Composition scheme or regular GST: how a small shop should decide

Under the regular scheme you charge GST on every sale, claim back the GST you paid on your purchases (input tax credit), and pay the government the difference. You issue tax invoices and file monthly or quarterly returns.

Under the composition scheme you pay a small flat percentage of your turnover instead, and that is the end of the calculation. You do not charge GST to your customers, you do not claim any credit on purchases, and you file far less. The price of that simplicity is a list of things you are no longer allowed to do.

• Turnover: up to ₹1.5 crore in the previous financial year if you sell goods, or ₹75 lakh in some special category states. For services the limit is ₹50 lakh.
• Only within your state: you cannot make sales to other states.
• Not through e-commerce operators that collect tax at source, such as the big marketplaces, for goods.
• Not for a few notified goods, such as ice cream, pan masala and tobacco products.

The rates are a share of turnover, not of profit:

• 1% for manufacturers and traders (0.5% CGST + 0.5% SGST)
• 5% for restaurants that do not serve alcohol
• 6% for service providers who qualify

What you actually pay depends on two things: the GST rate on what you sell, and how much you add on top of what you paid for it.

Take a shop where prices are fixed (MRP, or whatever the street charges), so the customer pays the same amount either way. Look at one ₹100 sale.

The pattern holds generally. Composition saves money when your margin is wide and your goods carry a high rate. With thin margins on low-rate goods, the regular scheme is usually cheaper, because the tax you pay is only on the small amount you add.

These are simplified figures. They leave out your other costs, such as rent and transport, and the GST on those, which you can claim back under the regular scheme and cannot under composition. Run your own numbers for a normal month, with your accountant if you have one.

Before the arithmetic, ask who buys from you. A registered business that buys from you wants a tax invoice so it can claim the GST back. A composition dealer cannot give one: you issue a Bill of Supply with no GST on it, and the buyer gets no credit.

For a kirana selling to families, that makes no difference. For a wholesaler selling to other shops, or a workshop doing jobs for companies, it can lose you customers, because buying from you costs them more than buying from a regular dealer.

Composition

• CMP-08 every quarter, by the 18th of the month after the quarter: a short statement and the tax payment.
• GSTR-4 once a year: an annual return summing up the quarters.
• Bills of supply for your sales.

Regular

• GSTR-1 (your sales) and GSTR-3B (the tax summary and payment), monthly or quarterly depending on your turnover and the scheme you pick.
• Tax invoices with the GST split out, and matching your purchases against what your suppliers have reported.

If you are on composition and your turnover crosses the limit during the year, you move to the regular scheme from that day. Keep an eye on it, especially in a good festive season.

To move to composition, an existing registered business files form CMP-02 on the GST portal before the start of the financial year, so by 31 March for the year starting 1 April. A new business can choose it while registering. To leave composition, you can opt out during the year, and you must leave once you cross the limit or start doing something the scheme does not allow, such as selling to another state.

Whichever you choose, Invoiceo makes the right document. In your business settings, set GST registration to Composition and your invoices become bills of supply, without a GST line. Leave it off and you get tax invoices with CGST, SGST or IGST worked out. You can try both in the free GST invoice generator under “More options”.