Ravi sells groceries to local families. Cash, UPI, no GST invoice ever asked. His CA gave him a choice: regular GST (monthly filing, charge 5/12/18%) or composition (1% flat, file quarterly).
For Ravi's shape — B2C, low margin, no buyers asking for ITC — composition is a no-brainer. Here's the full decision matrix.
- Composition (Sec 10): 1% (trader / manufacturer), 5% (restaurant), 6% (services under 10(2A)). Pay quarterly, simpler returns.
- Eligibility: turnover ≤ ₹1.5cr (₹75L for some states); ₹50L for service composition.
- You can't collect GST from customer, can't claim ITC, can't make inter-state outward supplies.
- Pick composition only if your buyers are B2C / don't need ITC.
The two schemes, head to head
Composition
Simple, B2C-friendly
Tax on turnover, not value-add. Pay from your pocket — can't add to customer's bill.
Regular
Standard, B2B-friendly
Tax on value-add. Collect from customer, claim ITC, net pay only the difference.
Eligibility for composition
- Goods composition (Sec 10(1)): turnover ≤ ₹1.5cr (₹75L in some special category states)
- Service composition (Sec 10(2A)): turnover ≤ ₹50L
- No inter-state outward supplies (intra-state only)
- No supplies through e-commerce operators (some carve-outs)
- Not in business of ice cream, pan masala, tobacco, aerated water
- Must opt at start of FY (or at registration); valid till you cross threshold
Composition rates
Ravi's math — composition saves the day
Turnover ₹80L. Margin ~8%. Mostly inputs at 5% (groceries).
👉 Composition (1%): ₹80,000/year. Pay from his ₹6.4L gross profit.
👉 Regular (5% effective): ~₹4L collected from customers, ~₹3.2L ITC on inputs → net ~₹80k. Plus 12 monthly filings.
Net liability ≈ same. But composition = 4 returns vs 24, zero invoice formatting headache, simpler books.
If your buyers are GST-registered businesses who want ITC, composition kills you — you can't issue tax invoices (only bills of supply), they can't claim ITC, and they'll switch vendors. Composition is only for B2C-heavy businesses.
Filings under composition — much lighter
Statement of turnover + tax, by 18th of next month after quarter-end. Pay tax through this.
Consolidated annual return by 30 April of next FY. ₹500/day late fee.
Within 7 days of crossing. Switch to regular. Stock ITC adjustment via ITC-01.
Composition isn't a tax saver — it's a filing saver. The math usually works out similar. The 80% saving in admin time is the real win for small kiranas.
Quick answers
Opt out via CMP-04 anytime. Once you opt out, you can't return to composition for the rest of the FY. Plan carefully.
Generally no — supplies through e-commerce operators (where TCS applies) are excluded. Limited carve-outs exist; check current rules.
Composition dealers can only issue "Bill of Supply" — explicitly marked "composition taxable person — not eligible to collect tax". Sticker-shock for B2B buyers expecting ITC.
Composition ends the day you cross. File CMP-04 within 7 days. Switch to regular GST going forward. Stock-in-hand attracts ITC adjustment via ITC-01.
For service businesses with turnover ≤ ₹50L, all-India clients. At 6%, similar burden to regular but no monthly filing pain. Beauty parlours, repair shops, small consultants are typical fits.
When you might want help
The choice is simple if your buyer profile is clear (all B2C → composition; significant B2B → regular). Where it gets nuanced: mid-year switches, multi-state operations, mixed B2C+B2B, or when an e-commerce listing is in the plans.
Composition or regular — unsure?
15-minute call. We'll model both scenarios with your numbers and recommend.