GST for Traders vs Service Providers: Key Differences in 2026

The table gives the general position. State-specific rules, compulsory registration provisions, exemptions and transaction-level conditions can produce a different result.

GST Registration Thresholds

GST registration depends on the nature of supply, the business location, aggregate turnover and whether any compulsory-registration provision applies.

Notification No. 10/2019-Central Tax introduced the enhanced ₹40 lakh threshold for eligible persons exclusively supplying goods. It is therefore not a national threshold available to every trader.

How aggregate turnover is calculated

Aggregate turnover is calculated across all registrations held under the same PAN in India. For example, a proprietor with turnover of ₹18 lakh in Delhi and ₹8 lakh in Haryana has aggregate turnover of ₹26 lakh. The registration threshold cannot be applied separately to each branch.

Aggregate turnover includes taxable supplies, exempt supplies, exports and inter-state supplies made under the same PAN across India. It excludes GST and inward supplies on which tax is payable under reverse charge.

When services affect the goods threshold

The ₹40 lakh threshold is generally available only to eligible businesses exclusively supplying goods. A separately billed repair, consultancy, maintenance or installation service may therefore affect eligibility for this higher limit.

However, the contract must be reviewed before treating the activity as a separate service. Installation supplied naturally with goods may form part of a composite supply and follow the treatment of the principal supply.

The limited service allowance available under the composition scheme does not create a separate registration threshold. Registration eligibility and composition eligibility must be assessed independently.

GST Rates for Goods and Services in 2026

For most affected supplies, the GST rate rationalisation took effect from 22 September 2025. It established 5% and 18% as the two main rates and a special demerit rate of 40% for select goods and services. Nil-rated, exempt, and other special-rate entries also continue.

GST Rates on Goods

A trader may sell products carrying different GST rates on the same invoice. The correct rate depends on:

• the HSN classification
• the complete product description
• value-based conditions
• packaging or composition
• end use, where relevant
• exemptions or special notification entries

A broad description such as electronics, food, clothing or luxury goods is not enough to select the rate. Understanding GST for traders therefore requires item-level classification rather than one standard “trader rate”.

GST Rates on Services

Many consulting, advertising, IT, accounting and business-support services generally attract 18%. However, this rate should not be applied automatically to every service. Healthcare, education, transport, accommodation, restaurant, property-related and financial services may be exempt or taxed under specific entries and conditions.

The applicable SAC code and complete rate-notification entry should be checked before issuing the invoice.

Composition Scheme for Goods and Service Businesses

The composition scheme available to eligible traders and manufacturers is different from the 6% scheme available to eligible service-oriented businesses.

The ₹75 lakh limit applies in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand. Notification No. 2/2019-Central Tax (Rate) prescribes the 6% scheme for eligible registered persons with preceding-year aggregate turnover of up to ₹50 lakh.

Simple Composition Tax Example

Assume that the full ₹40 lakh is included in the relevant turnover base and that all eligibility conditions are met.

The difference does not mean that a service business can choose the trader’s rate. The applicable scheme depends on eligibility and the nature of supplies.

Limited Services Allowed Under the Trader Scheme

A taxpayer covered by Section 10(1) may provide services up to either of the following, whichever is higher:

• 10% of turnover in the state or Union territory in the preceding financial year, or
• ₹5 lakh,

Breaching this allowance ends eligibility under Section 10(1). The taxpayer must then assess whether the regular scheme or Section 10 (2A) applies.

Selling Through an E-Commerce Operator

Eligible composition taxpayers may make intra-state supplies of goods through e-commerce operators under the special procedure introduced from 1 October 2023.

Eligible composition taxpayers may make intra-state supplies of goods through e-commerce operators under the special procedure introduced from 1 October 2023. Inter-state outward supplies remain restricted. Notification No. 36/2023-Central Tax prescribes the procedure for e-commerce operators handling these supplies.

Input Tax Credit

Regular taxpayers supplying goods or services use the same statutory ITC framework . Eligibility depends on the inward supply and the conditions in Sections 16 and 17 of the CGST Act. A business should check whether:

• the purchase is used for business
• a valid tax invoice or other permitted document is available
• the supplier has reported the invoice correctly
• the credit is not blocked under Section 17(5)
• applicable payment and return conditions have been met

A trader may receive ITC on stock purchased for resale. A service business may receive ITC on eligible software, equipment, rent, professional services and other taxable expenses. 

The actual ITC position depends on the cost structure of the business. It should not be assumed that every trader receives more credit than every service provider.

