Composition scheme

Why it matters to your business

For a small shop selling to consumers in one state, the scheme means little paperwork and a predictable tax. For a business selling to other registered businesses it usually costs more than it saves, because your customers get no credit on what they buy from you, and you get none on what you buy. Knowing who is under the scheme also matters when you buy: their bill gives you no credit.

How it works

As of October 2026:

• You opt in on the GST portal before the financial year begins, or when you register.
• You pay tax from your own pocket at the fixed rate on your turnover. You must not show or collect GST on your bills.
• You issue a bill of supply, headed “composition taxable person, not eligible to collect tax on supplies”.
• You cannot claim input tax credit on purchases.
• You cannot sell goods to customers in other states, and some goods, such as ice cream, pan masala and tobacco, are kept out of the scheme for manufacturers.
• Tax under reverse charge is paid at the normal rate, on top.
• Once your turnover crosses the limit during the year, you leave the scheme from that day and move to regular GST with tax invoices.

An example

A stationery shop in Jaipur with a turnover of ₹60 lakh a year opts for the scheme. Each quarter it pays 1% of that quarter’s sales, about ₹15,000 on ₹15 lakh, in form CMP-08. It bills customers at its usual prices on a bill of supply, with no GST shown. A company that buys office supplies from it cannot claim any credit, and may prefer a regular dealer for large orders.

Common mistakes

• Charging GST on bills while under the scheme.
• Selling to a customer in another state.
• Not leaving the scheme on the day the turnover limit is crossed.
• Buyers claiming credit on a composition dealer’s bill.