Definition
Composition Scheme (GST)
The composition scheme lets small businesses pay GST at a low flat rate on turnover, with simpler compliance, in exchange for giving up input tax credit.
Small taxpayers below a turnover threshold can opt for the composition scheme, paying a low fixed percentage of turnover instead of the regular slab rates and filing returns less frequently. It is designed to ease the compliance burden on small traders, manufacturers and eligible service providers.
The trade-off is significant: a composition dealer cannot collect GST separately on invoices, cannot claim input tax credit, and cannot make inter-state outward supplies. This makes it attractive mainly for businesses selling directly to final consumers within a state.
Related terms
- Input Tax Credit (ITC)Input Tax Credit lets a GST-registered business offset the tax it has already paid on purchases against the GST it collects on sales, so tax is levied only on value added.
- GST Registration ThresholdThe GST registration threshold is the annual turnover above which a business must register for GST, with different limits for goods, services and special-category states.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.