Composition vs Regular GST Scheme: Bihar Decision Guide
Navigate Composition vs. Regular Scheme with legal precision. Designed specifically for Patna, Muzaffarpur, Gaya, and all Bihar markets.
What is the Composition Scheme?
The Composition Scheme, governed under Section 10 of the CGST Act, 2017, is a simplified tax payment mechanism designed specifically for small taxpayers. It offers relief from the tedious compliance burden of regular GST.
Instead of paying tax at standard rates (5%, 12%, 18%, or 28%) and claiming Input Tax Credit (ITC), eligible businesses pay a nominal, fixed rate of tax on their turnover. However, this simplicity comes with significant trade-offs, primarily the inability to issue Tax Invoices or pass on credit to buyers.
Regular Taxpayers
Act as “tax collectors.” You collect 5%, 12%, 18%, or 28% from customers and claim Input Tax Credit (ITC) on your purchases.
Composition Dealers
Pay a flat rate (usually 1%) from their own pocket based on total turnover. They cannot collect tax from customers and cannot claim ITC.
Turnover Limits & Eligibility
Quick decision-making comparison for business owners
Traders and Manufacturers
Turnover Limit: ₹1.5 Crore
Regional Nuance: Since Bihar is a “Normal Category” state, the ₹1.5 Crore limit applies. However, if you have a branch in a special category state like Sikkim or Meghalaya under the same PAN, the limit for your entire business drops to ₹75 Lakhs.
Service Providers
Turnover Limit: ₹50 Lakhs
Applicability: This covers salons, tailors, small coaching centers, and other service-oriented businesses across Bihar.
Composition vs Regular GST Scheme Bihar At a Glance
Quick decision-making comparison for business owners
| Feature | Normal Taxpayer | Composition Dealer |
|---|---|---|
| Input Tax Credit (ITC) | ✅ Allowed. Can claim credit on purchases. | ❌ Not Allowed. Cost of purchase increases. |
| Tax Invoice | ✅ Can issue Tax Invoice & pass on credit. | ❌ Cannot issue Tax Invoice (Bill of Supply only). |
| Inter-state Sales | ✅ Allowed without restrictions. | ❌ Strictly Prohibited. |
| E-commerce Sales | ✅ Allowed (Amazon/Flipkart, etc.) | ❌ Strictly Prohibited (via TCS operators). |
| Tax Liability | Based on profit/value addition. | Based on total turnover. |
| Returns | Monthly/Quarterly (GSTR-1, GSTR-3B). | Quarterly Challan (CMP-08), Annual (GSTR-4). |
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Current Turnover Limits (2026)
The eligibility for the scheme depends heavily on your aggregate turnover in the preceding financial year.
1. For Traders and Manufacturers (Goods)
The threshold differs based on the state where the business is registered.
Normal Limit
₹1.5 Crore
States/Regions Covered:
Bihar, Jharkhand, West Bengal, Odisha, UP, and most of India
Special Category States
₹75 Lakhs
States/Regions Covered:
Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Uttarakhan
📍 Regional Focus for Eastern India:
Clients operating in Bihar, Jharkhand, and West Bengal fall under the ₹1.5 Crore limit. If your turnover exceeds this during the financial year, you must legally withdraw from the scheme within 7 days.
2. For Service Providers (Section 10(2A))
Introduced to cover service providers (other than restaurants), this scheme allows those with a turnover of up to ₹50 Lakhs to opt for a simplified tax rate. This limit applies uniformly across all states, including Bihar and Jharkhand.
Service Providers Limit
₹50 Lakhs
Applicable Across All States
Uniform limit for pure service providers nationwide
Tax Rates Structure (2026)
The rate depends on the nature of your business activity.
Manufacturers
1%
CGST: 0.5% + SGST: 0.5%
Traders (Goods)
1%
CGST: 0.5% + SGST: 0.5%
(Only on taxable turnover)
Restaurants (Not serving alcohol)
5%
CGST: 2.5% + SGST: 2.5%
Service Providers (Section 10(2A))
6%
CGST: 3% + SGST: 3%
Who is NOT Eligible? The "Red Flag" List
Before opting in, ensure you do not fall into these “Negative List” categories. Violation leads to immediate disqualification and potential demand notices.
