GST confuses almost every small business owner at some point. Do I need to register? What is this “composition scheme” my neighbour talks about? Which rate applies to what I sell? This guide answers those questions in plain language, so you know where you stand before you speak to an accountant.
This is general information, not tax advice. GST rules depend on what you sell and where, so confirm your situation with a chartered accountant or GST practitioner.
Do I need to register for GST?
It depends mainly on your yearly turnover (total sales) and what you sell.
- Selling goods: registration is usually required once turnover crosses ₹40 lakh a year in most states (₹20 lakh in special category states). Some states and some goods follow the lower limit, so check yours.
- Providing services: the limit is ₹20 lakh a year in most states (₹10 lakh in special category states).
Some businesses must register whatever their turnover, for example those making taxable sales to other states and certain online sellers. If you plan to sell across India through websites or marketplaces, check this early.
Benefits of registering, even when small
- You can claim input tax credit, meaning GST you pay on purchases reduces the GST you owe.
- Many larger buyers and businesses only buy from GST-registered sellers.
- It is usually needed to sell on most big marketplaces.
- It makes your business look more established when applying for loans.
The trade-off is paperwork: regular returns, proper invoices and record-keeping.
What is the composition scheme?
The composition scheme is a simpler GST option for small businesses. Instead of charging GST on every bill and claiming credits, you pay a small fixed percentage of your turnover and file fewer returns.
Who can opt in
- Eligible traders, manufacturers and restaurants generally use a preceding-financial-year turnover limit of ₹1.5 crore, reduced to ₹75 lakh in specified states. Check the current notification for your state.
- Most traders, manufacturers and restaurants (without alcohol). Some goods, such as ice cream, pan masala and tobacco products, are not allowed.
Composition tax rates
- Traders and manufacturers: 1% of turnover
- Restaurants (not serving alcohol): 5% of turnover
- Eligible service or mixed suppliers under the separate scheme: 6% combined tax, with preceding-financial-year turnover up to ₹50 lakh, subject to its conditions. The ₹1.5 crore limit above does not apply to this separate scheme.
The rules you accept
- You cannot collect GST from customers. You issue a “bill of supply” instead of a tax invoice.
- You cannot claim input tax credit on purchases.
- You generally cannot sell to other states.
- You must display “Composition taxable person” at your shop.
- Returns are simpler: a quarterly payment statement (CMP-08) and an annual return (GSTR-4).
Regular GST vs composition: which suits you?
Composition usually suits local shops that sell directly to consumers within their own state, buy mostly from unregistered or local suppliers, and want minimum paperwork. A small kirana store or a neighbourhood bakery is a typical example.
Regular GST usually suits businesses that sell to other businesses, sell across states or online at scale, or buy a lot of GST-paid stock. They can claim input tax credit, which often makes regular registration cheaper overall.
A quick test: if your customers are mostly other businesses who want a GST invoice, composition will hold you back.
GST rates after the 2025 changes
From 22 September 2025, GST moved to a simpler structure with two main rates, 5% and 18%, plus a higher 40% rate for a small list of luxury and “sin” goods. Many everyday items were moved to the lower rate, and some essentials are exempt.
The rate for your product depends on its HSN code. Check the official rate for your exact products on the GST portal or with your accountant, and make sure your billing software is updated.
How to register for GST
- Go to the official portal, gst.gov.in, and choose new registration.
- Keep ready your PAN, Aadhaar, business address proof, bank details and a photograph.
- Fill the application and verify with OTP and Aadhaar authentication.
- Once approved, you receive your GSTIN.
Registration on the official portal is free. If you use an agent, they charge only for their service.
Common mistakes to avoid
- Waiting until you have already crossed the limit before registering
- Choosing composition and then selling to other states
- Charging GST on bills while registered under composition
- Missing return due dates, which leads to late fees
- Not keeping purchase bills, which you need for credits and records
The bottom line
If you are a small local shop under the limit, you may not need GST at all yet. If you are growing, selling online or selling to businesses, registration usually pays for itself. And if you want simple paperwork for a local business, the composition scheme is worth a conversation with your accountant.
Also read: Udyam registration for small businesses and how to price products for online selling, which explains how GST affects your margin.
Official sources
Reviewed on 20 October 2026. The Government’s MSME GST measures explain the separate ₹50 lakh service-supplier scheme. See also CBIC composition rules. Check current notifications and your eligibility with a GST practitioner before choosing a scheme.