Nov 30, 2025
If you’re a small business owner or local trader, managing full GST compliance — monthly filings, ITC reconciliation, and invoices — can be overwhelming. That’s where the GST Composition Scheme comes in.
The scheme offers a simplified tax system for small taxpayers, allowing them to pay tax at a fixed rate on turnover and file quarterly instead of monthly. However, opting in comes with specific restrictions — particularly around Input Tax Credit (ITC) and interstate trade.
Let’s break down who can opt for the Composition Scheme, its benefits, limitations, and how to decide if it’s right for your business.
What is the GST Composition Scheme?
The GST Composition Scheme is designed for small businesses to reduce compliance burden. Instead of collecting tax from customers and claiming ITC, taxpayers pay GST at a fixed rate of their turnover directly to the government.
This scheme is particularly beneficial for small traders, manufacturers, and restaurants that deal primarily in local (intra-state) sales.
Eligibility Criteria
You can opt for the scheme if:
Your annual aggregate turnover is up to ₹1.5 crore (₹75 lakh in special category states).
You only supply within your own state (intra-state).
You are not supplying through e-commerce platforms like Amazon or Flipkart.
Tax Rates Under the Composition Scheme
Business Type | GST Rate on Turnover | ITC Available? |
|---|---|---|
Manufacturers | 1% | ❌ No |
Traders/Dealers | 1% (0.5% CGST + 0.5% SGST) | ❌ No |
Restaurants (not serving alcohol) | 5% | ❌ No |
Service Providers (optional composition) | 6% | ❌ No |
Compliance Simplified
File quarterly returns (CMP-08) instead of monthly GSTR-3B.
Annual return (GSTR-4) once every year.
No need to maintain detailed ITC or HSN-wise records.
Must mention “Composition Taxable Person — Not Eligible to Collect Tax on Supplies” on invoices.
Benefits of the Composition Scheme
✅ Simplified Compliance: Quarterly returns and fewer records to maintain.
✅ Lower Tax Rates: Helps maintain competitive pricing.
✅ Better Cash Flow: No waiting for ITC refunds.
✅ Ease of Operation: Ideal for small traders and service providers with limited reach.
Limitations
❌ Cannot issue tax invoices or collect GST from customers.
❌ Cannot claim Input Tax Credit (ITC).
❌ Not eligible for interstate or e-commerce sales.
❌ Must pay tax even on exempt supplies.
❌ Cannot avail GST refunds on exports or inverted duty.
Should You Opt In?
Choose the Composition Scheme if:
You primarily sell locally.
You have few business expenses or purchases with GST.
You want to reduce filing frequency and compliance cost.
Avoid it if you regularly buy from GST-registered suppliers or make interstate sales — as you’ll lose out on ITC benefits.
Conclusion
The Composition Scheme is a great tool for small businesses that prefer simplicity over detailed compliance. Before opting in, evaluate your turnover, input costs, and business expansion plans.
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