Composition taxpayers cannot claim ITC. A business with substantial eligible purchase tax should therefore compare the regular and composition schemes before opting for simpler compliance.

Invoicing and E-Way Bills

HSN and SAC Codes

GST invoices use HSN codes for goods and SAC codes for services. Rule 46 requires the applicable classification details on a tax invoice , subject to notified exemptions and digit requirements . Notification No. 78/2020-Central Tax generally requires four-digit classification for taxpayers with preceding-year aggregate turnover up to ₹5 crore and six digits above ₹5 crore. Taxpayers up to ₹5 crore may omit the classification on specified invoices issued to unregistered recipients.

A business providing both goods and services can show HSN and SAC codes on the same invoice when the line items represent separately classified supplies.

When an E-Way Bill May Be Required

Rule 138 generally requires e-way bill information before movement when the consignment value exceeds ₹50,000, and the movement is:

• related to a supply
• for a reason other than supply
• related to an inward supply from an unregistered person

Exempt goods, specified movements and state-level intra-state rules can change the requirement. An e-way bill follows the movement of goods, not the business label.

For example, a repair company moving replacement parts or customer equipment may need an e-way bill. A consultant sending only an invoice for advisory services does not have a goods movement to report.

Time and Place of Supply

These rules determine when GST becomes payable and whether CGST and SGST or IGST should be charged.

Notification No. 66/2017-Central Tax generally removes the requirement for regular goods suppliers to pay GST merely on advances. Services continue to follow the time-of-supply rules in Section 13, including the prescribed invoice period.

The recipient-location rule for services is only a general rule. The specific place-of-supply provision should be checked where the service relates to property, events, transportation, admission or another exception.

GST Returns and E-Invoicing

Regular taxpayers generally file GSTR-1 and GSTR-3B, while composition taxpayers use CMP-08 and GSTR-4. Eligible taxpayers with aggregate turnover up to ₹5 crore may opt for QRMP, subject to its conditions.

E-invoicing generally applies to covered taxpayers whose aggregate turnover exceeded ₹5 crore in any preceding financial year from 2017-18 onwards. Notification No. 10/2023-Central Tax made this threshold effective from 1 August 2023.

Taxpayers with AATO of ₹10 crore or more must report covered invoices, credit notes and debit notes to the IRP within 30 days of the document date. This restriction has applied since 1 April 2025.

Businesses That Sell Goods and Services

A business supplying both goods and services should perform three separate checks.

1. Registration test: Does the business remain an eligible exclusive-goods supplier?
2. Classification test: Are the elements independent supplies, a composite supply or a mixed supply?
3. Composition test: Does the business remain within the permitted service allowance and other scheme conditions?

The agreement, invoice structure, pricing and normal business practice should support the classification. Merely describing part of an invoice as installation or service does not decide the legal treatment.

Simple Business Examples

Example 1: Pure Goods Trader

A hardware shop in Maharashtra has aggregate turnover of ₹35 lakh and exclusively supplies goods.

Assuming no compulsory-registration provision applies, the business may remain outside mandatory registration based on turnover because Maharashtra adopted the ₹40 lakh threshold for eligible exclusive-goods suppliers.

Example 2: Digital Marketing Agency

A Maharashtra-based digital marketing agency has taxable turnover of ₹35 lakh. Its turnover exceeds the general ₹20 lakh service threshold. Subject to the statutory conditions, GST registration is required.

If its preceding-year turnover and activities meet the conditions of Section 10(2A), it may assess the 6% scheme. It cannot use the trader’s 1% composition rate.

Example 3: Goods with Separately Billed Repairs

A shop has ₹18 lakh from product sales and ₹4 lakh from separately contracted repair services. Its PAN-wide aggregate turnover is ₹22 lakh. Since it is supplying both goods and independent services, it cannot automatically rely on the ₹40 lakh exclusive-goods threshold.

A different conclusion may apply if the work is naturally bundled with the sale and qualifies as a composite supply. The contract and invoicing arrangement should be reviewed before deciding on registration treatment.

Conclusion

The main difference between GST on goods and services is not a single tax rate. Registration thresholds, composition eligibility, classification codes, time of supply and movement-related compliance can all differ.

The key to applying GST for traders correctly is to examine each supply rather than relying only on the business description. The same principle applies to service businesses, especially where contracts include materials, installation, maintenance or other combined elements.

Businesses should confirm the applicable HSN or SAC entry, turnover test and notification before selecting a rate or compliance route.