- You begin selling products across state boundaries
- You start selling products through online marketplaces
- You begin producing goods that require government approval
- You start distributing products that do not incur taxes to customers
Voluntary Exit
To leave the program permanently, you must submit Form CMP-04. The program allows you to exit but prevents your return during the current financial year.
Transition Process
- The organization requires you to submit Form CMP-04 within 7 days after the triggering event occurs.
- The organization requires you to submit Form GST ITC-01 within 30 days to claim credit on stock held (but only when the taxpayer becomes eligible for ITC again).
- The organization will begin issuing tax invoices from the effective date.
- The organization will start its monthly returns process with GSTR-1 and GSTR-3B filings.
Is GST Composition Scheme Right for You?
Your business situation will determine whether you should select the Composition Scheme as your preferred option. The decision framework proceeds as follows:
Choose Composition Scheme If:
- Your turnover is well within the limits, with no immediate plans to exceed them
- Your business focuses on selling products directly to individual customers
- Your business operates only within one state
- Your business does not engage in online product sales
- Your business costs remain low because you provide services
- You want simplified compliance and lower operational costs
- Your customers don't require tax invoices for ITC claims
Choose Regular Scheme If:
- Your primary customers are other businesses (B2B) who need ITC
- You have high input costs and want to claim ITC to reduce tax burden
- You plan to operate your business across multiple states
- Online sales through own website without TCS are allowed
- Your business turnover has reached its limit and now stands at risk of exceeding that threshold
- You want to run your business without any constraints on operational activities.
Conclusion
The deadline on March 31 requires you to assess your business revenue together with your existing customers and planned business growth. The deadline for accounting requires you to consult a tax professional first to avoid expensive errors and select the proper GST structure for the upcoming year. The regular GST scheme will continue to apply for another complete year because you did not meet the deadline.
You need to verify your eligibility before filing your GST Composition Scheme through JustStart because that must be completed by March 31. The system allows you to maintain basic compliance requirements from the first day of the 2026-27 financial year.
Frequently Asked Questions
Q1: Can I switch back to regular GST mid-year?
A taxpayer can change from regular GST to standard GST during the year under certain situations, which include reaching turnover limits and conducting business across state boundaries. The taxpayer must wait until the start of the new financial year to make voluntary changes.
Q2: What happens if I forget to file CMP-02 by March 31st?
A business must maintain its regular GST operations throughout the current financial year. The system does not allow you to select at a later time.
Q3: Can I claim ITC on capital goods purchased before joining the composition scheme?
The composition scheme requires businesses to reverse all ITC credits when they choose this option through Form GST ITC-03.
Q4: Do I need to register separately for the composition scheme?
The composition scheme requires businesses to obtain separate registration. Your current GST registration already includes this option.
Q5: Can service providers opt for composition scheme?
Service providers who achieve a turnover of up to ₹50 lakh can choose the scheme according to specific rules.
