GST Composition Scheme: Eligibility, Rates and Pros and Cons
The composition scheme is a simplified GST option for small businesses. Instead of charging GST on every sale and claiming credits, you pay a small fixed percentage of your turnover and file fewer returns.
Key features
- Available to small taxpayers below a turnover limit (the limit is higher for goods than for services, and different for some states). Check the current limit on the GST portal.
- You pay tax at a low flat rate on turnover. The rate depends on the type of business: manufacturers and traders, restaurants, or eligible service providers.
- You file a simpler quarterly statement instead of monthly returns (with annual return too).
Restrictions
- No input tax credit on purchases.
- You cannot charge GST to customers or show it separately. You issue a bill of supply and not a tax invoice, and must mention that you are a composition taxable person.
- Not allowed for most interstate suppliers of goods, e-commerce sellers and some other categories.
Composition vs regular scheme
| Composition | Regular | |
|---|---|---|
| Tax | Flat % of turnover | GST on each sale, minus credit |
| Input tax credit | Not allowed | Allowed |
| Invoice type | Bill of supply | Tax invoice |
| Compliance | Lighter | Full |
| Sell to GST-registered businesses | They cannot claim credit, so some buyers avoid you | They can claim credit |
Who should consider it?
It suits small retailers, small restaurants and tiny traders who sell mostly to consumers and have low purchase GST to claim. It does not suit you if you sell to other businesses, buy a lot of goods with GST or sell across states.
Related reading: what is GST, GST registration limit and input tax credit.
Limits and rates differ by business type and may change. Please check the latest notification or ask your CA before opting in.