Composition Scheme Billing: Bill of Supply Rules & Format

Under the GST Composition Scheme, registered businesses cannot issue a tax invoice or collect any GST from buyers, but must instead issue a Bill of Supply under Section 31(3)(c) of the CGST Act. Rule 49 and Rule 5(1)(f) strictly mandate that every composition bill must prominently state: 'Composition taxable person, not eligible to collect tax on supplies' on the top of the invoice.

The GST Composition Scheme was created under Section 10 of the CGST Act to simplify tax compliance for small manufacturers, retail traders, restaurants, and service providers. Instead of filing monthly detailed invoices and maintaining complex Input Tax Credit (ITC) reconciliation, composition dealers pay a small, fixed percentage of their quarterly turnover directly to the government through Form CMP-08.

However, this simplified structure comes with rigid invoicing restrictions. Hundreds of composition taxpayers receive compliance notices every year because they accidentally print GST percentage columns, collect tax from unsuspecting consumers, or fail to print mandatory statutory headers on their bills. In this comprehensive guide, we unpack the exact legal mechanics of composition billing, examine Bill of Supply rules under Rule 49, outline turnover eligibility, and demonstrate how Udyog automates composition compliance.

Composition scheme eligibility and tax rates in 2026

To opt for and maintain composition status under Section 10, a taxpayer's aggregate turnover during the preceding financial year must not exceed statutory ceilings:

Note on special category states: For Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand, the turnover limit for goods composition is ₹75 lakh. For Assam, Himachal Pradesh, and Jammu & Kashmir, the threshold is ₹1.5 crore.

Mandatory components of a Bill of Supply under Rule 49

Because a composition taxpayer cannot issue a 'Tax Invoice', they are statutorily required under Section 31(3)(c) to issue a 'Bill of Supply'. Rule 49 of the CGST Rules specifies eight mandatory fields:

1. 1Mandatory Header Text: The document must be clearly titled 'Bill of Supply' at the top center.
2. 2Mandatory Statutory Notice: Under Rule 5(1)(f), the words 'Composition taxable person, not eligible to collect tax on supplies' must appear prominently at the very top of every invoice.
3. 3Supplier Identification: Legal entity name, trade name, registered address, and active 15-digit GSTIN.
4. 4Consecutive Serial Number: A unique consecutive serial number containing only alphabets, numerals, and special characters (hyphen or slash), unique for each financial year.
5. 5Date of Issue: The calendar date on which the Bill of Supply is generated.
6. 6Recipient Details: Name, address, and GSTIN or Unique Identity Number (UIN) if the recipient is registered under GST.
7. 7HSN or SAC Code: Harmonized System of Nomenclature code for goods or Accounting Code for services, as prescribed under statutory turnover thresholds.
8. 8Description and Value: Clear itemized description of goods or services, quantity, rate per unit, gross value, and net value payable after applicable commercial discounts.

Restrictions on composition taxpayers: What you CANNOT do

While the composition scheme reduces administrative overhead, businesses must understand its strict statutory limitations before selecting this tax regime:

• •No Interstate Outward Supplies: Under Section 10(2)(c), a composition dealer cannot supply goods or services across state lines. All sales must be strictly intra-state.
• •No E-Commerce Sales: Under Section 10(2)(d), composition taxpayers cannot supply goods through e-commerce operators like Amazon or Flipkart who are required to collect TCS under Section 52.
• •Zero Input Tax Credit: You cannot claim ITC on any purchases made for your business. The GST charged by your suppliers becomes an added operational expense.
• •B2B Buyers Cannot Claim ITC: Because your Bill of Supply carries no GST charge, corporate and registered B2B buyers cannot claim any tax credit, making composition dealers less attractive to enterprise clients.
• •Prohibited Goods: Manufacturers of ice cream, pan masala, tobacco, brick kilns, and aerated water are legally ineligible for the composition scheme.

Transition rules: Switching between Regular and Composition regimes

Businesses do not remain static; changing market conditions often necessitate migrating between the regular GST scheme and the composition scheme. Under Section 18(4) of the CGST Act and Rule 44, when a regular taxpayer shifts to composition, they must calculate and reverse the Input Tax Credit availed on stock, semi-finished goods, and capital assets held in inventory on the date of transition via Form GST ITC-03.

Conversely, when a composition dealer opts out—either voluntarily via Form GST CMP-04 or automatically upon exceeding the ₹1.5 crore turnover threshold—Section 18(1)(c) allows them to claim Input Tax Credit on inputs held in stock and capital goods (reduced by 5% per quarter) via Form GST ITC-01 within 30 days. From the exact date of opting out, the taxpayer must immediately stop issuing Bills of Supply and begin issuing standard Rule 46 Tax Invoices.

Quarterly payment and annual compliance: CMP-08 and GSTR-4

Invoicing under the composition scheme connects directly to a simplified filing routine. Instead of filing monthly GSTR-1 and GSTR-3B returns, composition taxpayers follow a streamlined two-tier process:

First, taxpayers file Form CMP-08 quarterly by the 18th day of the month following each quarter (e.g., July 18 for the April–June quarter). This return summarizes aggregate turnover, computes the fixed composition tax rate (e.g., 1% or 5%), and remits the tax liability via online challan. Second, taxpayers file a single comprehensive annual return using Form GSTR-4 by April 30 following the close of the financial year.

Using Udyog billing software, composition dealers can automate Bill of Supply creation, ensure strict compliance with Rule 49 wording, and auto-aggregate quarterly turnover numbers ready for instant CMP-08 filing.

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