GST Composition Scheme: Limits, Rates and Rules for Small Shops
Updated: 30 October 2026
The composition scheme is a simpler way of paying GST for small businesses. Instead of charging GST on each bill and claiming input tax credit, you pay a small fixed percentage of your turnover every quarter and file fewer returns. Many kirana stores, small traders and dhabas use it.
Kam tax, kam paperwork, par kuch bandishein bhi. This guide explains who can opt, the rates, the billing rules and how to decide if it suits your shop.
Who can opt
- Traders and manufacturers of goods, and restaurants (not serving alcohol), with aggregate turnover up to ₹1.5 crore in the previous financial year. The limit is ₹75 lakh in some special category states.
- Service providers (and mixed suppliers) under the separate composition option, with turnover up to ₹50 lakh.
- You cannot opt if you make inter-state sales, supply goods through e-commerce operators that collect tax at source (allowed only in limited intra-state cases since October 2023; check with your CA), supply non-taxable goods, or make notified goods like ice cream, pan masala and tobacco.
Composition tax rates
| Type of business | Rate |
|---|---|
| Traders (goods) | 1% of turnover of taxable supplies |
| Manufacturers | 1% |
| Restaurants (no alcohol) | 5% |
| Service providers (composition for services) | 6% |
Scroll sideways to see all columns.
Tax is paid from your own pocket on turnover; you cannot collect it from the customer on the bill.
Billing rules under composition
- Issue a Bill of Supply, not a Tax Invoice. Do not show or collect GST on it.
- Write the words "composition taxable person, not eligible to collect tax on supplies" on the bill.
- Display "composition taxable person" on your signboard at the shop.
- No input tax credit on purchases. The GST you pay to suppliers becomes part of your cost.
- You still pay tax under reverse charge, where applicable, at the normal rate.
Returns and due dates
- CMP-08: a quarterly statement-cum-challan to pay tax, due by the 18th of the month after the quarter.
- GSTR-4: an annual return, due by 30 June after the financial year (as amended for FY 2024-25 onwards).
- To opt in, file CMP-02 on the GST portal before the start of the financial year. New registrants can choose composition in the registration form itself.
Composition vs regular: how to decide
Composition usually suits a shop that sells mostly to end consumers within the state, has a thin margin and wants less paperwork. Regular GST usually suits you if you sell to businesses (they want ITC from your tax invoice), buy a lot of stock with GST that you want back as credit, or plan to sell to other states or online.
A quick test: if most of your customers ask for a GST bill with your GSTIN to claim credit, composition will cost you sales. If none of them do, composition can save time and money. Do the numbers with your CA for one full year of sales and purchases before switching.
Composition dealers and BizBahi
Honest note: BizBahi does not have a separate composition mode yet. When a GSTIN is saved in your business settings, BizBahi prints a Tax Invoice and calculates GST on items; without a GSTIN it prints a Bill of Supply. A composition dealer has a GSTIN but must not charge GST, so the bill format does not fully match composition rules today. You can still use BizBahi for stock, udhaar khata and customer records, but check your bill format with your CA before using it for composition sales.
BizBahi does let you mark a customer or supplier as a composition dealer (registration type), which is useful when you buy from composition suppliers: their bills carry no GST, so there is no ITC on them.
Frequently asked questions
What is the composition scheme limit in 2026?
₹1.5 crore of aggregate turnover for traders, manufacturers and restaurants (₹75 lakh in some special category states), and ₹50 lakh for service providers.
Can a composition dealer issue a GST invoice?
No. A composition dealer issues a Bill of Supply and cannot collect GST from customers.
Can I leave the composition scheme?
Yes. You can withdraw by filing CMP-04, or you move out automatically if turnover crosses the limit; you then become a regular taxpayer from that date.
Can composition dealers sell to other states?
No. Inter-state outward supply of goods is not allowed under the composition scheme.
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