# What Is the GST Composition Scheme Under Section 10?

**Category:** GST | **Published:** 2026-06-25 | **Last reviewed:** 2026-06-26 | **Author:** Mrs. Swapna Patel

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.

> **Myth:** The composition scheme just means a lower GST rate that you still charge your customers.
>
> **Fact:** Under [Section 10 of the CGST Act](https://www.indiacode.nic.in/handle/123456789/2406), 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](https://www.indiacode.nic.in/handle/123456789/2406): 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](https://hrareceipt.in/atlas/gst-registration-thresholds-2026)**

## What flat rate does a composition dealer pay?

> **Short answer:** A flat rate on turnover under [Section 10](https://www.indiacode.nic.in/handle/123456789/2406): 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%–18% slab (40% sin/luxury), 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](https://www.indiacode.nic.in/handle/123456789/2406). The dealer pays this out of pocket because the scheme bars collecting GST from customers. See the [composition vs regular GST exhibit](/atlas/composition-scheme-vs-regular-gst).*

*[Visual: Comparison matrix of the composition scheme versus regular GST across turnover cap, tax rate, input tax credit, and document type: composition is capped at ₹1.5 crore for goods and ₹50 lakh for services, charges a flat 1 to 6 percent paid by the dealer, allows no input tax credit, and issues a bill of supply. — Composition versus regular GST on the four dimensions that decide which suits a business. See the full [composition-scheme exhibit](/atlas/composition-scheme-vs-regular-gst).]*

## What document does a composition dealer issue?

> **Short answer:** A bill of supply under [Rule 49](https://cbic-gst.gov.in/pdf/CGST-Rules-Sept-2023.pdf), 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](/answers/composition-vs-unregistered-bill-of-supply-when).
- A [bill of supply generator](/bill-of-supply) 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 49 declaration](https://hrareceipt.in/bill-of-supply)**

## Primary sources

- [Section 10, Central Goods and Services Tax Act 2017 (composition levy) — India Code](https://www.indiacode.nic.in/handle/123456789/2406) — The 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) — CBIC](https://cbic-gst.gov.in/pdf/CGST-Rules-Sept-2023.pdf) — Conditions and restrictions for a composition taxable person.
- [Rule 49, Central Goods and Services Tax Rules 2017 (bill of supply) — CBIC](https://cbic-gst.gov.in/pdf/CGST-Rules-Sept-2023.pdf) — The document a composition dealer issues in place of a tax invoice.
- [GST portal — CBIC](https://cbic-gst.gov.in/) — Official composition-scheme rates and eligibility reference.

## Related

- [Composition or unregistered: which bill of supply do you issue?](https://hrareceipt.in/answers/composition-vs-unregistered-bill-of-supply-when)
- [What is a bill of supply, and when does it replace a tax invoice?](https://hrareceipt.in/answers/what-is-a-bill-of-supply)
- [GST registration thresholds, mapped for 2026](https://hrareceipt.in/atlas/gst-registration-thresholds-2026)

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*Source: [What Is the GST Composition Scheme Under Section 10?](https://hrareceipt.in/answers/gst-composition-scheme-section-10) — HRAReceipt.in*
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