Bill of Supply vs Tax Invoice: How Composition Scheme Shops Bill Under GST

If you have opted into the GST composition scheme, there is one rule that catches almost every shop owner out in the first month: you are not allowed to issue a tax invoice. You issue a bill of supply instead, and it is a genuinely different document with different fields, no tax lines, and a mandatory declaration printed on it.

This is not a cosmetic difference. A composition dealer who prints "Tax Invoice" with CGST and SGST columns has collected tax it was never entitled to collect, and that is a recoverable amount with a penalty attached.

What each document is for

A tax invoice is what a regular GST-registered dealer issues on a taxable sale. It shows the taxable value of each line, the rate, and the GST split into CGST and SGST (or IGST interstate). Its purpose is to document tax collected from the buyer so a registered buyer can claim input tax credit.

A bill of supply is what you issue when there is no GST to show on the face of the bill. Two kinds of sellers use it:

• Composition scheme dealers under Section 10 of the CGST Act, who pay a flat percentage of turnover out of their own margin instead of collecting tax from customers.
• Any registered dealer selling wholly exempt or nil-rated supplies, for example unbranded staples or exempt services.

If you are a composition dealer, every sales document you raise is a bill of supply. There is no situation in which you raise a tax invoice.

Bill of supply vs tax invoice at a glance

What has to be printed on a bill of supply

Rule 49 of the CGST Rules sets out the fields. In practice your bill needs:

1. The words "Bill of Supply" as the document title, not "Tax Invoice" and not just "Bill".
2. Your shop's name, address and GSTIN.
3. A consecutive serial number, unique for the financial year, up to 16 characters.
4. The date of issue.
5. The customer's name, address and GSTIN or UIN, if the customer is registered.
6. Description of the goods or services, with HSN or SAC where your turnover slab requires it.
7. Value of supply, and any discount or abatement applied.
8. Your signature or digital signature.

There is no taxable value column, no rate column and no tax column. If your software prints a zero in a CGST column, that is still the wrong document.

The declaration you must print

Every bill of supply from a composition dealer has to carry this declaration on the bill:

Composition taxable person, not eligible to collect tax on supplies.

Separately, you also have to display "Composition Taxable Person" on a signboard at the entrance of your shop and at every additional place of business. Both requirements are commonly missed, and both are easy things for an officer to spot on a visit.

What you pay instead

You do not charge GST, but you still owe it. Composition tax is a flat percentage of your turnover, paid from your own margin:

• 1% for traders and manufacturers, split half CGST and half SGST.
• 5% for restaurants not serving alcohol.
• 6% for the service provider variant of the scheme, which has a much lower turnover limit of 50 lakh.

The headline eligibility limit for goods is 1.5 crore of aggregate turnover in the previous financial year, and 75 lakh in the special category states. Because the tax is on turnover rather than on margin, your shelf price has to absorb it. Plenty of shop owners price as if the 1% does not exist, then wonder where the quarter's margin went.

Setting your billing software up

If you are switching into or out of the scheme, change these on the day it takes effect:

• Switch the document type so sales print as "Bill of Supply", with a numbering series kept separate from any older tax invoice series.
• Turn tax lines off at the item level, not just hidden on the print layout. A hidden tax column still lands in your reports.
• Add the declaration as standing header or footer text so nobody has to remember it per bill.
• Keep HSN codes in your item master anyway. You need them if you cross the threshold and move to regular registration, and some slabs require them here too.
• Fix the purchase side. You cannot claim input tax credit, so purchases should book the full GST-inclusive cost into item cost rather than into a credit ledger, or your margin reports read high all year.
• Block interstate outward sales. A composition dealer in goods cannot make them at all, so it is a restriction in your billing flow, not a different tax rate.

If you are a regular dealer selling a mix of taxable and exempt items to an unregistered buyer, there is a combined document for that case, the invoice-cum-bill of supply. It does not apply to composition dealers, who have nothing to combine.

Frequently Asked Questions

Can a composition dealer issue a tax invoice?

No. A composition dealer is not eligible to collect GST from customers, so it cannot issue a tax invoice at all. Every outward sale goes on a bill of supply carrying the composition taxable person declaration. Issuing a tax invoice and collecting tax on it makes that tax recoverable from you along with a penalty.

Can my customer claim input tax credit on a bill of supply?

No. A bill of supply shows no GST, so there is no credit to pass on. That is the biggest commercial drawback of the scheme: registered business buyers usually prefer a supplier who can give them a tax invoice, which is why composition suits shops selling mainly to walk-in retail customers.

Is a bill of supply needed for very small sales?

It is not mandatory where the value of the supply is under 200 rupees, provided the recipient is unregistered and does not ask for one, and you can raise a consolidated bill of supply for all such sales at the end of the day. Most shops issue one per sale anyway, because turnover is exactly what your tax is calculated on.

What is the difference between a bill of supply and a plain shop bill?

A bill of supply is a specific document defined under GST, with required fields, a serial number series and, for composition dealers, a mandatory declaration. A plain cash memo has no standing under GST. Once you are registered, what you hand the customer has to be one of the defined documents.

Do I report every bill of supply individually in my returns?

No. Composition dealers file a quarterly statement in CMP-08 with turnover and tax payable, and an annual return in GSTR-4, reporting totals rather than invoice-wise detail. You still have to retain the bills, so the numbering series should run unbroken through the financial year.

The short version

A tax invoice shows GST you collected and lets a registered buyer claim credit on it. A bill of supply shows no GST because none was collected, and a composition scheme shop issues nothing else. Get the document title, the absent tax lines and the declaration right in your billing software once, and the rest is keeping honest turnover records for the quarterly CMP-08. If you later move to regular registration, our guides to GST invoice rules and GST compliance cover what changes on the bill at that point.