Composition Scheme vs Regular GST: Which Is Right for You
The composition scheme exists to simplify GST for small businesses — a flat tax rate on turnover instead of line-by-line GST calculation, and far lighter return filing. The tradeoff is real, and it isn't right for every small business, even every eligible one.
Composition scheme, in short
- Eligibility: generally up to ₹1.5 crore annual turnover for traders and manufacturers (lower in special category states), ₹50 lakh for service providers under the separate composition option for services.
- Tax rate: a flat percentage of turnover — commonly 1% for traders/manufacturers, 5% for restaurants, 6% for the services composition option — instead of the item-by-item GST rate.
- No input tax credit — you can't claim ITC on what you buy, and neither can your customers on what they buy from you, since you issue a bill of supply, not a tax invoice.
- No inter-state sales (with narrow exceptions) — composition dealers are generally restricted to selling within their own state.
- Simpler filing — quarterly payment via CMP-08, an annual return, instead of monthly/quarterly GSTR-1 and GSTR-3B.
When it's a genuinely good fit
Composition makes the most sense when your customers are end consumers or other composition/unregistered businesses who were never going to claim input tax credit from you anyway — a lot of retail, small manufacturing, and local services fits this pattern well.
When it works against you
If your customers are GST-registered businesses claiming ITC, composition status becomes a real disadvantage — you can't issue them a tax invoice, so nothing you charge is creditable on their side, and that alone can lose you B2B clients who default to preferring a regular-GST vendor for exactly this reason.
Registration thresholds for GST generally are covered in GST registration threshold 2026 — worth reading first if you haven't registered at all yet.