GST Return Eligibility: Who Must File & Composition Scheme Rules

Every business registered under the Goods and Services Tax (GST) regime must file GST returns. This includes regular taxpayers, composition dealers, non-resident taxable persons, input service distributors, and e-commerce operators. The requirement to file arises from the moment a taxpayer obtains GST registration, regardless of whether any business activity was conducted during the return period.

Under the Central Goods and Services Tax Act, 2017, Section 39 mandates that every registered person must furnish returns electronically. The specific return form depends on the taxpayer's category. Regular taxpayers file GSTR-1 (outward supplies) and GSTR-3B (summary return), while composition dealers file GSTR-4 annually. Non-resident taxable persons file GSTR-5, and input service distributors file GSTR-6.

Taxpayers who have obtained registration but have nil supplies during a period must still file a nil return. Failure to file returns attracts late fees of ₹50 per day (₹25 each under CGST and SGST) and interest at 18% per annum on the outstanding tax liability.

The Composition Scheme is a simplified tax compliance option for small taxpayers under Section 10 of the CGST Act. It allows eligible businesses to pay tax at a fixed rate on their turnover instead of the standard rates, with reduced compliance requirements. Composition dealers file returns quarterly (GSTR-4) instead of monthly, and maintain fewer records.

Eligibility for the Composition Scheme is restricted to taxpayers whose aggregate turnover in the preceding financial year does not exceed ₹1.5 crore (₹75 lakhs for special category states). However, for manufacturers of certain goods notified by the government, the threshold is ₹1.5 crore. Service providers with turnover up to ₹50 lakhs can also opt for the scheme under the special provision for service providers.

The tax rates under the Composition Scheme are: 1% (0.5% CGST + 0.5% SGST) for manufacturers and traders, 6% (3% CGST + 3% SGST) for restaurants not serving alcohol, and 6% for service providers. Composition dealers cannot collect tax from customers, cannot claim input tax credit, and must mention "composition taxable person" on their invoices.

The Composition Scheme comes with several restrictions that taxpayers must understand before opting in. A registered person cannot opt for the scheme if they are engaged in making inter-state outward supplies, supplying goods through an e-commerce operator, or manufacturing notified goods such as ice cream, pan masala, or tobacco products.

Additionally, composition dealers cannot issue tax invoices, cannot claim input tax credit on purchases, and must pay tax on their purchases from unregistered suppliers under reverse charge. They are also required to display their composition status on every notice and signboard at their principal place of business.

If a composition dealer crosses the turnover threshold during a financial year, they must switch to regular scheme from the date they exceed the limit. The taxpayer must file a withdrawal application in Form GST CMP-04 within seven days of the disqualifying event. Failure to do so can result in demand notices and penalties.

Regular taxpayers must file two primary returns: GSTR-1 (outward supplies) and GSTR-3B (summary return). GSTR-1 is due on the 11th of the following month for monthly filers, or on the 13th for quarterly filers under the QRMP scheme. GSTR-3B is due on the 20th of the following month for monthly filers, or on the 24th for quarterly filers.

The GSTR-1 contains details of all outward supplies, including invoices, debit notes, and credit notes. The GSTR-3B is a self-declared summary return where the taxpayer reports total sales, input tax credit claimed, and net tax payable. Tax must be paid before filing GSTR-3B through the electronic cash ledger or by utilising input tax credit.

For taxpayers under the Quarterly Return Monthly Payment (QRMP) scheme, returns are filed quarterly but tax is paid monthly through a challan. The QRMP scheme is available for taxpayers with aggregate turnover up to ₹5 crore in the preceding financial year. Late filing of GSTR-3B attracts a late fee of ₹50 per day (₹25 each under CGST and SGST), capped at ₹5,000 per return.

Failure to file GST returns on time attracts several consequences under the GST law. The immediate consequence is a late fee of ₹50 per day (₹25 each under CGST and SGST) for each return. For GSTR-3B, the late fee is capped at ₹5,000 per return. Interest at 18% per annum is also payable on the outstanding tax liability from the due date until the date of payment.

If a taxpayer fails to file returns for two consecutive months (or quarters for composition dealers), the GST officer may suspend the registration. Continued non-compliance can lead to cancellation of registration under Section 29 of the CGST Act. A cancelled registration means the taxpayer cannot collect tax or issue GST invoices, and must pay tax on all supplies made after cancellation.

Additionally, non-filing prevents the taxpayer from filing future returns, which can disrupt business operations. The GST portal also blocks the generation of e-way bills for taxpayers with pending returns. For composition dealers, failure to file the annual return (GSTR-4) can result in the denial of the composition scheme for the next financial year.

If you are unsure about your GST return eligibility or whether the Composition Scheme suits your business, review your turnover and business activities against the criteria outlined above. For specific guidance on filing returns, opting for the Composition Scheme, or handling compliance issues, consult a qualified GST practitioner or chartered accountant.

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This page provides preliminary information. It is not legal advice. For your matter, consult a qualified professional.