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GST · 25 June 2026

What Is the GST Composition Scheme Under Section 10?

The composition scheme is GST's simplified track for small businesses under Section 10 of the CGST Act. A dealer with aggregate turnover up to ₹1.5 crore for goods (₹50 lakh for the separate service composition) pays a flat rate, 1% for traders and manufacturers, 5% for restaurants, 6% for the service composition, out of their own pocket. In exchange they give up two things: they cannot collect GST from customers, and they cannot claim input tax credit. Because no tax is collected, a composition dealer issues a bill of supply under Rule 49, not a tax invoice, and it must carry the declaration "composition taxable person, not eligible to collect tax on supplies". The scheme suits businesses selling to end-consumers, but makes a supplier more expensive to a B2B buyer who loses the credit.

By Mrs. Swapna Patel

Published 25 June 2026

Updated 26 June 2026

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Myth

The composition scheme just means a lower GST rate that you still charge your customers.

Fact

Under Section 10 of the CGST Act[1], a composition dealer pays a flat 1–6% out of their own pocket, cannot collect GST from buyers, and issues a bill of supply, not a tax invoice.

What is the GST composition scheme?

Short answer

A simplified GST track under Section 10 of the CGST Act[1]: a small dealer pays a flat rate on turnover instead of the normal slab, but cannot collect GST from customers or claim input tax credit.

  • It is opt-in, for a registered person whose aggregate turnover is within the cap.
  • The dealer pays the flat tax themselves; it never appears as a separate line the customer pays.
  • No input tax credit: the low flat rate is the trade-off for losing the credit chain on purchases.
  • Why it matters: the scheme cuts compliance to a quarterly payment and a simpler return, but is a poor fit for a supplier whose customers are registered businesses needing credit.

Who is eligible, and what is the turnover cap?

Short answer

A supplier of goods with aggregate turnover up to ₹1.5 crore, or a service provider up to ₹50 lakh under the separate service composition. Cross either ceiling and the dealer must move to the regular scheme.

  • Goods and restaurants: aggregate turnover up to ₹1.5 crore (₹75 lakh in some special-category states).
  • Services: a separate composition route under Section 10(2A), up to ₹50 lakh turnover.
  • Excluded: inter-state outward suppliers, e-commerce sellers liable to TCS, and suppliers of goods outside the GST net cannot opt in.
  • Why it matters: eligibility is tested on aggregate, PAN-level turnover, so all your GST registrations count toward the cap, not one branch.
Check the turnover thresholds that affect GST registration

What flat rate does a composition dealer pay?

Short answer

A flat rate on turnover under Section 10[1]: 1% for traders and manufacturers, 5% for restaurants (without alcohol), and 6% for the service composition, paid by the dealer, not collected from the buyer.

Business typeComposition rateVersus regular GST
Traders and manufacturers1% of turnoverStandard 5%–18% slab (40% sin/luxury), collected from buyer
Restaurants (not serving alcohol)5% of turnoverStandard slab, full ITC available
Service composition (Section 10(2A))6% of turnoverStandard slab on each service

Source: Section 10, CGST Act 2017[1]. The dealer pays this out of pocket because the scheme bars collecting GST from customers. See the composition vs regular GST exhibit.

Comparison matrix of composition scheme versus regular GST across four dimensions.
Composition versus regular GST on the four dimensions that decide which suits a business. See the full composition-scheme exhibit.

What document does a composition dealer issue?

Short answer

A bill of supply under Rule 49[3], not a tax invoice, marked with the declaration "composition taxable person, not eligible to collect tax on supplies".

  • No GST is collected, so there is no tax line to put on a tax invoice; the bill of supply replaces it.
  • The Rule 5(1)(f) declaration is mandatory and verbatim, so the buyer knows there is no GST to claim.
  • For how the composition bill of supply differs from the unregistered-seller bill of supply, see composition or unregistered: which bill of supply, when.
  • A bill of supply generator carries the Rule 49 fields and the composition declaration, so the document is compliant from the first download.
Generate a composition bill of supply with the Rule 5(1)(f) declaration

References

  1. 1.Section 10, Central Goods and Services Tax Act 2017 (composition levy) — India Code — The composition scheme: turnover eligibility, the flat rate, and the bar on collecting tax or claiming credit.
  2. 2.Rule 5, Central Goods and Services Tax Rules 2017 (composition conditions) — CBIC — Conditions and restrictions for a composition taxable person.
  3. 3.Rule 49, Central Goods and Services Tax Rules 2017 (bill of supply) — CBIC — The document a composition dealer issues in place of a tax invoice.
  4. 4.GST portal — CBIC — Official composition-scheme rates and eligibility reference.

References & related

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