Answer Book question
Registration is mandatory only above ₹40 lakh annual turnover for goods (Kerala adopted the higher limit) and ₹20 lakh for services, or earlier if you sell across state lines, through e-commerce platforms, or are liable under reverse charge. Below that you may register voluntarily, which matters if your customers want input credit. Once registered, a trader, manufacturer or restaurant with turnover up to ₹1.5 crore can opt for the Composition Scheme: pay a flat 1% of turnover (5% for restaurants), file one quarterly statement and one annual return, and stop collecting GST on invoices. Service providers have a parallel 6% composition up to ₹50 lakh.
Registration is mandatory only above ₹40 lakh annual turnover for goods (Kerala adopted the higher limit) and ₹20 lakh for services, or earlier if you sell across state lines, through e-commerce platforms, or are liable under reverse charge. Below that you may register voluntarily, which matters if your customers want input credit.
5 crore can opt for the Composition Scheme: pay a flat 1% of turnover (5% for restaurants), file one quarterly statement and one annual return, and stop collecting GST on invoices. Service providers have a parallel 6% composition up to ₹50 lakh.
A bakery in Thiruvalla with ₹70 lakh turnover is paying a consultant monthly to file GSTR-1 and GSTR-3B and struggling with input credit reconciliation. Under composition it would pay 1% of turnover, about ₹70,000 a year, file quarterly, and stop issuing tax invoices. Its customers are households who do not need credit.
CGST Act, Section 22 sets the thresholds; Kerala opted for the ₹40 lakh goods limit under the 2019 notification. Section 24 lists compulsory registration regardless of turnover: inter-state supply of goods, e-commerce sellers, casual taxable persons, reverse-charge payers, and others.
5 crore; rates of 1% (manufacturers and traders), 5% (restaurants not serving alcohol), and 6% for services and mixed suppliers up to ₹50 lakh; no input credit; cannot collect tax from customers; cannot make inter-state outward supplies or sell through e-commerce operators requiring tax collection at source; must display 'composition taxable person' on the bill of supply and signboard; quarterly CMP-08 and annual GSTR-4. Opt in at the start of a financial year (or at registration).
The scheme suits consumer-facing businesses whose customers do not claim credit. The September 2025 GST rate rationalisation changed rates on many goods but not the composition structure; verify current rates.
Turnover by financial year, including exempt supplies, for the threshold Whether any customer needs input credit (wholesale, B2B): composition kills that Any inter-state sale or e-commerce listing (disqualifies) Purchases: composition dealers still pay GST on inputs; it becomes a cost Whether the consultant's fee exceeds what composition would save
Registering because 'everyone has a GST number' and then carrying monthly compliance on a ₹25 lakh turnover. Also: a composition dealer charging GST on bills, which attracts penalty.
Kerala's retail, hospitality and small food-processing sector is dominated by composition-eligible businesses that do not know the option exists. Units selling on Amazon or Flipkart are excluded; a Kerala unit supplying to a Tamil Nadu buyer is excluded. Many Kerala restaurants are on the 5% composition without realising it limits their growth into catering across the border.
Turnover ₹70 lakh, regular scheme: output tax at 5–18% collected from customers, input credit claimed, monthly returns. Composition: 1% = ₹70,000 a year out of pocket, no collection, four filings. If inputs are ₹30 lakh with ₹3 lakh of GST embedded, that ₹3 lakh is a cost under composition but creditable under the regular scheme; compare both.
If you supply businesses that claim credit, composition makes you an expensive supplier. If margins are thin and inputs are heavily taxed, the lost credit can exceed the saving. Manufacturers of notified goods (ice cream, pan masala, tobacco) are excluded.
Compute turnover and classify customers as B2C or B2B If eligible and B2C, file CMP-02 to opt in from the next financial year Update signboard and bill of supply format
I run a small shop. Do I really need to keep books of account for income tax? Should I become a proprietorship, LLP or company? (Vol 1)
Tax & compliance (CA referral)
CGST Act, 2017, Sections 10, 22, 24; Notification 10/2019-CT (threshold) and composition notifications · GST portal composition scheme rules (CMP-02, CMP-08, GSTR-4) · GST Council rate decisions (September 2025 onward) Last checked: 22 August 2026. Rates, limits and whether you may qualify change. Confirm with the official source before you act. Ask Kerala Rising: Use only general, non-identifying facts.
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This page is general orientation, not personal insurance, investment, medical, legal, lending, tax, employment, or professional advice. Rules, rates, deadlines, and decisions can change. Confirm the current position with the named official source and use a licensed or qualified professional where your situation requires one. Kerala Rising does not decide whether you may qualify, approve claims, or promise an outcome.