Composition scheme: rules, limits and bill of supply

Running GST every month can feel heavy for a small shop: tax invoices, monthly returns, matching credits with suppliers. The composition scheme offers a simpler path. Instead of charging GST on each sale, you pay a small flat percentage of your turnover every quarter and file one annual return.

The trade-off is real, though. You cannot charge GST, cannot claim credit on purchases, and your business customers cannot claim credit on what they buy from you. This guide explains the limits, rates and rules, and helps you judge whether it suits your business.

Who can opt

Composition is in Section 10 of the CGST Act. Since 1 April 2019 (Notification 14/2019–Central Tax) the limits are:

Your state	Turnover limit (previous financial year)
Most states and union territories	₹1.5 crore
Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhand	₹75 lakh
Service providers under the separate 6% scheme (Section 10(2A))	₹50 lakh

“Turnover” here is aggregate turnover across India for your PAN: taxable, exempt, export and inter-state supplies together. If you have more than one registration on the same PAN, all of them must opt in, or none.

Who cannot opt

• Anyone making inter-state outward supplies (sales to other states).
• Manufacturers of ice cream and other edible ice, pan masala, and tobacco and manufactured tobacco substitutes.
• Suppliers of goods that are not taxable under GST (such as petrol and alcohol for human consumption).
• Casual taxable persons and non-resident taxable persons.
• Anyone supplying services through an e-commerce operator that collects tax at source. (Since 1 October 2023, supplying goods through an e-commerce operator within your state is allowed.)
• Service providers under the main scheme, beyond the small allowance below.

A small allowance for services

A trader, manufacturer or restaurant under composition may also supply some services, up to 10% of turnover in the state in the previous year or ₹5 lakh, whichever is higher.

Composition rates

Type of business	Rate	Split	Calculated on
Traders and other eligible suppliers	1%	0.5% CGST + 0.5% SGST	Turnover of taxable supplies of goods and services in the state
Manufacturers (other than excluded goods)	1%	0.5% CGST + 0.5% SGST	Turnover in the state
Restaurants not serving alcohol	5%	2.5% CGST + 2.5% SGST	Turnover in the state
Service providers, separate scheme (turnover up to ₹50 lakh)	6%	3% CGST + 3% SGST	Turnover in the state

You pay this from your own pocket: it is not added to the customer’s bill. You also pay tax at normal rates on anything you buy under reverse charge.

The bill of supply

Because you cannot charge GST, you do not issue tax invoices. You issue a bill of supply instead (Rule 49 of the CGST Rules). It must show:

1. The words “composition taxable person, not eligible to collect tax on supplies” at the top.
2. Your name, address and GSTIN.
3. A consecutive serial number, unique for the financial year, of up to 16 characters (letters, numbers, “-” and “/”).
4. Date of issue.
5. The customer’s name, address and GSTIN or UIN, if registered.
6. HSN code of goods or SAC of services.
7. Description of goods or services.
8. Value of supply after any discount.
9. Signature or digital signature (not needed when issued electronically under the IT Act).

There is no tax column. You must also display the words “composition taxable person” on the signboard or notice at your main place of business and every other place of business. For a full list of what a normal tax invoice needs, see GST invoice rules.

Returns and payment dates

Form	What	When
CMP-02	Opt in to composition (existing taxpayers)	Before the start of the financial year, so by 31 March
CMP-08	Statement and payment of tax for the quarter	By the 18th of the month after each quarter (e.g. 18 October for July–September)
GSTR-4	Annual return	By 30 June after the end of the financial year (from 2024-25; earlier it was 30 April)
CMP-04	Leave the scheme	Within 7 days of becoming ineligible, or before you choose to leave

When you join from regular GST, you file ITC-03 to reverse the credit on stock you hold. When you leave, you can claim credit on stock in hand through ITC-01.

Worked example: a kirana store in Pune

Joshi Kirana in Pune (Maharashtra) had turnover of ₹90 lakh in 2025-26: ₹60 lakh of taxable goods and ₹30 lakh of exempt goods such as loose grains and fresh vegetables. It sells only within Maharashtra, to walk-in customers.

• Eligible? Yes: ₹90 lakh is below ₹1.5 crore, and it has no inter-state sales.
• Tax under composition: 1% of taxable turnover, so 1% × ₹60 lakh = ₹60,000 for the year (₹30,000 CGST + ₹30,000 SGST), paid about ₹15,000 a quarter through CMP-08.
• What Joshi gives up: credit on GST paid on purchases, and the option to sell to customers in other states.

Is it cheaper? Do the arithmetic

Composition is not automatically cheaper. Under regular GST, a trader pays tax only on its margin, because credit on purchases offsets the tax on sales. A simple illustration for a trader selling 5% goods:

	Regular GST	Composition (1%)
Sales (taxable value)	₹60,00,000	₹60,00,000
Purchases (taxable value)	₹54,00,000	₹54,00,000
Tax on sales at 5%	₹3,00,000 (collected from customers)	Not charged
Credit on purchases at 5%	₹2,70,000	Not allowed
Net tax paid	₹30,000	₹60,000 (from your margin)

In this illustration, with a 10% margin on 5% goods, regular GST costs the business less, even though composition is simpler. After the September 2025 rate cuts moved many everyday goods to 5%, this comparison is worth redoing with your own numbers. Try them in the GST calculator. On the other hand, composition saves effort on paperwork and suits shops that sell mostly to consumers and mostly exempt or high-margin goods. Your accountant can run the comparison for your actual mix.

Composition or regular? A quick checklist

Composition may suit you if:

• your customers are mostly consumers, not GST-registered businesses;
• you never sell to other states;
• a good part of your sales is exempt, or your margins are high;
• you want the least paperwork.

Regular GST may suit you better if:

• business customers want GST invoices so they can claim credit;
• you sell, or plan to sell, to other states or online across states;
• you buy a lot of goods or capital equipment with GST on them;
• your margins are thin.

If you move to regular GST

Many businesses start under composition and move to regular GST as they grow or take on business customers. Then you need proper tax invoices, CGST/SGST/IGST on every line, HSN codes and monthly or quarterly returns. Invoiqo is built for regular GST billing: it handles GST invoices with the right tax split, keeps your stock in step with sales, and on paid plans prepares GSTR-1 and GSTR-3B summaries. If that is your next step, see the plans or read how to file GSTR-1.