GST worked examples: composition scheme

Small taxpayers may opt to pay tax at a flat percentage of turnover under section 10, in place of the normal scheme. They file simpler returns but cannot collect tax from customers or take input tax credit. Figures are illustrations; rates and limits are those in force on 04.10.2026.

F.1 — A trader under composition

Facts. A Delhi trader with an aggregate turnover of Rs. 1 crore in the preceding year opts for composition.

1. Eligible: turnover within Rs. 1.5 crore (Rs. 75 lakh in specified special-category States).
2. Rate for traders: 1% of the turnover of taxable supplies of goods in the State — 0.5% CGST + 0.5% SGST (Rule 7). On Rs. 1 crore, Rs. 1,00,000.
3. Tax is paid quarterly (Form CMP-08) and an annual return filed (GSTR-4) under section 39(2).
4. The trader issues a bill of supply, cannot charge tax, and cannot take credit.
5. Not allowed: inter-State outward supplies, supplies of services through an e-commerce operator that collects TCS, and manufacture of notified goods such as pan masala and tobacco products. From 01.10.2023, goods may be sold through e-commerce operators.

Result. Tax of Rs. 1,00,000 for the year, paid from the trader's own pocket.

F.2 — A restaurant under composition

Facts. A Delhi restaurant (not serving alcohol) with turnover of Rs. 80 lakh opts for composition.

1. Rate for restaurant services: 5% of turnover — 2.5% CGST + 2.5% SGST (Rule 7). On Rs. 80 lakh, Rs. 4,00,000.
2. The same conditions apply as for traders: no credit, no tax collected from customers, no inter-State outward supplies.

Result. The same 5% as a restaurant under the normal scheme, but with simpler compliance.

F.3 — A service provider under section 10(2A)

Facts. A Delhi consultant with turnover of Rs. 30 lakh in the preceding year, not eligible for composition under section 10(1), opts to pay tax under section 10(2A).

1. Eligible: turnover up to Rs. 50 lakh.
2. Rate: 6% of turnover — 3% CGST + 3% SGST. On Rs. 30 lakh, Rs. 1,80,000.
3. Restrictions similar to section 10(1): no inter-State outward supplies, no supplies of services through an e-commerce operator that collects TCS, no credit, no tax collected.

Result. Useful only where the customers are not registered businesses wanting credit.

F.4 — Crossing the limit during the year

Facts. A Delhi composition trader's turnover crosses Rs. 1.5 crore in January.

1. The option lapses from the day turnover exceeds the limit (section 10(3)).
2. The trader intimates withdrawal in Form CMP-04 within seven days and pays tax under the normal scheme from that day.
3. It may claim credit on inputs held in stock, and in semi-finished or finished goods, on that day, by filing Form ITC-01 within thirty days (section 18(1)(c)).

Result. Composition tax up to the day of crossing; normal tax, with credit on stock, after it.