GST Composition Scheme for Shop Owners: Limits, Rates, Billing Rules and How to Price Right
FundRaksha Team · For a small shop or manufacturing unit, regular GST can feel like a lot of paperwork: monthly returns, input tax credit matching and tax shown on every bill. The composition scheme under Section 10 of the CGST Act was designed as a simpler alternative.
It is simpler. But it also changes how you must bill and how you should price. Getting those wrong is common, and costly. Here is what shop owners need to know.
Who can opt in
The composition scheme is available to:
- Traders and manufacturers of goods with an aggregate turnover of up to ₹1.5 crore in the preceding financial year. The limit is ₹75 lakh in certain special category states.
- Restaurants (not serving alcohol) within the same turnover limits.
- A separate composition option is available for small service providers with turnover up to ₹50 lakh.
You cannot opt for the scheme if, among other things, you:
- make inter-state outward supplies of goods,
- manufacture certain notified goods (such as ice cream, pan masala and tobacco products),
- are a casual or non-resident taxable person.
The option applies to all businesses registered under the same PAN, so you cannot keep one branch on composition and another on regular GST.
What you pay
Instead of charging GST on each sale, a composition dealer pays a fixed percentage of turnover:
| Category | Tax on turnover |
|---|---|
| Manufacturers | 1% (0.5% CGST + 0.5% SGST) |
| Traders (goods) | 1% of turnover of taxable goods |
| Restaurants | 5% |
| Eligible service providers | 6% |
The billing rules
This is where many shops slip:
- You issue a bill of supply, not a tax invoice.
- You cannot collect GST from your customer or show tax separately on the bill.
- Every bill must carry the words "composition taxable person, not eligible to collect tax on supplies", and the same must be displayed at your place of business.
- You cannot claim input tax credit on your purchases.
The pricing mistake that eats margins
Because you cannot claim input tax credit, the GST you pay on purchases becomes part of your cost. Many shopkeepers still set prices as if the purchase price were the cost before tax, and quietly lose that tax amount on every sale.
Here is the right way to think about it. Suppose you buy an item for ₹150 plus 5% GST:
- Your real cost is ₹157.50, because the ₹7.50 of GST is not recoverable.
- If you want a 10% margin on the selling price, the selling price is ₹157.50 ÷ 0.90 = ₹175.00.
- Your composition tax is then paid on turnover from that price.
Pricing from ₹150 instead would give a selling price of about ₹166.67, a difference of more than ₹8 on every unit, which comes straight out of your profit.
FundRaksha Book handles this for you. Choose "Composition" as your GST scheme, enter the cost, GST and your margin when you add stock from a purchase bill, and Book works out the correct selling price. Your bills are printed without a separate GST line, as the scheme requires.
Returns and deadlines
The compliance calendar is much lighter than regular GST:
- CMP-08 every quarter, to declare turnover and pay tax, due by the 18th of the month after the quarter.
- GSTR-4, an annual return, due by 30 April after the end of the financial year.
Keep your purchase records organised anyway. You will need them to reconcile turnover and for any assessment.
Is composition right for you?
Composition usually suits businesses that:
- sell mainly to end consumers, who cannot claim input credit anyway,
- operate within one state,
- have modest margins and want minimal compliance.
It may not suit you if you sell mostly to GST-registered businesses. They cannot claim input credit on your bills, which can make you less competitive than a regular-scheme supplier.
You can opt in at the start of the financial year (by filing CMP-02) and move back to the regular scheme when you cross the limit or choose to. Speak to a CA before switching, because the change has implications for stock held and credit claimed.
Get it right without the paperwork
- FundRaksha Book: GST billing built for regular and composition dealers, with barcode billing, stock and customer credit. Your first 300 invoices are free.
- FundRaksha Tax: qualified CAs to handle your CMP-08, GSTR-4 and registrations on time.
Rates, limits and procedures are as generally applicable at the time of writing and can change through notifications. This article is general information, not tax advice; confirm your position with a CA.