📌 Key Takeaway: Is the GST Composition Scheme right for your small business? Learn turnover limits (₹1.5 Cr for goods, ₹50L for services), flat tax rates (1%, 5%, 6%), and restrictions.
What is the GST Composition Scheme?
The GST Composition Scheme under Section 10 of the CGST Act is a simplified compliance mechanism designed to reduce the accounting burden for small traders, manufacturers, and restaurants. Instead of maintaining complex invoice-level records and paying tax on every sale, composition dealers pay a nominal flat percentage of their quarterly turnover and file simple quarterly statements (CMP-08).
Turnover Eligibility Thresholds
To opt into the scheme, your aggregate annual turnover must be within:
- Manufacturers & Traders of Goods: Aggregate turnover up to ₹1.5 Crores in the preceding financial year (₹75 Lakhs for Special Category States).
- Service Providers & Mixed Suppliers (Section 10(2A)): Aggregate turnover up to ₹50 Lakhs in the preceding financial year.
- Restaurants (Not serving alcohol): Turnover up to ₹1.5 Crores.
Applicable Flat Tax Rates
| Business Category | CGST | SGST | Total GST Rate |
|---|---|---|---|
| Traders of Goods | 0.5% | 0.5% | 1.0% on taxable turnover |
| Manufacturers of Goods | 0.5% | 0.5% | 1.0% on total turnover |
| Restaurants (No Alcohol) | 2.5% | 2.5% | 5.0% on total turnover |
| Service Providers (Sec 10(2A)) | 3.0% | 3.0% | 6.0% on total turnover |
Key Legal Restrictions and Prohibitions
Before choosing composition, consider these strict statutory limitations:
- No ITC Collection or Claim: You CANNOT collect GST from your customers on bills (you must issue a Bill of Supply) and you CANNOT claim Input Tax Credit on your purchases.
- No Inter-State Outward Supplies: You cannot make inter-state sales of goods across state borders.
- No E-Commerce Supplies: You cannot sell goods through e-commerce operators like Amazon/Flipkart.