Software Costs and 2026 GST Rules
GST composition scheme: CMP-08, GSTR-4, eligibility and the real cost of compliance
Who can opt for the GST composition scheme, the 1%, 5% and 6% rates, quarterly CMP-08 and annual GSTR-4 filing, when it is cheaper than regular GST and what software you need.
The composition scheme lets small businesses pay GST as a flat percentage of turnover instead of charging GST on each invoice and claiming input tax credit. For goods suppliers the turnover limit is ₹1.5 crore (lower in some special category states), and for service providers under the separate service scheme ₹50 lakh. Rates are 1% for manufacturers and traders, 5% for restaurants not serving alcohol, and 6% for eligible service providers. Compliance is light: a quarterly CMP-08 and one annual GSTR-4, which most dealers can file without paid software. The trade-off is that you cannot claim ITC, cannot charge GST to customers, and face restrictions on inter-state supplies.
This guide belongs to the GST return filing software overview. If you are a regular taxpayer under ₹5 crore instead, compare it with QRMP quarterly filing; all dates are in GST return due dates 2026. Figures are illustrative.
Who can and cannot opt in
You can opt in if, in the preceding financial year, your aggregate turnover (all GSTINs under the same PAN) was within the limit and you meet the conditions. You generally cannot opt in if you:
- make inter-state outward supplies of goods;
- supply goods that are not taxable under GST or are notified as excluded (for example, ice cream, pan masala and tobacco products);
- are a casual taxable person or non-resident taxable person;
- supply services beyond the limits allowed (a goods dealer can supply services up to 10% of turnover or ₹5 lakh, whichever is higher);
- are subject to conditions on supplying through e-commerce operators (these were relaxed for goods in 2023; check the current rule).
You opt in by filing CMP-02 on the portal before the start of the financial year (new registrants choose at registration). All GSTINs under the same PAN must be in the scheme together.
The limits and conditions come from section 10 of the CGST Act and notifications. Check the current position on CBIC GST, especially the special category state limits.
Rates and how tax is calculated
| Type of business | Composition rate (CGST + SGST) | Calculated on |
|---|---|---|
| Manufacturers (other than excluded goods) | 1% | Turnover in the state |
| Traders | 1% | Turnover of taxable supplies |
| Restaurants not serving alcohol | 5% | Turnover in the state |
| Service providers under the service scheme | 6% | Turnover in the state |
Tax is paid from your own pocket: you issue a bill of supply (not a tax invoice) marked "composition taxable person, not eligible to collect tax on supplies", and you cannot add GST to the price as a separate line. Purchases from unregistered persons that fall under reverse charge are taxed at the normal rate, not the composition rate.
Filing obligations
| Form | What | When |
|---|---|---|
| CMP-08 | Self-assessed tax for the quarter, with payment | 18th of the month after the quarter |
| GSTR-4 | Annual return with inward and outward supply summary | 30 June after the year (date changed from 30 April from FY 2024-25; confirm on the portal) |
| CMP-04 | Intimation to leave the scheme | When you opt out or become ineligible |
Composition dealers do not file GSTR-1, GSTR-3B or GSTR-9. Late fees apply to a late GSTR-4 and interest at 18% a year to tax paid late through CMP-08.
Worked example: composition or regular?
An illustrative Lucknow hardware trader has ₹90 lakh of annual sales, all to consumers in Uttar Pradesh, and ₹78 lakh of purchases on which suppliers charged GST at 18% (₹14.04 lakh of GST).
Composition. Tax = 1% × ₹90 lakh = ₹90,000. Purchase GST of ₹14.04 lakh is a cost; it is already built into the ₹78 lakh purchase price if you treat it as cost.
Regular scheme. Suppose the trader charges 18% on ₹90 lakh = ₹16.2 lakh output tax and claims ₹14.04 lakh ITC. Net cash tax = ₹2.16 lakh. But the 18% is collected from customers on top of the price, so whether regular is worse depends on whether customers will pay the extra.
For a shop selling to end consumers in a competitive market, the composition scheme often lets the trader keep shelf prices lower. For a business selling to GST-registered buyers, composition is usually a poor fit: buyers cannot claim any credit on your bill of supply and may prefer a regular supplier.
The compliance cost side
| Item | Composition dealer (illustrative) | Regular QRMP dealer (illustrative) |
|---|---|---|
| Returns per year | 4 CMP-08 + 1 GSTR-4 | 4 GSTR-1 + 4 GSTR-3B + optional IFF + GSTR-9 above ₹2 crore |
| ITC reconciliation | None | Every quarter |
| Professional fee | ₹3,000–₹8,000 a year | ₹6,000–₹18,000 a year |
| Software need | Simple billing app or none | Billing plus GSTR-2B reconciliation |
| ITC on software subscription | Not available | Usually available |
Put your own figures into the annual compliance cost estimator.
Leaving the scheme
You must leave when turnover crosses the limit during the year, when you start inter-state supplies or excluded goods, or if you choose to. File CMP-04 (or the scheme ends automatically on crossing the limit) and you become a regular taxpayer from that date. You can then claim ITC on stock in hand on that day by filing ITC-01 within the time allowed, subject to conditions. Plan this with your accountant: your billing software must switch from bills of supply to tax invoices on the same day.
Frequently asked questions
Can a composition dealer sell to a GST-registered buyer?
Yes, but the buyer cannot claim ITC because a bill of supply carries no GST. That is why many B2B buyers prefer regular suppliers.
Do composition dealers need e-way bills?
Yes, e-way bill rules apply to movement of goods regardless of the scheme, subject to the value threshold. See e-invoicing and e-way bill rules.
Can I file CMP-08 as a nil statement?
Yes. A nil CMP-08 can be filed on the portal, and by SMS where the portal allows it, when you had no turnover or liability for the quarter.
Did GST 2.0 change composition rates?
The September 2025 rate rationalisation changed the rates on goods and services charged by regular taxpayers. The composition rates are set separately; confirm whether any change has been notified on CBIC GST.
Sources
- CBIC GST — section 10 of the CGST Act, composition rules and rate notifications
- GST portal — CMP-02, CMP-08, GSTR-4 filing and due dates
- GST Council — recommendations on scheme limits
