In June 2026, the Central Board of Indirect Taxes & Customs (CBIC) raised the GST composition scheme rates for micro-businesses and small manufacturers. Businesses with annual turnover below ₹50 lakh (or ₹75 lakh in specific sectors) must now remit higher tax under composition — even though they remain exempt from audit and e-invoicing.
For many small traders, this change directly cuts net margin. This article walks you through the new rates, who is affected, and how to recalculate your pricing without losing customers.
Market signals
CBIC's June 2026 notification raised composition rates across manufacturing (3–5% of turnover, up from 2–3%) and trading (1–1.5%, up from 0.5–1%) brackets. Businesses already locked into customer contracts now face a squeeze between fixed prices and higher tax liability.
Composition scheme members continue to be exempt from mandatory e-invoicing under GSTR-1B, reducing compliance overhead. However, this exemption is under review and may be narrowed; businesses should plan for e-invoice adoption within 12 months.
While CBIC issued the June 2026 central notification, some states have delayed issuing corresponding orders. Traders operating across multiple states should confirm which composition rates apply in each jurisdiction before filing their next return.
Under the Goods and Services Tax Act, 1995, businesses with qualifying turnover remain eligible for composition, but the effective tax rate has risen. Vinayakam Consultants helps clients model the impact on net margins, reassess customer contracts, and determine whether opting out of composition to claim input tax credit (ITC) is now financially beneficial. We also verify state-level notification status and ensure consistent compliance across multistate operations.
Your action checklist
- Run a side-by-side calculation: old composition rate vs. new rate vs. opt-out ITC scenario. If turnover growth has pushed you near ₹50–75 lakh, check if crossing the threshold (and losing composition) is cheaper after ITC benefits.
- Review all customer contracts signed before June 2026 and identify those with fixed prices or minimal price-escalation clauses. Prioritise renegotiation with high-margin customers; quantify the margin loss and propose price corrections.
- Confirm the composition rate applicable in each state where you operate by requesting a verification letter from the respective State GST Authority. Do not rely on the CBIC notification alone if you trade across multiple states.
- File your June–August 2026 GSTR-4 (composition return) using the new rates and retain supporting turnover calculations. If you later discover a state applied an outdated rate, file an amended return and claim credit for overpayment within the prescribed window.
Frequently asked questions
Manufacturing rates increased to 3–5% of turnover (from 2–3%), and trading rates to 1–1.5% (from 0.5–1%). Eligibility remains for businesses with turnover below ₹50 lakh (or ₹75 lakh in specific sectors).
Currently exempt, but this exemption is under review. Businesses should plan for e-invoice adoption within 12 months to stay compliant.
It depends on your margin impact and ability to claim input tax credit. Vinayakam Consultants can model the financial impact for your specific business to determine if opting out is beneficial.