Composition Scheme Under GST: Who Qualifies and What Changes
The GST Composition Scheme lets small businesses pay a low flat percentage of turnover with simpler compliance. It is generally open to businesses with annual turnover up to ₹1.5 crore (₹75 lakh in some special category states), and not for inter-state outward supplies or e-commerce sellers. The catch: you cannot claim input tax credit, and your buyers cannot claim it on your sales.
The Composition Scheme gives small businesses a simpler, lower-rate alternative to standard GST compliance. The cost of that simplicity is real restrictions, and some businesses discover them only after opting in.
Who can opt in
- ✓Annual turnover up to ₹1.5 crore. The limit is lower, at ₹75 lakh, in some special category states. Service providers have a separate, lower limit.
- ✓Not available to businesses making inter-state outward supplies, e-commerce sellers who must collect tax at source, or manufacturers of certain notified goods.
- ✓Rules and limits are revised from time to time, so check the current position.
How it differs from regular GST
| Regular scheme | Composition scheme | |
|---|---|---|
| Tax rate | Standard rates on each sale | A small flat percentage of turnover |
| Input tax credit | Can be claimed | Cannot be claimed |
| Collecting tax from customers | Yes, shown on the invoice | No |
| Invoice | Tax invoice | Bill of supply |
| Returns | Monthly or quarterly GSTR-1 and GSTR-3B | Quarterly payment statement and an annual return |
| Inter-state sales | Allowed | Not allowed |
The trade-off most people underestimate
A composition dealer cannot claim input tax credit on purchases, and customers cannot claim credit on their purchases from a composition dealer. A business buyer who needs credit will often prefer a regular supplier, even at a slightly higher price.
When it makes sense
- ✓Small, mostly consumer-facing businesses, such as a local shop or a restaurant
- ✓Little or no inter-state sale
- ✓Low input costs, so the lost credit does not matter much
- ✓A strong wish to reduce paperwork
When it does not
- ✓Businesses selling mainly to other businesses
- ✓Businesses that buy a lot of GST-paying inputs
- ✓Those expecting to grow past the limit soon
- ✓Anyone who plans to sell across state lines
Before you opt in
- Add up what you pay in GST on purchases in a typical year.
- Compare it with what composition tax would cost.
- Ask your key customers whether they need credit.
- Ask your accountant to model both options.
Switching
You can move between the schemes, but only at set times and subject to conditions, so plan the change instead of reacting to a bad quarter.
Written by
Founder, Airwix Technologies (Sleet)
Vatsal Sutariya is the founder of Airwix Technologies in Ahmedabad, the company that builds Sleet: SleetHR for HR and payroll, and Sleet Accounting for GST billing and books. He writes about GST, invoicing, business tax and choosing software for Indian businesses, and checks each rule against the official notification before it is published.
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