The GST Composition Scheme is designed to help small taxpayers reduce compliance. Instead of filing multiple returns and maintaining detailed records, businesses pay tax at a fixed rate on turnover. These fixed percentages are called GST Composition Scheme rates.
Knowing these rates is important because they determine your total tax liability. In this article, we explain the rates, categories of taxpayers, and examples so you can decide if the scheme suits your business.
💡 GST Composition Scheme Rates in India
The government has fixed different rates for different types of businesses. Below is a clear table for reference.
| Type of Business | GST Rate (Composition Scheme) |
|---|---|
| Manufacturers & Traders of Goods | 1% (0.5% CGST + 0.5% SGST) |
| Restaurants (not serving alcohol) | 5% (2.5% CGST + 2.5% SGST) |
| Other Service Providers (eligible)* | 6% (3% CGST + 3% SGST) |
* Note: Since 2019, service providers with turnover up to ₹50 lakhs can also opt for the scheme.
🚀 Example of Tax Liability under Composition Scheme
Suppose a local trader has annual turnover of ₹80 lakhs. Under the GST Composition Scheme rates, his tax liability would be:
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1% of ₹80,00,000 = ₹80,000 (to be paid as GST)
This method saves him from filing monthly GST returns. Instead, he files a quarterly statement and one annual return.
🔎 Why Do Rates Differ for Different Businesses?
The government set varied rates for three key reasons:
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Simplicity – Small shopkeepers and manufacturers can pay a minimal rate.
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Fairness – Restaurants have higher cash flow; therefore, they pay a higher percentage.
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Inclusion of Services – Limited service providers were added later, to expand benefits of the scheme.
Thus, the rates balance revenue needs with reduced compliance.
✅ Benefits of Paying Tax at Fixed Rates
Choosing GST Composition Scheme rates has several advantages:
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Less paperwork and easier compliance.
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Lower tax burden compared to the regular GST scheme.
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Freedom from detailed records and frequent returns.
However, keep in mind that composition dealers cannot collect GST from customers or claim Input Tax Credit (ITC).
❓ FAQs
Q1. What is the GST rate for restaurants under the composition scheme?
It is 5% (2.5% CGST + 2.5% SGST), but only if they do not serve alcohol.
Q2. What is the GST rate for manufacturers and traders?
It is 1% of turnover.
Q3. Can service providers opt for this scheme?
Yes, eligible service providers with turnover up to ₹50 lakhs can pay 6%.
Conclusion
The GST Composition Scheme rates make tax payment easier for small businesses. With fixed percentages ranging from 1% to 6%, compliance becomes less stressful. Yet, businesses must check their eligibility before choosing the scheme.
👉 Talk to our GST experts at HelpTax and find out which GST scheme is best for your business.