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
Last reviewed
25 June 2026
In this section
Answers
- What Is the GST Composition Scheme Under Section 10?
- What Is a Pakka Bill? The GST Invoice That Counts as Valid
- What Is a Kaccha Bill? Why the Rough Slip Has No GST Standing
- Why Move From a Kaccha Bill to a Pakka Bill?
- How to Upgrade From a Kaccha Bill to a Pakka Bill (GST Invoice)
- 5 GST Invoice Mistakes That Trigger a Tax Notice (And How to Fix Them)
- 7 Fields Every Skilled Professional Must Put on a GST Invoice: Rule 46 Checklist
- What Makes a GST Invoice Legally Binding — And Why Clients Pay Faster When It Is
- What Is a Bill of Supply? The GST Document Without Tax
- What Is an IRN (Invoice Reference Number) Under GST?
The composition scheme just means a lower GST rate that you still charge your customers.
Under Section 10 of the CGST Act, 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: 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.
What flat rate does a composition dealer pay?
Short answer
A flat rate on turnover under Section 10: 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 type | Composition rate | Versus regular GST |
|---|---|---|
| Traders and manufacturers | 1% of turnover | Standard 5–28% slab, collected from buyer |
| Restaurants (not serving alcohol) | 5% of turnover | Standard slab, full ITC available |
| Service composition (Section 10(2A)) | 6% of turnover | Standard slab on each service |
Source: Section 10, CGST Act 2017. The dealer pays this out of pocket because the scheme bars collecting GST from customers. See the composition vs regular GST exhibit.
What document does a composition dealer issue?
Short answer
A bill of supply under Rule 49, 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 49(2)(b) 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.
References & related
Primary sources
- Section 10, Central Goods and Services Tax Act 2017 (composition levy) — India CodeThe composition scheme: turnover eligibility, the flat rate, and the bar on collecting tax or claiming credit.
- Rule 5, Central Goods and Services Tax Rules 2017 (composition conditions) — CBICConditions and restrictions for a composition taxable person.
- Rule 49, Central Goods and Services Tax Rules 2017 (bill of supply) — CBICThe document a composition dealer issues in place of a tax invoice.
- GST portal — CBICOfficial composition-scheme rates and eligibility reference.
Last reviewed: 25 June 2026