New GST Rate for Composition Scheme: A Simple Tax Option for Small Businesses
Running a small business comes with plenty of challenges, and tax filing shouldn’t be one of them. That’s where the GST Composition Scheme comes in. It’s designed to help small businesses with simplified tax rates and reduced compliance. In this guide, we explain the gst rate for Composition Scheme, eligibility rules, and how it benefits small traders and service providers.
What Is the GST Composition Scheme?
The Composition Scheme under GST (Goods and Services Tax) is a simplified tax scheme for small taxpayers. Instead of collecting GST on every invoice and filing monthly returns, eligible businesses can pay tax at a fixed rate on their total turnover and file quarterly returns.
It is ideal for:
- Traders and shopkeepers
- Small manufacturers
- Restaurants (non-alcoholic)
- Certain service providers
New GST on Composition Scheme: Rates by Business Type
| Business Type | New GST Rate |
|---|---|
| Traders / Dealers (Goods only) | 1% (0.5% CGST + 0.5% SGST) |
| Manufacturers (not dealing in tobacco, ice cream, etc.) | 1% |
| Restaurants (not serving alcohol) | 5% |
| Service providers (limited categories) | 5% (2.5% CGST + 2.5% SGST) |
Old GST on Composition Scheme: Rates by Business Type
(Old GST Rates – Applicable Until 21st September)
| Business Type | GST Rate (Composition) |
|---|---|
| Traders / Dealers (Goods only) | 1% (0.5% CGST + 0.5% SGST) |
| Manufacturers (not dealing in tobacco, ice cream, etc.) | 1% |
| Restaurants (not serving alcohol) | 5% |
| Service providers (limited categories) | 6% (3% CGST + 3% SGST) |
Who Can Opt for the Composition Scheme?
Businesses can apply if:
- Aggregate turnover is up to ₹1.5 crore (in most states) or ₹75 lakhs (for special category states)
- They are not involved in inter-state supply of goods
- They are not selling through e-commerce platforms
- They do not deal in non-eligible items like pan masala, tobacco, or ice cream
Benefits of the GST Composition Scheme
- Lower tax rates
- Fewer returns (Quarterly instead of monthly)
- No detailed invoice-level reporting
- Less compliance burden
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Limitations of Composition Scheme
| Limitation | Details |
|---|---|
| Cannot issue tax invoices | Only bill of supply allowed |
| Cannot collect GST from customers | Tax is paid from own margin |
| No Input Tax Credit (ITC) available | Cost may increase slightly |
| Cannot do inter-state sales | Only intra-state supply allowed |
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Filing and Compliance
| Requirement | Frequency |
|---|---|
| GST Return (GSTR-4) | Quarterly |
| Annual Statement (GSTR-9A) | Yearly |
| Payment of Tax via CMP-08 | Quarterly |
Conclusion
Understanding the gst on composition scheme helps small businesses save time and money while staying compliant with tax laws. It’s a smart choice if your operations are simple and primarily local.
As a Chartered Accountant with over 12 years of experience, I am not only skilled in my profession but also passionate about writing. I specialize in producing insightful content on topics like GST, accounts payable, and income tax, confidently delivering valuable information that engages and informs my audience.
Frequently Asked Questions
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What is the GST rate for composition scheme?It's 1% for traders/manufacturers, 5% for restaurants, and 6% for service providers.
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Who is eligible for the GST on composition scheme?Businesses with turnover up to ₹1.5 crore (₹75 lakh in some states) who only supply goods/services within their state.
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Can a composition dealer collect GST from customers?No. Dealers under this scheme cannot collect GST and must issue a bill of supply, not a tax invoice.
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Is ITC allowed under the composition scheme?No. Input Tax Credit (ITC) is not available for businesses under this scheme.
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Can service providers opt for the composition scheme?Yes, under a special scheme introduced in 2019, eligible service providers can pay 6% GST.