Composition scheme
An optional GST scheme for small taxpayers, who pay tax at a fixed percentage of turnover and keep their compliance simple.
What it means in business
Under the composition scheme a small business pays a flat percentage of its turnover instead of the normal rates, and files simpler returns. In return it cannot collect GST from customers, cannot claim input tax credit, and issues a bill of supply instead of a tax invoice. The turnover limit and the categories that can use it are set by the government and change.
Example
A small trader selling directly to consumers opts for the scheme: it saves on compliance, and since its customers are consumers who do not need credit, losing the ability to pass on credit costs it little. This is an illustration of normal business use rather than a quoted case study.
How to use it correctly
Check the current limits and eligibility on the GST portal or with your accountant before opting in. Think about your customers: a business customer who needs to claim credit on your sales will not be able to if you are under the scheme.
Common confusion
The composition scheme is not a tax exemption. You still pay tax, and you cannot make interstate sales of goods under it. Choosing it also means you cannot claim credit on your purchases, which can make it dearer for a business with large purchases.
Related glossary terms
Sources and further reading
Written on 24 October 2026 for lamp. Confirm the current rules with the official source or an adviser before relying on it.