What is Composition Scheme?

The Composition Scheme, available under Section 10 of the CGST Act, 2017, allows small taxpayers whose aggregate turnover is within a government-notified limit to opt for paying GST at a fixed, lower rate on their turnover, rather than the standard GST rates applicable to their goods/services. In exchange, they must follow a simplified compliance structure but face several restrictions.

• Taxpayers whose aggregate annual turnover in the preceding financial year is within the threshold notified for the Composition Scheme — the exact limit, and a slightly different limit for eligible service providers, are set by notification, so check gst.gov.in for the current figures.
• Certain categories are excluded from opting for the scheme, such as manufacturers of specified notified goods, suppliers making inter-state outward supplies, and suppliers through e-commerce operators required to collect tax at source, among other restrictions under the Act.

• A composition taxpayer cannot collect GST from customers on the invoice — they must issue a "Bill of Supply" instead of a regular tax invoice and bear the GST themselves out of their margin.
• They cannot claim input tax credit on their purchases.
• They file a simplified quarterly statement (CMP-08) and an annual return, instead of the regular monthly GSTR-1/GSTR-3B filings.

• Issuing a regular tax invoice and charging GST separately while registered under composition — this is not permitted.
• Not tracking turnover closely enough to notice when it crosses the scheme's eligibility threshold mid-year.
• Assuming ITC can be claimed on purchases while under the scheme.