The objective of the optional composition scheme is to bring simplicity and to reduce the compliance cost for the small businesses. By opting to pay for pay tax under this scheme, small businesses can pay tax at a prescribed percentage of the turnover every quarter, instead of paying tax at normal rate.
In the service sector, composition scheme is available only for one sector - restaurants. The Composition Scheme is not available for manufacturers of tobacco and manufactured tobacco substitutes, pan-masala and ice-cream and other edible ice, whether or not containing cocoa.
The tax rates under composition scheme is 1 per cent for traders, 2 per cent for manufacturers and 5 per cent for restaurants.
The businesses who opt for composition scheme have to file only one quarterly return with details of total turnover. Invoice with details are not necessary; bill of supply will suffice.