Context
The composition scheme is GST's simplified track for small businesses — lower compliance, a flat tax, quarterly payment — in exchange for giving up the ability to charge GST and pass on input tax credit. Section 10 of the CGST Act[1] governs it. The matrix above compares it with the regular scheme on the four dimensions that actually decide which one suits a business: turnover cap, tax rate, ITC, and the document issued.
On turnover cap, the composition scheme is open to suppliers of goods with aggregate turnover up to ₹1.5 crore, and to service providers up to ₹50 lakh under the separate composition route for services. Cross either ceiling and the dealer must move to the regular scheme, which has no turnover cap. On tax rate, the composition dealer pays a flat rate — 1% for traders and manufacturers, 5% for restaurants, 6% for the service composition — *out of their own pocket*, because they are barred from collecting tax from customers. A regular dealer charges the standard 5%–18% slab (40% for sin/luxury) and collects it from the buyer.
On input tax credit, the difference is decisive. A composition dealer cannot claim ITC on their purchases — the low flat rate is the trade-off for losing the credit chain. A regular dealer claims full ITC under Section 16. On the document issued, a composition dealer must issue a bill of supply under Rule 49[2], and the law requires it to be marked with the words "composition taxable person, not eligible to collect tax on supplies" — so the buyer knows there is no GST to claim. A regular dealer issues a tax invoice showing the CGST/SGST or IGST split, against which the buyer claims credit.
The choice is not about size alone — it is about who your customers are. A composition dealer's customers cannot claim ITC, which makes the scheme attractive for businesses selling to end-consumers (B2C) and unattractive for those selling to other registered businesses (B2B), who will prefer a supplier who can give them a tax invoice and the credit that comes with it. A small B2B supplier on composition is, in effect, more expensive to their customer by the amount of the lost ITC. That trade-off, more than the turnover cap, is usually what decides the scheme.