Composition Scheme (GST)
A simplified GST scheme for small businesses below a turnover threshold, allowing a flat, lower tax rate on turnover in exchange for giving up input tax credit.
The composition scheme lets small businesses below a specified annual turnover threshold, currently ₹1.5 crore for most states, lower for a few special category states, with a separate, lower threshold for services, pay GST at a flat, low percentage of turnover instead of the regular rate structure, and file returns quarterly rather than monthly.
The tradeoff is that composition dealers cannot claim input tax credit on their purchases, cannot charge GST separately on invoices to customers, and cannot make inter-state outward supplies in most cases. It suits small businesses selling mainly to end consumers, where the buyer doesn't need to claim ITC anyway, far better than businesses selling primarily to other GST-registered businesses.
This glossary entry is for general informational purposes only and does not constitute professional tax, legal, or financial advice. Rules and rates change, so consult a qualified Chartered Accountant for advice specific to your situation.