## Composition Scheme under Section 10(1) & 10(2)
### Purpose
To reduce compliance burden and provide a simple tax mechanism for small taxpayers. The scheme is voluntary and optional, not compulsory.
### Eligibility Threshold
This scheme can be opted by suppliers of goods and restaurant service providers whose aggregate turnover in the preceding financial year does not exceed the prescribed limit:
| Category of States | States | Limit |
|---|---|---|
| Special Category States | Arunachal Pradesh, Manipur, Sikkim, Uttarakhand, Mizoram, Meghalaya, Tripura, Nagaland | ₹ 75 lacs |
| Other states (including HP, J&K, Assam) | Himachal Pradesh, Jammu & Kashmir, Assam, and all other states | ₹ 1.5 Crores |
Memory Aid: 'AR rehMAN ka NAME SUMIT H' → AR (Arunachal), Manipur, Sikkim, Uttarakhand, Mizoram, Meghalaya, Tripura, Nagaland → ₹75 lacs limit.
Memory Aid for ₹1.5 Cr: 'HAJ' → Himachal, J&K, Assam (and any other) → ₹1.5 Cr.
### Applicable Tax Rates (CGST + SGST)
| Category of Supplier | Rate | Base for tax |
|---|---|---|
| Manufacturer | 0.5% + 0.5% = 1% | Turnover in State/UT |
| Restaurant service provider | 2.5% + 2.5% = 5% | Turnover in State/UT |
| Trader (any other) | 0.5% + 0.5% = 1% | Taxable supplies in State/UT |
### Key Distinction for Traders
For traders, tax is computed only on taxable supplies in state/UT (excluding exempt supplies). For manufacturers and restaurants, tax is on total turnover (including exempt supplies).
### Important Features
1. Voluntary: Eligible person chooses; no compulsion.
2. All registrations under same PAN must opt together.
3. Composition dealer cannot collect tax from customers.
4. Composition dealer cannot claim ITC on inputs.
5. Tax is paid out of pocket on the turnover at specified rates.