Composition Scheme for Kirana Stores: Is It Right for You?

The composition scheme is an optional GST scheme for small businesses: instead of charging GST on each sale, you pay tax as a small fixed percentage of your turnover and file fewer, simpler returns. For many kirana stores that sell mostly to households, it can reduce paperwork. The trade-offs are real, though: you issue a bill of supply instead of a tax invoice, you cannot charge GST to customers, you cannot claim input tax credit on purchases, and you cannot sell to customers in other states.

Whether it suits you depends on who your customers are, what you sell and how much of your cost is GST paid to suppliers.

This is general guidance to help you have a better conversation with your chartered accountant. Limits and rates change, so decide only after talking to your CA.

How the composition scheme works

Feature	Composition scheme	Regular scheme
Tax paid	Fixed % of turnover	GST rate on each sale, minus input credit
Bill issued	Bill of supply	Tax invoice
GST charged to customer	Not allowed	Yes
Input tax credit on purchases	Not available	Available
Inter-state sales	Not allowed	Allowed
Returns	Quarterly payment statement and annual return	Monthly or quarterly returns

Turnover limit

At the time of writing, the limit for traders and manufacturers of goods is an aggregate turnover of ₹1.5 crore in the previous financial year, and a lower ₹75 lakh in certain special category states. The limit is counted across all businesses on the same PAN, not just one shop.

Tax rate for traders

At the time of writing, a trader under composition generally pays 1% of the turnover of taxable supplies, split as 0.5% CGST and 0.5% SGST. This comes from your own pocket, because you cannot collect it from customers. Manufacturers and restaurants have different rates, and all of these can be changed, so confirm the current figure with your CA.

The bill of supply

A composition dealer cannot issue a tax invoice. Instead, you issue a bill of supply, which:

• Shows your name, address and GSTIN, a serial number, the date, and the goods and value.
• Does not show any GST amount.
• Must carry the words: "composition taxable person, not eligible to collect tax on supplies".

You also need to display "composition taxable person" on the signboard at your shop. Our guide to the GST invoice format explains how a bill of supply differs from a tax invoice.

Restrictions to know

• No input tax credit. The GST you pay your wholesaler is a cost, not a credit.
• No inter-state outward supplies. You cannot sell to buyers in another state. Buying from another state is generally fine.
• No collecting tax. You cannot add GST to your bill, even if a customer asks.
• Registered buyers get no credit from you. A business buying from you cannot claim input tax credit on your bill.
• Certain goods and businesses are excluded. Some products and business types cannot opt in at all.
• Opting in has a timeline. You generally opt in before the start of the financial year, and moving out mid-year has its own process.

Pros and cons for a kirana store

When the composition scheme often fits

• Most of your customers are households, who cannot claim input tax credit anyway.
• Your turnover is comfortably within the limit.
• You sell only within your state.
• You want simpler compliance and fewer returns.

When the regular scheme often fits better

• You sell to other businesses (hotels, canteens, smaller shops) who want a tax invoice to claim credit.
• A large share of your cost is GST paid to suppliers, which you would lose as credit.
• You plan to grow past the limit soon.
• You may supply to customers across a state border.

A rough comparison

Take an illustrative shop with ₹40 lakh annual sales and ₹34 lakh purchases. Under composition, tax at an example 1% is ₹40,000 a year, paid by the shop, and the GST in its ₹34 lakh of purchases cannot be claimed back. Under the regular scheme, the shop charges GST on sales and pays the difference between output tax and input credit, and its prices to customers include that GST. Which works out better depends on your margins, product rates and customer mix, so ask your CA to run the numbers with your actual figures.

What changes when you buy from wholesalers

Your wholesaler is usually on the regular scheme, so you still receive a GST tax invoice for every purchase, with your GSTIN on it. The difference is on your side:

• You pay the GST on the invoice, and it becomes part of your purchase cost.
• You still need clean purchase records, because your turnover and tax are calculated from your books.
• Your khata with each wholesaler should match their invoices, so there are no surprises at year end.

If your rates are quoted inclusive of GST, our article on the GST inclusive price shows how the tax inside that price is worked out.

Composition scheme checklist

• Is your previous-year turnover, across all businesses on your PAN, within the limit?
• Do you sell only within your state?
• Are most of your customers households?
• Have you compared the tax under both schemes with your CA, using your real numbers?
• Is your bill of supply ready with the required declaration?
• Is "composition taxable person" displayed at your shop?

How MaalMitra helps

MaalMitra helps kirana stores buy smoothly and keep their records straight, whichever scheme they are under.

• Order from your wholesalers from one app, including a multi-wholesaler cart split per supplier and repeat orders you review before placing.
• A GST tax invoice for every delivery from wholesalers using MaalMitra, for delivered quantities only, with HSN, taxable value and tax, which you can print or save as PDF for your records.
• Khata in one place. Each delivered order goes to your khata with the wholesaler, with dues and overdue amounts visible, so your purchase records match your supplier's.
• Purchase history filters by wholesaler, dates, category and amount, which help when your CA asks for figures.

MaalMitra does not file your composition returns or produce bills of supply for your shop counter. MaalMitra's own invoices are GST tax invoices meant for regular-scheme wholesalers.

The bottom line

The composition scheme trades flexibility for simplicity. For a small kirana selling mostly to households within one state, it can make GST easier. For a shop selling to businesses, or one with heavy GST on purchases, the regular scheme may suit better. Look at your customers, your purchases and your growth plans, and decide with your CA.

Want your wholesale purchases and khata organised either way? Get started free with MaalMitra.