Composition is not one universal rate. Eligible manufacturers and traders generally pay 1% combined tax, qualifying restaurants 5%, and eligible service or mixed suppliers under section 10(2A) 6%. The rate, turnover base and eligibility must be matched to the taxpayer’s actual supply mix.
Current law first, source draft second
This page preserves the useful intent of the supplied draft but corrects duplicated text, outdated dates, unsupported statistics and overbroad legal statements. Rates and portal procedures can change; verify the live notification and facts before filing or pricing.
Effective-date control: A rate, waiver or procedure described for an earlier period must not be applied to a 2026 transaction merely because it still appears in an older article or search result.
Traders
A local retailer may benefit where customers are consumers and input GST is modest. Wholesalers often prefer regular GST because business customers value credit and margins are sensitive to embedded input tax.
Manufacturers
Check the notified exclusion list before opting. Ice cream and other edible ice, pan masala and tobacco products are established exclusions; notification changes should be checked before every financial year.
Restaurants
The 5% composition category applies to qualifying restaurant services under the scheme. Alcohol supply remains outside GST, and premises or mixed supplies may create separate tax questions.
Service providers
Section 10(2A) created a 6% combined levy for eligible service or mixed suppliers with preceding-year turnover up to ₹50 lakh. This is distinct from the limited service allowance attached to the goods composition scheme.
Composition versus regular
Compare embedded input tax, customer ITC expectations, interstate plans, e-commerce channel, recordkeeping, margin and growth. A lower headline rate may produce a higher economic cost when purchase tax cannot be credited.
Annual control cycle
Before the year begins, forecast PAN-level turnover, verify supply mix and exclusions, decide via CMP-02 where applicable, reverse ITC correctly, update invoice legends, monitor thresholds monthly and plan a clean exit if growth requires it.
Get the GST position checked before acting
Map the transaction, effective date, registration, classification, valuation, input credit and return treatment to the current law and documents.
Request a GST compliance reviewFrequently asked questions
Is the composition rate always 1%?
No. Qualifying restaurants generally use 5%, and eligible section 10(2A) suppliers use 6%.
Can a jeweller use composition?
Eligibility depends on turnover and all statutory conditions; product classification and interstate or e-commerce activity must be checked.
Can a works contractor use the goods scheme?
Works contract is treated as a service; test eligibility under the service-provider framework rather than assuming trader treatment.
Is purchase GST refundable?
No ITC is available to a composition taxpayer, so eligible purchase tax is embedded as cost.
Can a composition seller issue a tax invoice?
No. The prescribed document is a bill of supply.
Can a person have one regular GSTIN and one composition GSTIN on the same PAN?
The option applies across registrations under the same PAN as prescribed; mixed treatment is generally not permitted.
Does quarterly payment mean no annual return?
No. CMP-08 is quarterly and GSTR-4 is the annual return.
