Compliance
The GST Composition Scheme, Explained
The composition scheme lets small businesses pay GST at a low flat rate with minimal filing — but at the cost of input credit and some freedoms. This guide helps you decide if it fits.
What the scheme is
The composition scheme is a simplified option for small businesses. Instead of charging GST on each invoice and doing full monthly filing, you pay a small flat percentage of your turnover and file a simple quarterly statement (CMP-08) plus an annual return. It trades tax efficiency for simplicity.
The flat rates
- Traders and manufacturers: 1% of turnover
- Restaurants (not serving alcohol): 5% of turnover
- Eligible service providers (special composition): 6% of turnover
Who can opt in
The scheme is for businesses below a turnover ceiling — generally ₹1.5 crore for goods (lower in some special-category states) and ₹50 lakh for the service composition option. But eligibility isn’t only about size: you must not make inter-state outward supplies, must not sell through e-commerce operators, and must not deal in certain notified goods.
The trade-offs you must accept
- You cannot collect GST from customers — the flat tax comes out of your margin
- You cannot claim input tax credit on your purchases
- You cannot make inter-state sales or sell on e-commerce platforms
- Your invoices are a “bill of supply”, not a tax invoice — B2B buyers get no credit from you
When it’s right — and wrong
Composition suits a small, local B2C business — a neighbourhood shop or restaurant — that buys from within the state, sells to end consumers, and values simplicity. It’s the wrong choice for anyone selling B2B (your buyers lose credit), selling online, or supplying across state lines. We assess your customer mix before recommending it, because switching later has its own rules.
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