Published on:
October 16, 2023
Shaik Musrath

The GST Composition Scheme: Rules, Turnover Limit, Rate, and Benefits

The Goods and Services Tax (GST) in India offers businesses a variety of compliance options to cater to different needs and scales of operations. Among these, the GST Composition Scheme is a unique and simplified tax scheme designed for small businesses. In this blog, we will explore the details of the GST Composition Scheme, exploring its rules, turnover limit, tax rate, and the benefits it offers to eligible businesses.

What is the GST Composition Scheme

The GST Composition Scheme is a specialized scheme that allows eligible taxpayers to pay a fixed percentage of their turnover as tax. It's a straightforward and hassle-free way for small businesses to meet their GST obligations without the complexities associated with regular GST compliance.

Rules and Eligibility

Turnover Limit: 

To be eligible for the GST Composition Scheme, your annual aggregate turnover must not exceed Rs. 1.5 crores (Rs. 75 lakhs for special category states). This turnover limit is the total value of all taxable supplies, exempt supplies, exports, and inter-state supplies.

Type of Business: 

The scheme is primarily designed for small businesses involved in the supply of goods. Certain service providers, like restaurants and traders, can also avail themselves of this scheme, subject to specific conditions.

No Input Tax Credit (ITC): 

Businesses opting for the Composition Scheme cannot claim Input Tax Credit on purchases. This means they pay tax only on their output supplies and cannot set off the tax against the tax they have paid on their inputs.

Interstate Supply: 

Businesses under this scheme are not allowed to make interstate supplies. They can only make intrastate supplies.

What do you mean by Tax Rate under Composition Scheme

The tax rate under the GST Composition Scheme depends on the type of business:

Manufacturers and Traders: 

The tax rate for manufacturers and traders is 1% of the annual turnover. This 1% is split between the Central GST (0.5%) and State GST (0.5%).


Restaurants under the scheme pay tax at the rate of 5% of the annual turnover. This rate is divided equally between CGST and SGST.

What are the Benefits of the GST Composition Scheme

Simplified Compliance: 

Small businesses can breathe easier with the Composition Scheme as they have to file quarterly returns instead of monthly ones. This reduces the compliance burden.

Reduced Tax Liability: 

The fixed tax rate provides stability and predictability in tax payments. Businesses know in advance how much tax they need to pay.

Lower Compliance Costs: 

As there is no need to maintain detailed records of purchases and sales, the compliance costs are significantly reduced.

Increased Cash Flow: 

The absence of ITC means businesses don't need to block capital in GST. They can use the working capital more effectively.

Competitive Pricing: 

Reduced tax liability can enable businesses to offer more competitive prices, which can be a significant advantage in the market.


The GST Composition Scheme is a valuable tool for small businesses to simplify their tax compliance and reduce their tax liability. By understanding the rules, turnover limits, tax rates, and benefits, eligible businesses can make informed decisions about whether this scheme aligns with their needs and financial capabilities. It's an opportunity for small businesses to thrive and contribute to the nation's economic growth while enjoying reduced compliance hassles.


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Updated on:
October 16, 2023