Chartered Accountant · ICAI M.No. 153926 · FRN 136869W · Reviewed on 7 October 2026
Why the scheme and ITC cannot coexist
Composition under section 10 trades compliance load for credit rights: turnover up to ₹1.5 crore (₹75 lakh in special-category states) for manufacturers and traders at 1%, restaurants at 5%, and the section 10(2A) services option at 6% up to ₹50 lakh. You file quarterly CMP-08 and an annual return, cannot charge GST on your bills, cannot make inter-state outward supplies — and every rupee of GST on your purchases becomes a cost.
Entering and exiting: the stock mathematics
Switching regular → composition: reverse the ITC sitting in inputs, semi-finished goods and capital goods (proportionate) via ITC-03. Switching composition → regular (voluntarily, or compulsorily the day you cross the turnover ceiling): claim credit on stock in hand through ITC-01 within 30 days — miss the window and that credit is gone. Date discipline on the switch day decides real money.
Who should actually choose composition
B2C-heavy traders and restaurants with thin input credits — yes. Anyone selling B2B — think hard: your buyers lose their credit, which usually costs you the customer, not just the tax. Two more traps: RCM still applies to composition dealers at full rates with no ITC relief, and e-commerce sales through platforms were historically barred (now permitted within the state for goods, with conditions). Our GST practice runs the composition-vs-regular arithmetic on your actual margins before you commit.