The composition scheme is GST’s simpler track for small businesses: pay a small, flat percentage of turnover and file less often. It suits some shops very well and others not at all.
Who can opt in
Based on the previous year’s aggregate turnover:
- Traders and manufacturers of goods: up to ₹1.5 crore (₹75 lakh in special-category states).
- Service providers (under the separate services option): up to ₹50 lakh.
You cannot opt in if, among other things, you make inter-state outward supplies of goods, sell through an e-commerce operator that collects tax at source, or deal in certain notified goods.
The rates
| Business | Rate on turnover |
|---|---|
| Traders and manufacturers | 1% |
| Restaurants (not serving alcohol) | 5% |
| Service providers (services option) | 6% |
The rate is split equally between CGST and SGST.
What you give up
- You cannot charge GST to your customers. The tax comes out of your own margin.
- You cannot claim input tax credit on your purchases.
- You cannot sell goods to other states.
- You issue a bill of supply, not a tax invoice, and it must say you are a composition taxable person not eligible to collect tax.
That last point matters to your buyers: a business buying from you cannot claim credit on what it paid.
Is it right for you?
It usually suits shops that sell mostly to consumers within their own state, on thin paperwork, where customers do not need input tax credit. It usually does not suit wholesalers selling to registered businesses, or anyone with sizeable purchases on which credit would otherwise be claimed.
In Billyng
Billyng issues GST tax invoices and quotations. It does not yet produce a bill of supply for composition dealers — if you are on the composition scheme, keep that in mind before you switch.
General guidance only. Check the current rules on the CBIC site or with your tax adviser.