The Composition Scheme is a simplified GST option for small businesses below a specified annual turnover threshold (currently ₹1.5 crore for most states, ₹75 lakh for a few special-category states, with a separate ₹50 lakh threshold for eligible service providers). Instead of charging GST at the regular rate on every sale and filing detailed monthly returns, a Composition Scheme taxpayer pays GST at a small fixed percentage of their total turnover (rates vary by business type, generally 1% for traders and manufacturers, 5% for restaurants not serving alcohol, and 6% for eligible service providers) and files simpler quarterly returns with an annual return. The trade-off: a Composition Scheme taxpayer cannot charge GST separately on invoices to customers, cannot claim Input Tax Credit on their own purchases, and still cannot supply goods inter-state. The e-commerce restriction has loosened since the scheme first launched: effective 1 October 2023, composition taxpayers can supply goods intra-state through e-commerce operators (inter-state supply through e-commerce remains barred). It suits small, mostly business-to-consumer operations where the compliance simplicity outweighs the loss of ITC and inter-state flexibility, but is usually the wrong choice for businesses selling primarily to other GST-registered businesses, since those buyers can't claim ITC on a Composition Scheme supplier's invoice.
Example: A small Surat retail shop with ₹80 lakh annual turnover, selling mostly to individual customers, opts into the Composition Scheme and pays a flat 1% GST on turnover instead of tracking GST on every sale at the regular rate.
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