Moment guide · FY 2026-27

I am deciding whether to register for GST or use composition

When is GST registration mandatory and what is the composition scheme?

GST registration is mandatory above ₹40 lakh turnover for goods or ₹20 lakh for services (₹10 lakh in special-category states), and inter-state suppliers and e-commerce sellers must register regardless of turnover. The composition scheme offers 1-2% on goods up to ₹1.5 crore and 6% on services up to ₹50 lakh, but gives no input tax credit and no inter-state supplies.

The #1 trap

Choosing composition to 'save compliance' without realising you lose input tax credit — a business buying ₹80 lakh of taxable inputs on a ₹1 crore turnover can owe more under composition at 1-2% than under the regular scheme with ITC. Also, e-commerce marketplace sellers must register for GST even below the ₹40 lakh threshold.

Gaurav, trader deciding between composition and regular GST

Gaurav's goods business has a turnover of ₹1,20,00,000, which is above the ₹40 lakh threshold, so he is registered for GST. He is considering the composition scheme, which for goods allows a 1% rate on turnover up to ₹1.5 crore, giving composition tax of ₹1,20,00,000 multiplied by 1%, which is ₹1,20,000. Under the regular scheme he buys inputs worth ₹80,00,000 with GST at 18%, giving him input tax credit of ₹14,40,000, and he sells with output GST at 18%, which is ₹21,60,000, so his net GST liability is ₹7,20,000. Wait — that makes composition look cheaper on the headline number. But under composition he cannot claim the ₹14,40,000 input credit, and his composition tax of ₹1,20,000 is paid on top of the input GST he absorbs. The true comparison is composition tax of ₹1,20,000 versus regular net GST of ₹7,20,000, and in this case composition actually saves ₹6,00,000 of cash tax, so the scheme wins. His friend who trades with thin margins on high-value inputs where output GST is almost fully offset by input credits finds the regular scheme cheaper. Gaurav also sells on two e-commerce marketplaces, which means he must be registered even if his turnover were below ₹40 lakh, because marketplace sellers cannot use the threshold exemption. He decides based on a full-year projection of both schemes, including the loss of ITC and the restriction on inter-state sales under composition. A quick call with us dials in the final figure. Gaurav also checks the service-income composition option, because a mixed business supplying both goods and services up to ₹50 lakh of services can use the 6% composition rate for the service portion, and the rates differ by state category. The composition scheme bars inter-state supplies, so a business selling to another state must exit composition even if its turnover is within the limit. The ₹40 lakh goods threshold rises to ₹20 lakh for services in the same special-category states where registration starts at ₹10 lakh. If Gaurav's turnover crosses ₹1.5 crore mid-year under composition, he must migrate to the regular scheme from the date of crossing, with output tax and ITC recomputed. E-commerce marketplace sellers cannot use the threshold exemption or the composition scheme, so his marketplace sales are taxed under the regular scheme regardless. A quick call with us dials in the final figure.