Pay a small fixed percentage of turnover instead of standard 18% GST with full compliance — but you lose Input Tax Credit and the ability to sell across state lines.
Last updated: June 2026
Instead of charging 18% GST and claiming Input Tax Credit on purchases, Composition Scheme taxpayers pay a small fixed percentage of their turnover as tax — generally 1% for traders and manufacturers, and a separate rate for restaurants and similar services (not serving alcohol), with a distinct scheme for other service providers. You file quarterly statements and one annual return, considerably simpler than the regular monthly filing cycle.
Composition Scheme taxpayers cannot charge GST separately on invoices to their customers — the fixed rate is absorbed into your pricing rather than added on top, and you cannot issue a "tax invoice" showing GST charged. You also cannot claim Input Tax Credit on your purchases, and generally cannot make inter-state sales under the standard Composition Scheme (with limited exceptions for certain service providers under specific notifications).
The Composition Scheme tends to suit small, local businesses selling mainly to end consumers within their own state, with modest input costs and no need to sell to GST-registered businesses who’d want to claim ITC. It’s generally a poor fit for B2B service providers, since business clients typically prefer to deal with regular-scheme suppliers who can pass through claimable GST.
No, Composition Scheme taxpayers cannot separately charge GST on invoices — the fixed tax rate is absorbed into your overall pricing rather than itemised and added on top.
No, one of the defining trade-offs of the scheme is giving up the right to claim ITC on your purchases, unlike regular GST registration.
Generally no for goods suppliers under the standard scheme — inter-state supply is not permitted, with some specific exceptions for certain service categories under later notifications.
Yes, you can opt out of the Composition Scheme and switch to the regular scheme, subject to specific transition procedures and timing requirements.
No, rates vary — roughly 1% for traders, a different rate for manufacturers, and a distinct rate for restaurant services (non-alcohol), with separate provisions for other qualifying service providers.
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