GST Composition Scheme - Compliances

GST Composition Scheme: What to Do When You Cross ₹1.5 Crore in Q4 Without Noticing

Introduction

The GST Composition Scheme is designed to simplify compliance for small taxpayers. However, one of the most common—and risky—mistakes occurs when a dealer exceeds the ₹1.5 crore turnover limit in the last quarter (Q4) and continues under the composition scheme unknowingly.
This creates a compliance gap that spills over into the next financial year (FY 2026–27), especially when the taxpayer applies for regular registration only in the new year.
This article explains:
• Legal position under GST
• Treatment of Q4 excess turnover
• Reporting strategy for unaccounted sales
• Practical compliance steps to avoid penalties

Legal Position: Automatic Exit from Composition Scheme

Under the Central Goods and Services Tax Act, 2017:
• Composition scheme automatically lapses the moment turnover exceeds ₹1.5 crore.
• No separate approval or order is required.
• The taxpayer is deemed to be a regular taxpayer from that date.
Even if you apply for conversion in FY 2026–27, the law treats you as a regular dealer from the date of crossing in Q4 of FY 2025–26.

The Real Problem: Partial Reporting of Q4 Turnover

In practice, many taxpayers:
• Report only turnover up to ₹1.5 crore under composition
• Carry forward or ignore the remaining Q4 sales
• Apply for regular registration in the next year

This creates a mismatch:

• Actual turnover > reported turnover
• Tax paid under composition < tax payable under regular scheme

Key Question: What to Do With Remaining Q4 Sales?
✔️ Correct Treatment
The remaining sales (after crossing ₹1.5 crore) must be:
1. Treated as regular taxable supplies
2. Reported in GSTR-1 and GSTR-3B
3. Taxed at applicable GST rates (not composition rate)

Practical Approach to Reporting
Scenario Handling
If you already:
• Filed composition returns (CMP-08 / GSTR-4)
• Reported only eligible turnover up to ₹1.5 crore
Then for remaining Q4 sales, you should:

Step 1: Identify the Cut-off Date
• Determine the exact date when turnover crossed ₹1.5 crore.

Step 2: Segregate Turnover
• Before crossing limit → Composition turnover
• After crossing limit → Regular taxable turnover

Step 3: Report Unreported Sales
The remaining sales should be:
• Declared in GSTR-1 (as B2B/B2C supplies)
• Reported in GSTR-3B with tax liability
Even if returns are delayed, file them with late fees and interest rather than ignoring the turnover.

Important: Can You Show Remaining Sales in Next Year?

No, you should NOT shift Q4 sales to FY 2026–27.

Reasons:
• Violates time-of-supply provisions
• Creates audit risk and mismatch with books
• May trigger scrutiny under GST analytics
✔️ Sales must be reported in the correct financial year (FY 2025–26).

Compliance Checklist for Composition Dealer Exceeding ₹1.5 Crore Turnover

1. Recognition of Lapse
• Composition scheme ceases automatically from the date turnover crosses ₹1.5 crore
• Dealer is deemed a regular taxpayer from that date
2. Tax Liability Adjustment
• Calculate differential tax: GST at normal rates minus composition tax already paid
• Pay differential tax for the period from the date of crossing the limit until year-end
3. Interest and Penalty
• Compute interest under Section 50
• Voluntary compliance helps reduce penalty exposure
4. Filing Requirements
• File CMP-04 (formal withdrawal)
• File GSTR-1 and GSTR-3B for affected period
• Correct earlier composition filings if needed
5. Invoicing
• Issue supplementary tax invoices for post-threshold supplies
• Enable customers to claim ITC
6. Input Tax Credit (ITC)
• File ITC-01 for stock held on transition date
7. Communication with Department
• Make voluntary disclosure
• Submit reconciliation of turnover and tax
8. Future Compliance
• Continue as regular taxpayer in FY 2026–27
• Maintain proper GST invoicing and records

Expert Tip: Handling Already “Compressed” Turnover
If you have already:
• Adjusted Q4 turnover to stay within ₹1.5 crore
Then:
• Reverse the artificial adjustment
• Recompute actual turnover
• Pay tax on the differential portion
Transparency is always safer than manipulation under GST.
Key Takeaways
• Composition scheme ends automatically, not optionally
• Excess turnover in Q4 must be taxed under regular GST rates
• Remaining sales cannot be shifted to next year
• Voluntary correction = lower penalty risk
Conclusion
Crossing the ₹1.5 crore limit—especially in Q4—can create complex compliance issues if unnoticed. However, the solution is straightforward:

Identify, segregate, report, and pay the correct tax with interest. !!