GST Composition Scheme (2026)
Notes for Competitive Exams
By Home Academy
(Focused for JKSSB Accounts, SSC, UPSC, UGC NET – with special reference to Jammu & Kashmir)
1. Meaning of GST Composition Scheme
The GST Composition Scheme is a simplified taxation scheme introduced under Section 10 of the Central Goods and Services Tax (CGST) Act, 2017 for small taxpayers.
Under this scheme, eligible businesses pay GST at a fixed percentage of their turnover instead of the normal GST rates applicable to goods and services.
The main purpose of this scheme is to reduce the compliance burden and tax liability for small businesses.
Example
If a trader has a turnover of ₹40 lakh, instead of paying GST at normal rates like 12% or 18%, he may pay only 1% tax under the composition scheme.
2. Turnover Limit (Latest 2026)
| Category | Maximum Turnover Limit |
|---|---|
| Manufacturers | ₹1.5 Crore |
| Traders / Dealers | ₹1.5 Crore |
| Restaurants (not serving alcohol) | ₹1.5 Crore |
| Service providers (composition scheme) | ₹50 Lakh |
| Special category states | ₹75 Lakh |
Aggregate turnover includes:
Taxable supplies
Exempt supplies
Exports
Inter-state supplies of branches under the same PAN.
3. GST Rates under Composition Scheme
| Type of Business | GST Rate |
|---|---|
| Manufacturer | 1% |
| Trader / Dealer | 1% |
| Restaurant (not serving alcohol) | 5% |
| Service provider | 6% |
Example
A trader has annual turnover of ₹60,00,000
GST payable under composition scheme
GST = 1% × 60,00,000
GST = ₹60,000
This is much lower compared to normal GST system.
4. Eligibility Conditions
A taxpayer can opt for the GST Composition Scheme if:
The aggregate turnover does not exceed the prescribed limit.
The taxpayer is not engaged in inter-state outward supply of goods or services.
The taxpayer does not supply goods through e-commerce operators collecting tax at source.
The taxpayer is not a manufacturer of notified goods like tobacco, pan masala, or ice cream.
The taxpayer is not a non-resident taxable person.
The taxpayer must display the words “Composition Taxable Person” at the place of business.
5. Restrictions under Composition Scheme
A composition dealer cannot:
Claim Input Tax Credit (ITC).
Collect GST from customers.
Issue Tax Invoice (only Bill of Supply allowed).
Make interstate supply of goods or services.
Export goods or services outside India.
6. Returns under Composition Scheme
Composition taxpayers file fewer returns compared to regular taxpayers.
| Return | Purpose | Due Date |
|---|---|---|
| CMP-08 | Quarterly tax payment | 18th of next month after quarter |
| GSTR-4 | Annual return | 30 April of next financial year |
7. Advantages of GST Composition Scheme
Simplified tax calculation
Lower tax rates
Reduced compliance burden
Quarterly return filing instead of monthly returns
Suitable for small traders and retailers
Example
Small grocery shops, local restaurants, and small manufacturers benefit from this scheme.
8. Disadvantages
Input tax credit cannot be claimed.
Business expansion across states is not possible.
Tax cannot be collected separately from customers.
Not suitable for large businesses.
9. Important Points Related to Jammu & Kashmir
Jammu & Kashmir implemented GST through the Jammu & Kashmir GST Act, 2017.
Important exam points:
J&K follows the same GST framework as the rest of India.
The composition scheme provisions apply in J&K under the JKGST Act and CGST Act.
Turnover limits and tax rates are the same as those applicable in other Indian states.
10. What Happens if Turnover Exceeds Limit
If a taxpayer’s turnover exceeds ₹1.5 crore, the composition scheme becomes invalid.
In such cases:
The taxpayer must shift to the regular GST scheme.
Normal GST rates will apply.
The taxpayer must issue tax invoices.
Monthly GST returns must be filed.
11. Important Exam Points (Very Important for JKSSB)
Composition scheme governed by Section 10 of CGST Act
Maximum turnover limit ₹1.5 crore
Service provider limit ₹50 lakh
Trader GST rate 1%
Restaurant GST rate 5%
Service composition rate 6%
Composition dealer cannot claim Input Tax Credit
Return filed quarterly CMP-08
12. MCQ Questions for Competitive Exams
Question 1
GST Composition Scheme is provided under which section of CGST Act?
A. Section 7
B. Section 10
C. Section 15
D. Section 20
Answer
B
Explanation
Section 10 of the CGST Act provides the legal framework for the GST Composition Scheme.
Question 2
The maximum turnover limit for traders under the GST Composition Scheme is:
A. ₹50 lakh
B. ₹75 lakh
C. ₹1.5 crore
D. ₹2 crore
Answer
C
Explanation
The maximum turnover allowed for manufacturers and traders under the scheme is ₹1.5 crore.
Question 3
Which of the following businesses cannot opt for the composition scheme?
A. Local grocery shop
B. Small restaurant
C. Interstate supplier
D. Small manufacturer
Answer
C
Explanation
Businesses making interstate supply are not eligible for the composition scheme.
Question 4
Under the composition scheme, traders pay GST at the rate of:
A. 5%
B. 12%
C. 1%
D. 18%
Answer
C
Explanation
Traders pay 1% GST on turnover under the composition scheme.
Question 5
Which return is filed quarterly by composition taxpayers?
A. GSTR-1
B. CMP-08
C. GSTR-3B
D. GSTR-2
Answer
B
Explanation
Composition taxpayers pay tax quarterly through CMP-08.
Question 6
Input Tax Credit under the composition scheme is:
A. Fully allowed
B. Partially allowed
C. Not allowed
D. Allowed only for manufacturers
Answer
C
Explanation
Composition dealers cannot claim Input Tax Credit (ITC).
Quick Revision Table
| Feature | Composition Scheme |
|---|---|
| Governing law | Section 10 CGST Act |
| Max turnover | ₹1.5 crore |
| Service provider limit | ₹50 lakh |
| Trader tax rate | 1% |
| Restaurant tax rate | 5% |
| Service provider tax rate | 6% |
| ITC availability | Not allowed |
| Return filing | CMP-08 quarterly |