# GST Composition Scheme for Small Service Businesses: 6% Flat, But Read the Fine Print > The composition scheme lets small service providers pay 6% with minimal filing — but you can't collect GST, can't claim credit, and can't do inter-state supply. Who should actually opt in? Canonical: https://brightdesk.app/blog/gst-composition-scheme-small-business Last updated: 2026-06-28 Author: Brightdesk Team Category: Finance The composition scheme is GST's simplified lane for small businesses: a low flat rate, quarterly payment, and one annual return instead of the monthly filing treadmill. For service providers, a dedicated scheme (via Notification 2/2019) offers **6%** on turnover up to **₹50 lakh**. It sounds obviously attractive — and for some businesses it is — but three restrictions decide the matter, and they're buried in the fine print. Here's the honest evaluation. ## The Deal on Offer For eligible **service providers** (and mixed suppliers): - **Rate:** 6% (3% CGST + 3% SGST) on total turnover - **Eligibility ceiling:** first-year turnover up to ₹50 lakh (for goods traders/manufacturers, the classic scheme is 1% up to ₹1.5 crore; restaurants 5%) - **Compliance:** quarterly payment via CMP-08, annual return GSTR-4 — versus monthly/quarterly GSTR-1 + GSTR-3B in the regular scheme The filing relief is real: roughly 5 filings a year instead of up to 25. ## The Three Restrictions That Decide Everything **1. You cannot collect GST from clients.** The 6% comes out of *your* pocket — your invoice shows no tax, and you issue a **Bill of Supply** (marked "composition taxable person, not eligible to collect tax"), not a tax invoice. So the scheme is really a 6% cut in your margin in exchange for simplicity. **2. No input tax credit.** GST you pay on equipment, rent, and software is a pure cost. Equipment-heavy businesses lose meaningfully here — [ITC math](https://brightdesk.app/blog/input-tax-credit-freelancers) often exceeds the filing savings. **3. No inter-state outward supply.** This is the killer for wedding and event professionals. One destination wedding in another state, one client billed across a border — and you're ineligible. E-commerce platform sales (where TCS applies) are also barred. ## Who the Scheme Actually Fits **Good fit:** - Local, consumer-facing service businesses that crossed the ₹20 lakh registration threshold but stay in-state: salons and beauty studios, tuition and coaching centres, local repair services, small restaurants (their own 5% scheme) - Businesses whose clients are individuals (nobody's claiming credit on your invoices anyway, so the no-tax-invoice restriction costs nothing) - Low input costs (rented chair, minimal equipment), where losing ITC barely matters **Bad fit:** - **Anyone with B2B clients** — registered businesses often avoid composition suppliers because there's no credit to claim - **Anyone who might work across state lines** — photographers, planners, DJs, makeup artists with destination-wedding ambitions - Equipment-heavy operations where ITC on gear outweighs filing simplicity - Anyone approaching ₹50 lakh, where a mid-year crossover forces a messy transition to the regular scheme The typical wedding professional's growth path — bigger clients, destination events, B2B collaborations — points directly *away* from composition eligibility. Registering regularly from the start avoids a forced migration later. ## The Arithmetic, Concretely Salon with ₹30 lakh turnover, in-city individual clients, ₹2 lakh of GST-bearing inputs: - **Regular scheme:** charges 18% (₹5.4 lakh) to price-sensitive walk-ins — or absorbs it; claims ~₹36,000 ITC; files monthly - **Composition:** pays ₹1.8 lakh (6%) from margin, no ITC, minimal filing — and stays price-competitive with unregistered rivals Composition wins clearly here. Now run a photographer with ₹30 lakh turnover, ₹6 lakh of gear/software spend, and four out-of-state weddings a year: ineligible on inter-state supply alone — and even if eligible, ₹1.08 lakh of lost ITC plus 6% from margin makes it a bad trade. ## Opting In, Staying Compliant, Exiting - **Opt in** via CMP-02 before the financial year begins (or at registration); you can't flip mid-year on preference - Display "composition taxable person" on your signage and bills as required - Issue Bills of Supply, pay quarterly (CMP-08 by the 18th after each quarter), file GSTR-4 annually - **Crossing ₹50 lakh or making an inter-state sale ejects you immediately** — you must switch to regular invoicing from that day, so watch the threshold, not the year-end ## The Practical Takeaway Composition is a genuinely good deal for small, local, B2C, low-input service businesses — and a trap for anyone whose growth crosses state lines or into B2B. If you're unsure which side you're on, the regular scheme with good tooling is the safer default: [compliant GST invoices generated automatically](https://brightdesk.app/gst-invoice-generator) shrink the "monthly filing burden" that composition exists to solve, without any of its restrictions. ## Related - [All blog posts](https://brightdesk.app/blog)