🚫 Automatic Disqualifications
- Inter-state Outward Suppliers: You cannot sell goods from Bihar to Jharkhand or West Bengal. (Note: Inter-state purchase is allowed).
- E-commerce Sellers: You cannot sell goods through operators like Amazon, Flipkart, or Meesho who collect TCS.
- Services (Exception): Manufacturers or Traders cannot supply services (except restaurant services or interest income), unless the service value is within 10% of turnover or ₹5 Lakhs (whichever is higher).
- Specific Manufacturers: Manufacturers of:
- Ice cream and other edible ice
- Pan Masala
- Tobacco and tobacco substitutes
- Aerated Water
- Fly ash bricks/blocks
- Casual Taxable Persons & NRTPs: Temporary registrations cannot opt for Composition.
📋 Get Your Eligibility Checklist
Download our comprehensive eligibility assessment tool for Bihar & Jharkhand businesses
Pros & Cons Analysis
A balanced view to help you make an informed decision.
✅ Advantages (Pros)
- Lower Compliance: Fewer returns (4 quarterly statements + 1 annual return) compared to monthly filing.
- Lower Tax Outflow: Paying 1% is generally less than standard rates, highly beneficial for B2C businesses with low margins.
- Better Liquidity: Less tax to pay upfront compared to full liability under normal scheme.
- Simplified Accounting: No need to maintain detailed ITC records or reconciliations.
- Reduced Audit Risk: Lower compliance requirements mean fewer points of scrutiny.
❌ Disadvantages (Cons)
- No Input Tax Credit (ITC): This is the biggest drawback. The tax paid on purchases becomes a cost, potentially inflating your selling price.
- B2B Limitation: Registered buyers will avoid purchasing from you because you cannot give them a Tax Invoice for their own ITC claims.
- Geographic Restriction: Business growth is limited to your own state (No inter-state sales allowed).
- E-commerce Restriction: Cannot sell through major platforms like Amazon, Flipkart, eliminating a major sales channel.
- Fixed Rate on Turnover: Tax is calculated on total turnover, not on profit margin. Even loss-making businesses pay tax.
- Limited Business Expansion: Restrictions prevent scaling operations across state borders or online marketplaces.
Registration Process
A balanced view to help you make an informed decision.
1. New Applicants
Step-by-Step for Fresh Registration
When applying for a fresh GST registration using Form REG-01, select the option to opt for the Composition Scheme in Part B of the application form.
✅ This must be done at the time of initial registration – you cannot opt for composition after receiving normal registration.
2. Existing Normal Taxpayers
If a regular taxpayer wants to switch to Composition Scheme:
Step 1: File Form CMP-02
Submit Form CMP-02 on the GST Portal prior to the commencement of the financial year (i.e., before 31st March).
⏰ Timing is Critical: You can only switch at the beginning of a financial year.
Step 2: File Form ITC-03
File Form ITC-03 within 60 days to reverse the ITC (Input Tax Credit) held in stock.
⚠️ This is a crucial step often missed, leading to litigation and demand notices.
💡 Advocate’s Tip: The reversal of ITC is mandatory and non-compliance can result in interest and penalty. Many businesses overlook this requirement and face demands later. Ensure proper calculation and timely filing.
Returns & Due Dates
Composition compliance is quarterly, not monthly – significantly reducing the compliance burden.
Form CMP-08 (Quarterly Statement)
Purpose & Timeline
Purpose: Used to declare turnover and pay tax for the quarter.
Due Date: 18th of the month succeeding the quarter
Examples:
- April-June Quarter → Due by July 18th
- July-September Quarter → Due by October 18th
- October-December Quarter → Due by January 18th
- January-March Quarter → Due by April 18th
Form GSTR-4 (Annual Return)
Annual Consolidated Return
Purpose: Consolidated return for the entire financial year with complete details.
