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    ManualsIncome Tax
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    Eligibility for the composition scheme depends on aggregate turnover in the preceding financial year not exceeding the prescribed threshold; aggregate turnover is computed on an all India basis and includes taxable supplies (excluding inward reverse charge supplies), exempt supplies, exports and inter State supplies by the same PAN, while excluding GST and cess. Eligibility is reassessed each year; a fresh declaration is required to opt into the scheme after becoming eligible.
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    Composition scheme validity continues while statutory conditions are met; annual intimation is not required for eligible taxpayers.
    The composition levy remains valid so long as statutory eligibility conditions and applicable CGST Rules are complied with; no fresh annual intimation is required if those conditions continue to be met.
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    Composition levy option must be elected before the financial year begins; prior electronic intimation required.
    The option to pay tax under the composition levy must be exercised by giving electronic intimation in FORM GST CMP-02 prior to the commencement of the relevant financial year under the Central Goods and Services Tax Rules, 2017.
    Act RulesGST
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    Composition levy withdrawal: file FORM GST CMP-04 and submit FORM GST ITC-01 detailing stock within the prescribed period.
    Withdrawal from the composition scheme is effected by filing a duly signed or verified application in FORM GST CMP-04, and the applicant must electronically furnish FORM GST ITC-01 detailing stock of inputs and inputs contained in semi-finished or finished goods held on the date of withdrawal within thirty days of withdrawal.
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    Importers can opt for the composition scheme where otherwise eligible; there is no categorical bar on importers availing composition levy. IGST is payable on import and such tax may not yield input tax credit for a composition taxpayer. Pure service providers remain ineligible for composition, and importing services for business or captive consumption does not automatically make a person a service provider or disqualify composition eligibility.
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    Composition scheme eligibility: exporters cannot use composition tax where their supplies are treated as inter State, barring such option.
    Exports are treated as inter State supplies for GST purposes. The composition levy prohibits a taxpayer from making inter State outward supplies of goods while paying tax under the composition scheme. Therefore, an exporter whose transactions are classified as inter State supplies cannot opt to pay tax under the composition scheme in respect of those export supplies.
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    Supplies from the domestic tariff area to an SEZ are treated as inter State supplies, and Rule 5/Section 10 conditions for the composition levy prohibit a composition taxpayer from making inter State outward supplies; therefore a person paying tax under the composition scheme cannot make outward supplies of goods to an SEZ while remaining in the scheme.
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    Persons below the turnover threshold who hold stock on the appointed day cannot opt for the composition scheme if that stock was purchased inter state, imported, or received from an out of State branch, agent or principal; possession of such goods on the appointed day disqualifies a registered person from the composition levy.
    Act RulesGST
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    Composition scheme eligibility barred for casual and non-resident taxable persons; cannot claim composition as casual dealer.
    A taxpayer acting as a casual taxable person or a non-resident taxable person is expressly excluded from the composition levy; therefore casual dealers and non-resident taxable persons cannot avail the composition scheme while operating in that capacity.
    Act RulesGST
    Who are not eligible to opt for composition scheme? Whether certain manufacturers (like Ice cream, P...
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    Composition scheme ineligibility: manufacturers of ice cream, pan masala and tobacco and certain suppliers cannot opt.
    Section 10(2) excludes five categories from the composition scheme: suppliers of services (except restaurant services), suppliers of non taxable goods, inter State suppliers, persons supplying through electronic commerce operators, and manufacturers of notified goods. Rule 5 adds further ineligible classes. A notification further specifies that manufacturers of ice cream, pan masala, and all tobacco and manufactured tobacco substitutes are not eligible for composition levy.
    Act RulesGST
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    Composition scheme lapse triggers transition to regular tax liability and requires issuing tax invoices and filing withdrawal notice promptly.
    Crossing the aggregate turnover threshold causes the composition option to lapse from the day the threshold is exceeded; the person is liable to pay tax under section 9 from that day and must issue tax invoices for every taxable supply made thereafter. The person must also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within seven days of the occurrence of such event.
    Act RulesGST
    Whether a person supplying goods through Electronic Commerce Operator, is eligible to opt compositio...
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    Composition scheme eligibility may be available for suppliers using e-commerce operators while TDS/TCS provisions remain inoperative.
    Eligibility for the composition scheme is negated for suppliers making supplies through an electronic commerce operator required to collect tax at source; however, because the TDS/TCS provisions are not yet operative and ECOs are not required to collect tax, suppliers using ECOs may currently opt for the composition scheme until the collection provisions are brought into force, and an administrative clarification from the government is recommended to remove uncertainty.

