Composition Scheme vs Regular GST for Interior Designers
The composition scheme looks attractive — flat low rate, simpler returns, less paperwork. For some interior businesses it is the right call. For most, it kills more value than it saves. Here is a clean decision framework.
What is the composition scheme?
Composition is a simplified GST regime for small taxpayers:
- Pay a flat rate on turnover (1% trader, 5% restaurant, 6% for service providers including most interior design firms).
- File quarterly returns (CMP-08) instead of monthly GSTR-1 + 3B.
- Threshold: aggregate turnover up to ₹50 lakh for service providers (₹1.5 crore for goods suppliers).
Sounds great. But the catch matters.
The catch — three big ones
1. No input tax credit (ITC)
You cannot claim GST paid on plywood, hardware, sub-contractor invoices. That GST becomes a direct cost.
2. You cannot pass GST to your client
You collect 6% from your client but cannot show it as "GST charged" because under composition, you charge a flat rate and your client cannot claim it as ITC.
3. Inter-state supply is not allowed
Site in another state? Composition does not apply. You must be in regular scheme.
Worked example
Assume a 12-month turnover of ₹45 lakh, with material cost of ₹25 lakh (material cost includes 18% GST = ₹3.81 lakh input GST paid).
Composition (6%)
- GST liability: 6% of ₹45 lakh = ₹2.70 lakh.
- ITC available: ₹0.
- Net GST cost to business: ₹2.70 lakh + ₹3.81 lakh stranded input GST = ₹6.51 lakh.
Regular (18%)
- GST collected from clients: 18% of ₹45 lakh = ₹8.10 lakh.
- ITC available: ₹3.81 lakh.
- Net GST payable: ₹8.10 lakh − ₹3.81 lakh = ₹4.29 lakh.
- This ₹4.29 lakh is collected from the client, not your cost.
- Net GST cost to business: ₹0.
Regular wins by ₹6.51 lakh. The "simplicity" of composition is the most expensive simplification in your books.
When composition might make sense
Niche cases:
- Pure consultancy with negligible material cost — almost no input GST to lose.
- Local-only practice — never inter-state.
- All B2C clients — they do not need ITC, so the lower-tax pricing is competitive.
- Tiny turnover — under ₹20 lakh you do not even need to register; composition only kicks in after.
If you are below ₹20 lakh turnover and stay B2C, you may not need GST at all. Above ₹20 lakh with material-heavy projects, regular is almost always better.
Other restrictions
- Must mention "Composition taxable person" on every invoice and signboard.
- Cannot issue a tax invoice — only a bill of supply.
- Cannot collect GST from clients (technically — you absorb it as cost).
- Limited to specified categories of suppliers.
The decision in one line
If material costs are above 20% of your project value, or if you supply across states, or if your clients are GST-registered businesses — choose regular GST.
What to do next
Pull your last 12 months of P&L. Compute the input GST you would lose under composition. If that number is more than 5% of your annual turnover, regular GST is the correct choice — and a clean invoicing tool becomes essential.