This scheme is introduced for small tax payers to reduce the compliance burden on them. Business registered under composition scheme will be liable to pay tax only to a maximum of 2.5% for manufacturers and 1% for other than manufacturers. They would not be part of credit chain and hence cannot collect any tax from consumers.

Only those persons whose annual turnover is below 50 lakhs in preceding financial year and who is supplying goods and services within the same state only are eligible to apply for composition scheme. If supply of goods and services are effected inter-state then this scheme won’t be available for that person.