The Sweet Shop That Outgrew the Composition Scheme: A Section 10 Threshold Lesson

When Ramesh opened his mithai and namkeen shop in a busy Pune neighbourhood, life under GST was simple. He had registered under the composition scheme, paid a flat 1% on his turnover, filed one small statement every quarter, and never worried about matching invoices or claiming input tax credit. For a shop doing around Rs 90 lakh a year, it worked beautifully.

Then the shop got popular. Festival orders, corporate gifting, and a second counter pushed his turnover past Rs 1.6 crore in a single financial year. Ramesh, busy running the business, kept doing exactly what he had always done, paying 1% and filing CMP-08. He assumed the scheme would simply continue.

The GST Problem He Walked Into

The composition scheme under Section 10 of the CGST Act is only available up to an aggregate turnover of Rs 1.5 crore (Rs 75 lakh in certain special category states). The moment a taxpayer crosses this limit during a financial year, they lose eligibility and must shift to the regular scheme.

Ramesh had unknowingly broken several rules:

• He continued paying tax at 1% when he should have been charging regular GST rates on his supplies.
• He was not allowed to collect tax from customers under composition, so his pricing never accounted for the correct output tax.
• He did not file the intimation for withdrawal from the scheme within the required timeline.

When his CA reviewed the books at year-end, the gap was clear. For the months after he crossed Rs 1.5 crore, the department could treat him as a regular taxpayer liable to pay tax at the applicable rates, not 1%, along with interest on the shortfall.

How He Fixed It Correctly

Rather than hide the issue, Ramesh's CA took the clean route.

Step 1: File the withdrawal intimation

They filed Form CMP-04 to formally withdraw from the composition scheme, declaring the date from which he became ineligible. A composition taxpayer must file CMP-04 within seven days of becoming ineligible.

Step 2: Claim credit on stock in hand

On switching to the regular scheme, the law allows credit on inputs held in stock, inputs in semi-finished and finished goods, on the date of switchover. Ramesh filed Form ITC-01 within the prescribed period and recovered eligible input tax on his raw materials like sugar, ghee, dry fruits, and packaging, which softened the transition.

Step 3: Pay the differential tax with interest

For the period he wrongly stayed in composition after crossing the limit, he computed the correct output tax at regular rates, adjusted the eligible ITC, and paid the balance with interest voluntarily. Paying before any notice kept penalties to a minimum.

Step 4: Reset the compliance routine

He moved from quarterly CMP-08 filing to monthly or quarterly GSTR-1 and GSTR-3B, updated his billing software to charge the correct GST, and revised his selling prices so the tax was built in transparently.

The Key Lesson for Readers

The composition scheme is a privilege tied to a turnover ceiling, not a permanent status. Growth is good news, but it comes with a compliance switch you must make yourself. Nobody sends a reminder when you cross Rs 1.5 crore.

Track your aggregate turnover in real time, remember it includes taxable, exempt, and export supplies across all your registrations on the same PAN, and act the moment you approach the limit. Filing CMP-04 on time and claiming stock credit through ITC-01 can turn a painful correction into a smooth transition.

How GSTClear Helps

GSTClear tracks your running aggregate turnover across the year and flags you well before you approach the composition threshold, so you are never caught unaware. It guides you through filing CMP-04, preparing ITC-01 for stock credit, and switching your return cycle to regular filing without missing a deadline. Our reconciliation tools then keep your GSTR-1 and GSTR-3B aligned month after month.

If your business is growing fast, do not let an outdated scheme quietly build up a tax liability. Let GSTClear monitor your thresholds and manage the switch cleanly. Start your free review today and stay a step ahead of every GST milestone.

FAQ

What is the turnover limit for the GST composition scheme?

The general limit is an aggregate turnover of Rs 1.5 crore in a financial year, and Rs 75 lakh for certain special category states. Once you cross it, you must move to the regular scheme.

What form do I file when I exit the composition scheme?

You file Form CMP-04 to intimate withdrawal, generally within seven days of becoming ineligible, and Form ITC-01 to claim eligible input tax credit on stock held on the switchover date.

Can a composition dealer collect GST from customers?

No. A composition taxpayer cannot collect tax separately from customers or claim input tax credit. They pay a fixed percentage of turnover out of their own margin.