Bill of Supply or Tax Invoice? Composition Dealers, Exempt Goods and Mixed Bills

A tax invoice is the document that lets your buyer claim input tax credit. Some sellers are not allowed to issue one: a composition dealer cannot charge GST, and nobody can charge GST on an exempt item. The law gives them a different document, the bill of supply. The September 2025 rate changes moved several everyday items, such as packaged paneer and UHT milk, to nil, so more retailers now need one. This post covers who issues it, what it must show, and how to bill a basket with both taxable and exempt items.

Who must issue a bill of supply

Section 31(3)(c) of the CGST Act says a registered person who supplies exempted goods or services, or who pays tax under the composition scheme (Section 10), must issue a bill of supply instead of a tax invoice.

Small sales. The proviso to Section 31(3)(c) lets a registered person skip a bill of supply when the value is below ₹200, subject to the conditions in the rules: the buyer is unregistered, does not ask for one, and the day's small sales are covered by a consolidated document at closing.

What a bill of supply must contain

Rule 49 lists the fields:

1. name, address and GSTIN of the supplier;
2. a consecutive serial number of up to 16 characters (letters, digits, hyphen, slash), unique for the financial year;
3. date of issue;
4. name, address and GSTIN or UIN of the recipient, if registered;
5. HSN code of goods or accounting code of services;
6. description of the goods or services;
7. value of supply, after any discount or abatement; and
8. signature or digital signature of the supplier or authorised representative (not needed for an electronic bill of supply).

There is no GST rate, no tax amount and no place-of-supply calculation, because no tax is charged.

Extra rules for composition dealers

A composition dealer has to:

• ✓write "composition taxable person, not eligible to collect tax on supplies" at the top of every bill of supply (Rule 5(1)(g));
• ✓never show GST on the bill, because Section 10(4) bars collecting tax from the buyer;
• ✓pay its composition tax (1% of turnover for manufacturers and traders, 5% for restaurants, 6% for eligible service providers) from its own pocket.

Buyers cannot claim input tax credit on a composition dealer's bill. That is the main reason B2B customers sometimes prefer regular dealers.

Mixed baskets: the invoice-cum-bill of supply

A grocery or dairy store sells taxable and exempt items in one bill all day. Rule 46A, inserted in October 2017, says that when a registered person supplies taxable and exempt goods or services to an unregistered person, it may issue a single invoice-cum-bill of supply for all of them. Since December 2022, a proviso requires that document to carry the particulars of both Rule 46 (tax invoice) and Rule 49 (bill of supply).

In practice, the single document:

• ✓carries one serial number from your invoice series;
• ✓shows HSN, value, rate and tax for each taxable line;
• ✓shows exempt lines with HSN and value and no tax; and
• ✓totals the taxable value, the tax and the exempt value separately.

Rule 46A covers unregistered buyers only. For a registered buyer, issue a tax invoice for the taxable items and a bill of supply for the exempt items, each from its own series.

A worked example

A Gujarat dairy retailer in Anand is a regular GST dealer. A walk-in customer buys 2 kg of packaged, labelled paneer (nil since 22 September 2025) and 1 kg of ghee (5% since the same date).

1. Paneer: 2 kg × ₹420 = ₹840, exempt, no tax.
2. Ghee: taxable value ₹600. CGST 2.5% = ₹15, SGST 2.5% = ₹15. Ghee total = ₹630.
3. Bill total = ₹840 + ₹630 = ₹1,470.

The shop issues one invoice-cum-bill of supply, numbered from its invoice series, with the paneer line at nil and the ghee line with CGST and SGST. In GSTR-1, ₹600 goes into B2C taxable supplies and ₹840 into nil-rated or exempt supplies (Table 8).

Its neighbour, a composition dealer, makes the same sale. It issues a bill of supply headed with the composition wording and charges ₹1,440 (₹840 + ₹600), with no GST line. It pays composition tax from its own funds. For a trader, the 1% applies to the turnover of taxable supplies, so the ₹840 of exempt paneer is left out: ₹600 × 1% = ₹6, split ₹3 CGST and ₹3 SGST.

Common mistakes

Frequently asked questions

Sources

• ✓CGST Rule 49, bill of supply, CBIC
• ✓CGST Rule 46A, invoice-cum-bill of supply, CBIC
• ✓CGST Rule 49, bill of supply, GSTZen
• ✓CGST Rule 46A, invoice-cum-bill of supply, GSTZen
• ✓Dairy rate changes from 22 September 2025, Business Standard

This is a summary, not legal advice. Confirm the rules on cbic-gst.gov.in and the current rate of each item in the CBIC rate notifications.