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      Bill

      OTHER CHANGES PROPOSED IN THE CUSTOM NOTIFICATIONS

      1 February, 2026

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      Union Budget 2026-27 - Finance Bill, 2026

      1. S. No. 69A of notification No. 25/2002 dated 1st March, 2002 is being modified to extend the BCD exemption currently available on capital goods for use in the manufacturing of Lithium- Ion Cells for batteries of Electrically Operated Vehicles, to cover batteries for stationary energy storage applications i.e. Battery Energy Storage Systems (BESS) also. This change is being made effective from 02.02.2026.

      2. S. No. 334A is being introduced in TABLE I of notification No. 45/2025-Customs dated 24.10.2025 to extend BCD exemption to raw materials for manufacture of parts of aircraft for maintenance, repair, or overhauling of aircraft or components or parts of aircraft, including engines, provided that the goods are imported by Public Sector Units under the Ministry of Defence. This exemption is subject to following the procedure set out in the Customs (Import of Goods at Concessional Rate of Duty or for Specified End Use) Rules, 2022 (IGCRS Rules 2022). Further, the importer has to produce an end-use certificate from an officer not below the rank of Joint Secretary in the Ministry of Defence. This change is being made effective from 02.02.2026.75

      3. S. No. 335A is being introduced in TABLE I of notification No. 45/2025-Customs dated 24.10.2025 to extend BCD exemption to components or parts, including engines, of aircraft, for the manufacture of aircraft and parts thereof, provided that the importer adheres to the procedure set out in the IGCRS Rules 2022. This change is being made effective from 02.02.2026.

      4. The exemption under S.No. 66 of TABLE II in notification No. 45/2025-Customs has been modified to cover goods required for setting up of specified Nuclear Power Project, irrespective of their capacity, as certified by an officer not below the rank of a Joint Secretary to the Government of India in the Department of Atomic Energy. Further, the validity of this exemption is being extended from 30.09.2027 to 30.09.2035. The eligibility of contracts covered under the scope of this exemption is also being extended to all contracts registered with the Customs Houses concerned on or before 30.09.2035. This change is being made effective from 02.02.2026.

      5. The List 3 appended to TABLE I of notification No. 45/2025-Customs dated 24.10.2025 has been modified to include 17 new drugs/medicines for extending BCD exemption. This change is being made effective from 02.02.2026.

      6. The List 22 appended to TABLE I of notification No. 45/2025-Customs dated 24.10.2025 has been modified to include 7 rare diseases that are a part of National Policy for Rare Disease (NPRD), 2021 for extending custom duty exemption on drugs, medicines and food for special medical purposes, when imported for personal use. This change is being made effective from 02.02.2026

      7. Notification No. 36/2024-Customs dated 23.07.2024 was issued to exempt 55 groups of critical minerals from Basic Customs Duty and Social Welfare Surcharge. As a simplification measure, 29 entries of this notification are being been omitted with effect from 01.05.2026 by shifting the effective rates to the Tariff itself. Further, 22 redundant entries are being omitted from this notification with effect from 02.02.2026. In addition, the following three entries are being merged in notification No. 45/2025-Customs dated 24.10.2025, with effect from 02.02.2026. As a consequence, notification No. 36/2024-Customs is proposed to be rescinded with effect from 01.05.2026.

      Sl.No.

      S. No. of notification No. 36/2024- Customs

      Description

      1.

      38

      Salts of oxometallic or peroxometallic acids of Beryllium and Rhenium

      [vide insertion of S.No. 110B in TABLE I of notification No. 45/2025-Customs dated 24.10.2025]

      2.

      39

      Compounds, inorganic or organic of rare earth metals

      [vide insertion of S.No. 111A in TABLE I of notification No. 45/2025-Customs dated 24.10.2025]

      3.

      55

      Unwrought; waste and scrap; powders of: —

      (i) Gallium

      (ii) Germanium

      (iii) Indium

      (iv) Niobium

      (v) Vanadium

      [vide insertion of S.No. 226A in TABLE I of notification No. 45/2025-Customs dated 24.10.2025]

      Note: Effective BCD rates will remain the same.

       

      Full Text:

      Union Budget 2026-27 - Finance Bill, 2026

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