Composition Scheme (GST)
A simplified GST scheme for small businesses below a turnover threshold, allowing a flat, lower tax rate on turnover in exchange for giving up input tax credit.
In short
- Available to small businesses below ₹1.5 crore turnover (lower for some special category states, separate limit for services).
- Pay a flat, low percentage of turnover instead of the regular GST rate structure.
- Trade-off: no input tax credit, can't charge GST separately on invoices, and generally can't make inter-state outward supplies.
The composition scheme lets small businesses below a specified annual turnover threshold, currently ₹1.5 crore for most states, lower for a few special category states, with a separate, lower threshold for services, pay GST at a flat, low percentage of turnover instead of the regular rate structure, and file returns quarterly rather than monthly.
The tradeoff is that composition dealers cannot claim input tax credit on their purchases, cannot charge GST separately on invoices to customers, and cannot make inter-state outward supplies in most cases. It suits small businesses selling mainly to end consumers, where the buyer doesn't need to claim ITC anyway, far better than businesses selling primarily to other GST-registered businesses.
Also referred to as: GST composition scheme, composition scheme.
Frequently asked questions
Can a composition dealer claim input tax credit?
No. Giving up ITC is the core trade-off for the composition scheme's lower rate and simpler compliance.
Can a composition dealer sell to other states?
Generally no, the scheme is largely restricted to intra-state supply in most cases.
Who is the composition scheme best suited for?
Small businesses selling mainly to end consumers, where the buyer has no need to claim ITC on the purchase anyway.
Disclaimer
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.