The composition scheme lets eligible small businesses below a notified turnover pay GST at a low flat rate on their turnover instead of the regular rates, with simpler quarterly payments and an annual return. In exchange, they cannot collect GST from customers as a separate charge or claim input tax credit, and there are restrictions on inter-state sales.
It suits very small, largely local businesses that value simplicity over ITC. Larger or inter-state businesses generally stay under the regular scheme.
Day to day, a composition dealer's paperwork looks different from a regular taxpayer's. Sales go out on a bill of supply rather than a tax invoice, tax is never shown as a separate line, and the document must state that the issuer is a composition taxable person not entitled to collect tax. The levy is worked out on turnover at the flat rate notified for the category of business and paid from the dealer's own pocket each quarter.
Compliance runs on a light cycle: a quarterly statement of self-assessed tax, followed by a single annual return. Reverse charge does not go away, though — purchases attracting it are taxed at the full normal rates, with no credit available on the payment. Crossing the notified turnover ceiling ends the scheme from that day: the business must move to the regular scheme, start issuing tax invoices, and may claim credit on stock in hand as prescribed.
The mistakes practitioners see repeatedly are collecting GST from customers despite the bar on it, claiming input credit on purchases, and quietly making inter-state sales the scheme does not permit. Buyers matter too: a business purchasing from a composition dealer receives no input tax credit, so B2B customers often prefer regular suppliers — a commercial trade-off to weigh alongside the simpler compliance.