GST composition scheme, explained
The composition scheme trades away input tax credit and inter-state sales in exchange for dramatically simpler compliance and a lower, fixed tax rate — a real tradeoff worth understanding before you opt in.
What the composition scheme actually changes
Instead of charging GST at the standard rate for your category and filing detailed monthly returns, composition scheme taxpayers pay a small fixed percentage of turnover as tax and file simplified quarterly returns with an annual return, rather than the standard monthly filing cycle.
Who's eligible
Eligibility is based on annual turnover thresholds that are lower than the standard GST registration threshold, and the scheme has historically been more available to goods suppliers than service providers — a specific composition option exists for small service providers too, but with its own separate (often lower) turnover limit. Check current thresholds on the GST portal, since these are revised periodically.
The tradeoffs
- You cannot charge GST separately on invoices or collect it from customers — the fixed rate comes out of your own revenue instead.
- You cannot claim input tax credit on your own business purchases, which matters if you have significant GST-taxed expenses.
- You generally cannot make inter-state supplies under composition — this immediately rules it out for many freelancers serving clients across states or exporting services.
- B2B clients who need GST input credit from your invoice may prefer working with a regular GST-registered vendor instead.
When it makes sense
Composition tends to suit small, single-state businesses selling mostly to end consumers (not GST-registered businesses claiming input credit), where compliance simplicity outweighs the loss of input tax credit and inter-state flexibility. Most freelancers serving businesses or working with out-of-state or international clients find the restrictions too limiting.