No input tax credit. Every rupee of GST on purchases, rent and expenses becomes a cost. If input GST exceeds the composition tax saved, the regular scheme is cheaper despite the paperwork.
B2B customers lose out. A composition dealer issues a bill of supply, not a tax invoice — registered buyers get no credit on purchases from you, which quietly prices you out of B2B supply chains.
Tax comes out of your margin. A composition taxpayer cannot collect tax from customers; the 1% / 5% / 6% is paid out of pocket on turnover, profitable or not.
Filing is genuinely lighter. CMP-08 quarterly (by the 18th of the month after the quarter) plus one annual GSTR-4 — instead of monthly GSTR-1 and GSTR-3B, e-invoicing and 2B reconciliations.
Not sure you even need GST registration yet? Start with the GST registration threshold checker.
Section 10 of the CGST Act 2017 lets small taxpayers pay a flat, low rate on turnover instead of normal GST — in exchange for giving up input tax credit and the right to collect tax from customers. The gate is preceding-financial-year aggregate turnover: up to ₹1.5 crore in most states, and ₹75 lakh in eight special category states — Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand (Assam and Himachal Pradesh chose the higher ₹1.5 crore limit). A goods-side composition taxpayer may also supply services up to 10% of preceding-FY turnover or ₹5 lakh, whichever is higher (second proviso to Section 10(1)).
The rates come from Rule 7 of the CGST Rules: manufacturers pay 1% (0.5% CGST + 0.5% SGST) of turnover in the State; restaurants and other Schedule II para 6(b) suppliers (not serving alcohol) pay 5%; and traders / other suppliers pay 1% — but only on the turnover of taxable supplies of goods and services in the State, so exempt goods drop out of a trader's base. Service providers who cannot use Section 10(1) have the Section 10(2A) alternative (originally Notification 2/2019-Central Tax (Rate), statutory from 1 January 2020): 6% (3% + 3%) on supplies, available where preceding-FY aggregate turnover is within ₹50 lakh, and applying to first supplies up to ₹50 lakh in the current year.
Disqualifications under Section 10(2): inter-State outward supplies; supplying services through an e-commerce operator that collects TCS under Section 52 (supplying goods through an ECO ceased to be a bar from 1 October 2023, per the Finance Act 2023 amendment); supplying goods not leviable to GST; manufacturing notified goods — ice cream and other edible ice, pan masala, tobacco and manufactured tobacco substitutes, aerated water, and (from 1 April 2022) fly ash bricks and blocks, building bricks, and earthen or roofing tiles; and being a casual or non-resident taxable person. All registrations under the same PAN must opt in together. Compliance is light: quarterly self-assessed payment in CMP-08 by the 18th of the month following the quarter, and one annual GSTR-4.
A Karnataka trader had preceding-FY aggregate turnover of ₹1.2 crore. Current-FY turnover in the State is ₹1.3 crore, of which ₹1.2 crore is taxable goods and ₹10 lakh is exempt (unbranded staples). Services (a little job-work income) are ₹4 lakh. No inter-State sales, no ECO services.
