GST composition scheme for shopkeepers: limits, the 1% rate, rules and whether it suits your shop

For many small shopkeepers, GST sounds like paperwork, accountants and monthly deadlines. The composition scheme was designed to make it simpler: pay a small fixed percentage of your turnover, file fewer returns, and skip most of the complicated calculations. For many kiranas, general stores and small retailers, it’s the most practical way to be GST-compliant.

But it isn’t right for everyone, and it comes with restrictions that surprise people. This guide explains how the scheme works for retailers, who can use it, what you can and can’t do, and how to decide. GST rules change through notifications, so treat this as an explanation, not tax advice, and confirm current rules with a chartered accountant or the GST portal before you decide.

The scheme in one paragraph

Under the composition scheme (section 10 of the CGST Act), an eligible small business pays GST at a fixed, low rate on its turnover, instead of charging GST on each sale and claiming credit for GST paid on purchases. For traders, including retailers, the rate is 1% of turnover (0.5% central GST and 0.5% state GST). In exchange for this simplicity, a composition dealer cannot charge GST to customers, cannot claim input tax credit and cannot sell across state lines.

Who can opt in

What it costs: a worked example

For a kirana with low margins and mostly household customers, paying 1% of turnover and keeping things simple can be far easier than the regular scheme. But whether it’s cheaper depends on your margins, your purchases and your customers, which is why the comparison below matters.

What composition dealers must do

• Issue a bill of supply, not a tax invoice. The bill must carry the words that you are a composition taxable person, not eligible to collect tax on supplies.
• Display it at the shop. Mention “composition taxable person” on a signboard or notice at a prominent place at your business.
• Pay tax every quarter using the CMP-08 statement, usually by the 18th of the month after each quarter.
• File an annual return (GSTR-4). You can’t file it unless all CMP-08 statements for the year are filed. Check the current due date on the GST portal.
• Keep records of purchases, sales and stock as required.
• Pay tax at normal rates under reverse charge where the law requires it, on certain purchases.

What composition dealers cannot do

Selling online

Composition dealers were long barred from selling through e-commerce operators. From 1 October 2023, the rules changed: composition taxpayers can sell goods through e-commerce operators within their own state, with the operator collecting tax at source and not allowing inter-state supplies. Services through e-commerce platforms remain excluded. If you plan to sell through ONDC or a marketplace, check the current conditions with your seller app and accountant. See ONDC explained for small retailers.

Composition vs regular scheme

Is it right for your shop?

Three example shops: which scheme fits?

These are simplified examples. The right answer for your shop depends on your actual numbers, so ask your accountant to compare both schemes using last year’s purchases and sales.

Common questions

Can I show GST separately on my bill under composition?

No. Composition dealers issue a bill of supply and cannot collect GST from customers. The 1% you pay comes out of your own margin.

Do I still need to keep purchase bills?

Yes. You need proper records of purchases, sales and stock even under composition, and they help with income tax, bank loans and audits.

What happens to my stock when I move from composition to regular?

Special rules apply to input tax credit on stock held at the time of switching. Plan the switch with your accountant so you don’t lose credits you’re entitled to.

I also provide a small service, like repairs. Can I still use composition?

Composition traders are allowed limited services up to a set value alongside goods, under conditions. If services are a meaningful part of your business, check the rules with your accountant.

How to opt in

• Existing GST-registered businesses usually opt in by filing the intimation (Form CMP-02) on the GST portal before the start of the financial year.
• New registrations can choose the composition option while applying.
• Opting out is possible voluntarily, and becomes compulsory if you cross the limit or stop meeting the conditions.

Common mistakes

1. Charging GST on bills while in the composition scheme. Not allowed, and creates tax liability.
2. Accepting inter-state orders, including from online buyers in another state.
3. Missing CMP-08 deadlines, which leads to late fees and interest.
4. Not tracking turnover and crossing the limit without switching.
5. Not displaying “composition taxable person” on bills and at the shop.
6. Mixing personal and business purchases, which makes records unreliable.

A monthly GST routine for composition shops

• Record every sale and purchase as it happens, in your billing app or register.
• At month end, total your turnover and compare it with the scheme limit.
• Keep supplier bills filed by month.
• At quarter end, calculate tax at the composition rate and file CMP-08 on time.
• Once a year, review with your accountant whether composition still suits you.

The short version

• Composition lets eligible small traders pay 1% of turnover instead of regular GST.
• You can’t charge GST, claim input credit or sell inter-state.
• Issue a bill of supply and display “composition taxable person”.
• Pay quarterly through CMP-08 and file GSTR-4 annually.
• Compare both schemes with your accountant using your real numbers.

Good records make GST easy

Whichever scheme you choose, simple daily records of sales, purchases and expenses make GST far easier. A billing app helps, but even a well-kept register works. Our Hindi guide दुकान का हिसाब-किताब कैसे रखें explains a simple system, and inventory management for small shops covers stock records.

GST is one of several registrations a shop may need. For the full list, see how to start a kirana store and, in Hindi, दुकान के लिए ज़रूरी लाइसेंस. And remember: whatever your GST scheme, packaged goods can never be sold above MRP. See MRP, pricing and discount rules.