GST annual composition scheme turnover threshold 2026 revised

Many small business owners and accountants believe composition scheme eligibility lasts for the entire financial year once opted. That is a dangerous misunderstanding of the statutory mechanism. The moment your cumulative sales cross the statutory threshold during the running financial year, your composition benefit ends on that very day.

Turnover limits for composition dealers in 2026

The statutory basis of the composition levy is codified under Section 10 of the CGST Act. For manufacturers and traders of goods, the general aggregate turnover threshold stands at ₹1.5 crore (₹1,50,00,000) in the preceding financial year. For specified special category north-eastern States and Uttarakhand, the threshold stands at ₹75 lakh (₹75,00,000). For service providers opting under Section 10(2A), the aggregate turnover limit is ₹50 lakh (₹50,00,000).

Computing aggregate turnover requires strict adherence to Section 2(6) of the CGST Act. Aggregate turnover includes all taxable supplies, exempt supplies, exports, and inter-State supplies across all branches operating under the same Permanent Account Number (PAN). It excludes central tax, State tax, integrated tax, and cess, as well as inward supplies liable to reverse charge under Section 9(3) or Section 9(4).

Statutory impact when turnover crosses the threshold

Section 10(3) of the CGST Act specifies that the option availed by a registered person lapses with effect from the exact day on which aggregate turnover during a financial year exceeds the prescribed limit. There is no grace period up to the end of the month or quarter.

From the date of threshold breach, four immediate legal consequences take effect:

1. Issuance of tax invoices: The supplier can no longer issue a bill of supply. They must issue tax invoices under Section 31 charging applicable CGST, SGST, or IGST on all outward supplies.
2. Discontinuation of composition tax rates: The supplier can no longer pay the flat concession rate (such as 1% on turnover). Regular GST rates apply to all subsequent outward sales.
3. Mandatory return shift: Per GSTN return filing guidelines, composition taxpayers who exit the scheme stop filing quarterly statement CMP-08 and must file monthly or quarterly Form GSTR-1 and Form GSTR-3B as regular taxpayers.
4. Right to collect GST: While Section 10(4) prohibits composition dealers from collecting tax from customers, regular taxpayers must charge and collect GST from recipients.

Claiming input tax credit on existing stock via Form GST ITC-01

Composition dealers cannot claim input tax credit on purchases, as affirmed by Section 10(4) and Section 17(5)(e) of the CGST Act. However, when an entity is compelled to exit the composition scheme due to crossing the turnover threshold, the law protects them from double taxation on inventory held on the transition date.

Under Section 18(1)(c) of the CGST Act, a registered person who ceases to pay composition tax is entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished goods, and finished goods held in stock on the day immediately preceding the date from which they become liable to pay tax as a regular taxpayer.

To avail this credit, the taxpayer must comply with Rule 40 of the CGST Rules by submitting an electronic declaration in Form GST ITC-01 on the GST portal within 30 days from the date of becoming liable to pay regular tax. For a detailed roadmap on transition declarations, review our guide to ITC forms under GST: ITC-01, ITC-03, and ITC-04.

Worked example: threshold breach and transition calculations

Consider Om Trading Enterprises, a wholesale hardware distributor registered under the composition scheme in Maharashtra. The firm had an aggregate turnover of ₹1,30,00,000 in FY 2024-25. During FY 2025-26, cumulative sales reach ₹1,48,50,000 by 18 October 2025. On 19 October 2025, the firm executes sales of ₹4,50,000, bringing cumulative turnover to ₹1,53,00,000.

The ₹1.5 crore threshold is breached on 19 October 2025. Turnover up to the threshold of ₹1.5 crore is eligible for the composition levy at 1%. The turnover of ₹3,00,000 in excess of ₹1.5 crore on 19 October 2025 is subject to regular GST rates (18% on hardware items). On 18 October 2025, Om Trading Enterprises held verifiable trading stock of ₹12,00,000 purchased from registered suppliers within the preceding 12 months, carrying GST of ₹2,16,000.

Net tax impact for the transition tax period:

Output tax liability on regular supplies: ₹54,000

Less: Admissible input tax credit credited via Form GST ITC-01: ₹2,16,000

Net cash liability for regular sales: ₹0 (surplus electronic credit ledger balance of ₹1,62,000 carried forward to offset future monthly outward tax liabilities).

Composition levy payable in cash for supplies up to the threshold: ₹1,50,000 (cannot be paid from electronic credit ledger).

Checklist for accountants handling a composition threshold breach

1. Track cumulative sales weekly: Do not wait for quarterly balance sheets. Monitor sales ledgers weekly once turnover approaches ₹1.35 crore.
2. Intimate exit on the GST portal: File Form GST CMP-04 on the portal within 7 days of the threshold breach under Rule 6 of the CGST Rules.
3. Conduct physical stock-taking: Record physical inventory of raw materials, semi-finished goods, and finished goods on the day prior to exit. Match every stock item with tax invoices less than one year old.
4. File Form GST ITC-01 within 30 days: Enter invoice-wise input stock details on the GST portal to credit input tax to your electronic credit ledger.
5. Reconcile inward purchases against GSTR-2B: Starting from your first regular tax period, every purchase invoice must be verified against GSTR-2B before taking credit in Form GSTR-3B. For full credit rules, see our analysis on input tax credit under GST and how GSTR-2B decides it.

Frequently asked questions

Last checked: 22 October 2026. Sources: CGST Act Section 10, CGST Act Section 18, CGST Rules Rule 40, GSTN Return Guidelines.