What is the GST rate for composition scheme?

It's 1% for traders/manufacturers, 5% for restaurants, and 6% for service providers.

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 .

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.

Is ITC allowed under the composition scheme?

No. Input Tax Credit (ITC) is not available for businesses under this scheme.

Can service providers opt for the composition scheme?

Yes, under a special scheme introduced in 2019 , eligible service providers can pay 6% GST.

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.

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GST Rates

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.

Hitesh Aggarwal

Chartered Accountant

MRN No.: 529770

City: Delhi

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

What is the GST rate for composition scheme?

It's 1% for traders/manufacturers, 5% for restaurants, and 6% for service providers.
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.
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.
Is ITC allowed under the composition scheme?

No. Input Tax Credit (ITC) is not available for businesses under this scheme.
Can service providers opt for the composition scheme?

Yes, under a special scheme introduced in 2019, eligible service providers can pay 6% GST.

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