Due Date: 30th April of the following financial year
Example: For FY 2025-26, GSTR-4 is due by 30th April 2027
⚠️ Important: Watch out for GSTR-4 late fees, which can accumulate quickly if missed. Late fee is ₹50 per day (₹25 CGST + ₹25 SGST) with a maximum of 0.04% of turnover.
Local Compliance Check: Signboards
Rule 5(1)(f) of the CGST Rules mandates that every Composition Dealer must mention the words “Composition Taxable Person” on:
- ✅ Every notice or signboard displayed at their principal place of business
- ✅ Every signboard at additional places of business
- ✅ Every Bill of Supply issued to customers
Form CMP-08 (Quarterly Statement)
Purpose & Timeline
Purpose: Used to declare turnover and pay tax for the quarter.
Due Date: 18th of the month succeeding the quarter
Examples:
- April-June Quarter → Due by July 18th
- July-September Quarter → Due by October 18th
- October-December Quarter → Due by January 18th
- January-March Quarter → Due by April 18th
⚖️ Advocate’s Tip :
In states like Bihar , roving squad officers frequently check signboards during physical verifications. Missing this signage attracts a penalty under Section 125 (General Penalty up to ₹25,000).
Recommendation: Get a proper signboard made immediately after opting for the scheme. Keep photographic evidence of the signboard for your records.
Sample Signboard Format
Required Text on Signboard:
[Your Business Name]
GSTIN: [Your 15-digit GSTIN]
Composition Taxable Person
Not eligible to collect tax on supplies
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Special Considerations for Bihar & Businesses
1. Municipal Tax Receipt Preference
📍 Bihar-Specific Tip:
For businesses in municipal areas of Bihar (Patna, Gaya, Muzaffarpur), keep your Municipal Tax Receipt readily available. Officers may ask for it during verification even though it’s not a mandatory document for GST. Having it shows legitimacy.
2. Language Support
While the GST portal is in English, many local officers in Bihar and Jharkhand are comfortable communicating in Hindi. Keep Hindi translations of key documents:
- Business description
- Nature of supplies
- Signboard text (both English and Hindi recommended)
3. Physical Verification Preparation
⚠️ Bihar Focus:
Physical verification of Composition Dealers is more common in Bihar and Jharkhand compared to other states. Be prepared with:
- ✅ Proper signboard with “Composition Taxable Person” clearly visible
- ✅ Stock register showing inward and outward supplies
- ✅ Bills of supply issued to customers
- ✅ Bank statements showing business transactions
- ✅ Rent agreement or ownership documents of business premises
4. Jurisdictional Officers Contact
For Bihar and Jharkhand taxpayers, it’s advisable to know your jurisdictional GST officer’s contact details. In case of queries or notices, prompt response is essential.
Quick Reference Card: Composition Scheme Checklist
Print and keep this checklist handy for quick reference.
Eligibility Quick Check
- ❑ Turnover below ₹1.5 Crore (goods) or ₹50 Lakhs (services)?
- ❑ Only selling within your state (no inter-state sales)?
- ❑ Not selling through e-commerce platforms?
- ❑ Not manufacturing ice cream, pan masala, or tobacco?
- ❑ Mostly B2C customers (not B2B)?
- ❑ Don’t need to claim Input Tax Credit?
If you answered YES to all above, Composition Scheme is suitable for you!
2. Language Support
While the GST portal is in English, many local officers in Bihar and Jharkhand are comfortable communicating in Hindi. Keep Hindi translations of key documents:
- Business description
- Nature of supplies
- Signboard text (both English and Hindi recommended)
3. Physical Verification Preparation
📝 Compliance Checklist
- ❑ Signboard displayed with “Composition Taxable Person”
- ❑ Using “Bill of Supply” (not Tax Invoice)
- ❑ CMP-08 filed quarterly by 18th
- ❑ GSTR-4 filed annually by 30th April
- ❑ Stock register maintained
- ❑ Bank account linked to GSTIN
🚫 Things to Avoid
- ❌ Don’t make inter-state sales
- ❌ Don’t sell on Amazon/Flipkart
- ❌ Don’t issue Tax Invoices
- ❌ Don’t collect GST from customers
- ❌ Don’t claim Input Tax Credit
- ❌ Don’t exceed turnover limits
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