Starting a business is complex enough. Fortunately, the GST framework offers a simple, low-hassle option for small taxpayers: the Composition Scheme. It’s not just a registration type; it’s a strategic choice designed to minimize paperwork and reduce tax liability.
If you run a local shop, a small manufacturing unit, or a standalone restaurant, here is why the Composition Scheme might be your best friend.
What is the Composition Scheme?
Instead of wading through complex monthly returns and calculating tax on every single invoice (the Regular Scheme), you pay a flat, low percentage of your total quarterly sales as tax. This fixed rate replaces the standard GST rates of 5%, 12%, 18%, and 28%.
The core trade-off is simple: Less paperwork and lower tax payment in exchange for NO Input Tax Credit (ITC).
Eligibility & Low-Cost Rates
The scheme is strictly limited by your business turnover in the preceding financial year.
Business Type | Fixed GST Rate on Turnover |
Manufacturers & Traders | 1% (0.5% CGST + 0.5% SGST) |
Restaurants (Non-Alcoholic) | 5% (2.5% CGST + 2.5% SGST) |
Other Service Providers | 6% (3% CGST + 3% SGST) |
Who Must Not Opt for the Scheme?
You are ineligible if your business falls into any of these categories:
- You make Inter-State outward supplies (selling goods to another state).
- You supply goods through an E-Commerce Operator (like selling on Amazon or Flipkart).
- You are a manufacturer of Notified Goods (Ice cream, Pan Masala, Tobacco, etc.).
- You are a Non-Resident Taxable Person or a Casual Taxable Person.
Conclusion: Is it Right for You?
Choose the Composition Scheme if:
- Your primary customers are the end consumers (B2C).
- You operate strictly within one state.
- You want the absolute minimum compliance burden possible.
- The tax paid on your inputs (purchases) is low or negligible compared to the benefit of low output tax.
Avoid the Composition Scheme if:
- Your customers are other businesses (B2B) who rely on claiming ITC from your sales.
- You plan to expand and sell inter-state.
The Composition Scheme is the government’s way of empowering local, small businesses to focus on growth, not paperwork.