Composition scheme for online sellers: who can use it

Yes, a seller of goods can now be on the composition scheme and sell through a marketplace. This has been allowed since 1 October 2023. The catch is that you can sell only to buyers in your own State, you cannot charge GST or claim input tax credit, and your turnover must stay within Rs 1.5 crore.

What changed for online sellers?

The composition scheme lets a small business pay a flat percentage of turnover in place of regular GST, with far less paperwork. For years it was closed to anyone selling through Amazon, Flipkart or Meesho, because section 10(2)(d) shut out people supplying goods or services through an e-commerce operator that collects tax at source.

The Finance Act, 2023 removed the words "goods or" from that clause, with effect from 1 October 2023. So a composition dealer may now sell goods through such a marketplace. Selling services through one is still not allowed under the scheme.

Notification 36/2023-Central Tax, dated 4 August 2023, sets the marketplace's duties from the same date. It must not allow a composition seller to make an inter-State supply. It must collect TCS on the sales and pay it. And it must report those sales in FORM GSTR-8.

Who can use it?

You can opt in if all of these are true:

• Your aggregate turnover in the previous financial year was not more than Rs 1.5 crore. The limit is Rs 75 lakh if you are registered in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura or Uttarakhand.
• You make no inter-State outward supply. Every buyer is in your own State.
• You are not a manufacturer of ice cream, pan masala or tobacco products. The notified list is reported to have been added to since 2019, so check it if you manufacture.
• You are not a casual or non-resident taxable person.
• Every registration under your PAN opts for the scheme. You cannot keep one GSTIN regular and another on composition.

A goods seller on composition may also supply a small amount of services: up to 10% of the previous year's turnover in the State, or Rs 5 lakh, whichever is higher.

How much tax do you pay?

Rule 7 of the CGST Rules gives the central rates. Each State levies a matching amount under its own law, so the total is double the figure in the rule.

You pay this from your own pocket. You cannot collect any tax from the buyer, and you get no input tax credit on what you purchase. You issue a bill of supply, not a tax invoice, and it must carry the words "composition taxable person, not eligible to collect tax on supplies" at the top.

How do you opt in?

1. If you are applying for a new GSTIN, choose the composition option in Part B of FORM GST REG-01.
2. If you are already registered as a regular taxpayer, file FORM GST CMP-02 on the portal before the financial year begins.
3. File FORM GST ITC-03 within 60 days of the start of that year, to reverse credit on the stock you hold.
4. Tell each marketplace that your GSTIN is a composition one, so that it limits your listings to buyers in your State.
5. Pay tax each quarter with FORM GST CMP-08, by the 18th of the month after the quarter.
6. File the yearly return in FORM GSTR-4 by 30 June after the financial year ends.

You do not need to opt in again every year. The option lapses on the day your turnover in a year crosses the limit.

A worked example

Suresh trades in kitchenware from Coimbatore and sells on a marketplace to buyers in Tamil Nadu. His sales are Rs 60,00,000 a year at the prices buyers pay. He buys stock for Rs 42,00,000 plus GST. Suppose his goods carry 5% GST, so the GST on his purchases is Rs 2,10,000.

On composition, he pays 1% of Rs 60,00,000, which is Rs 60,000. He cannot claim the Rs 2,10,000. He keeps Rs 60,00,000 less Rs 60,000 less Rs 44,10,000, that is Rs 15,30,000.

As a regular taxpayer selling at the same final prices, Rs 60,00,000 includes 5% GST. His sale value is about Rs 57,14,286 and the GST in it is about Rs 2,85,714. He sets off the Rs 2,10,000 and pays about Rs 75,714. He keeps Rs 57,14,286 less Rs 42,00,000, that is about Rs 15,14,286.

So composition leaves him ahead by roughly Rs 15,700 a year and saves him monthly returns. But it also locks him out of buyers in every other State. If even a tenth more sales would come from outside Tamil Nadu, the regular route wins. Run the same sum with your own rate and margin, because the answer changes with both.

The mistake people usually make

They treat 1% as a tax on profit. It is on turnover, so it is due even in a month when you sell at a loss.

The second mistake is to opt for composition and then join a marketplace programme that stores your stock in another State or ships across India. One inter-State sale puts you outside the scheme, and section 10(5) lets the officer demand regular tax along with a penalty.

What about TCS?

The marketplace collects TCS from a composition seller just as it does from a regular one. The central notification sets 0.25%, and with the matching State tax the usual total is 0.5% of net sales. The amount should then show in your cash ledger on the portal, where you can use it against your quarterly payment. Check with a CA how to claim it in your case. More on the mechanism is in TCS for online sellers.

Not every marketplace has to accept composition sellers. Meesho's seller page says it does, as on 12 Nov 2026. For others, read their own seller help before you register. If your sales are still small, the enrolment route without a GSTIN may suit you better, and the registration limit tells you where that ends.

Frequently asked questions

Read next