Looking for expert help with GST and income tax for mobile phone shop owners India? The team at Tax Garden, based in Kondapur, Hyderabad, helps Indian SMEs stay compliant. End-to-end filings, notices, and deadline tracking, all in one place.
Key Takeaways
- Mobile phones (heading 8517) and almost every accessory you stock, from chargers to earphones, power banks and memory cards, are 18% GST (Notification 9/2025-Central Tax (Rate), Schedule II).
- In an exchange sale, GST is on the full price of the new phone, not the cash you collect (Rule 27, CGST Rules). Used phones bought without input tax credit can be taxed on the margin alone (Rule 32(5)).
- Repair income or recharge and SIM commission are services. They take away the Rs 40 lakh goods-only registration limit, so the Rs 20 lakh limit applies.
- Section 44AD does not apply to "a person earning income in the nature of commission or brokerage" (Section 44AD(6)(ii); Section 58(11)(a)(iv) of the 2025 Act). Shops with commission income should keep books.
- Brand price-drop and sell-out schemes paid by financial credit note don't make you reverse input tax credit (CBIC Circular 251/08/2025-GST).
What is the GST rate on mobile phones and accessories? Mobile phones under heading 8517 are 18% GST under S. No. 490 of Schedule II to Notification 9/2025-Central Tax (Rate), in force from 22 September 2025. Chargers (8504), earphones (8518), power banks (8507) and memory cards (8523) are also 18%. A mobile shop collects 9% CGST and 9% SGST on local sales.
A neighbourhood mobile shop rarely just sells phones. The same counter handles exchange offers, a few used handsets, screen-guard fitting, small repairs, prepaid recharges and SIM activations, plus a monthly stack of credit notes from the brand's distributor. Each of these has its own GST treatment, and two of them change how your income tax works. This guide covers GST rules in force since 22 September 2025 and income tax for FY 2025-26 (AY 2026-27) under the Income-tax Act 1961, with the matching Income-tax Act 2025 sections that apply from 1 April 2026.
GST rate and HSN code for mobile phones and accessories
The short answer: nearly everything on your shelf is 18%. GST 2.0 didn't change that for phones.
Comparison
GST on Mobile Phones and Accessories (from 22 September 2025)
| Item | Heading | GST | Entry |
|---|---|---|---|
| Smartphones and feature phones (all goods of the heading) | 8517 | 18% | Notif 9/2025-CT(R), Sch II, S. No. 490 |
| Chargers, adapters (static converters) | 8504 | 18% | Sch II, S. No. 477 |
| Earphones, headphones, Bluetooth speakers | 8518 | 18% | Sch II, S. No. 491 |
| Power banks and phone batteries (accumulators) | 8507 | 18% | Sch II, S. No. 480 |
| Memory cards, pen drives (solid-state storage) | 8523 | 18% | Sch II, S. No. 495 |
| Plastic back covers, screen guards of plastic | 3926 | 18% | Sch II, S. No. 127 |
| Repair and screen-guard fitting service | Service | Charged on service value | Taxed as a service, not as goods |
Source: Notification 9/2025-Central Tax (Rate), dated 17 Sep 2025, in force 22 Sep 2025, Schedule II (9% CGST + 9% SGST, or 18% IGST)
Two practical points. First, accessories made of other materials can fall under other headings (a leather flip cover, for example, isn't a plastic article), so match each line to the heading on your distributor's invoice. Second, for repairs and spare parts, our mobile repair shop guide covers the service side in detail, and our GST on mobile phones and electronics guide lists the wider electronics range.
Exchange offers and used phones: how is GST valued?
Exchange offers. Rule 27 of the CGST Rules values a supply made partly for something other than money at its open market value. The rule's own illustration is a phone: a new phone sold for Rs 20,000 plus the customer's old phone, when the same phone sells for Rs 24,000 without exchange, has a value of Rs 24,000.
Say that Rs 24,000 is your GST-inclusive counter price.
- Taxable value: Rs 24,000 / 1.18 = Rs 20,339.
- GST: Rs 24,000 - Rs 20,339 = Rs 3,661 (Rs 1,830.50 CGST + Rs 1,830.50 SGST).
- Billing GST only on the Rs 20,000 cash would under-pay GST by about Rs 610.
Used phones you buy from customers. If you deal in second-hand phones, sold as they are or after minor work that doesn't change their nature (cleaning, a new screen guard), and you take no input tax credit on buying them, Rule 32(5) lets you pay GST on the margin only. The value is your selling price minus your purchase price, and a negative margin is ignored.
Example: you buy a used phone from a walk-in customer for Rs 8,000 and sell it a month later for Rs 11,000.
- Margin: Rs 11,000 - Rs 8,000 = Rs 3,000.
- GST at 18% on Rs 3,000 = Rs 540, instead of 18% on the full Rs 11,000.
- Sell another at Rs 500 below cost and that margin counts as zero, not a refund.
Keep a purchase record for every used phone (seller's ID, IMEI, price) so each margin can be shown. Our margin scheme guide explains the rule in more depth.
Does your mobile shop need GST registration?
Most mobile shops assume the Rs 40 lakh goods limit. Many don't qualify for it.
Step-by-Step Guide
Which GST Registration Limit Applies to Your Mobile Shop?
Do you sell anything other than goods?
Repairs, screen-guard fitting charged separately, recharge commission and SIM activation commission are all services.
Goods only, outside the excluded states
Rs 40 lakh aggregate turnover (Notification 10/2019-Central Tax, which covers only exclusive supply of goods).
Shop in Telangana or another excluded state
The Rs 40 lakh limit doesn't apply in Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Puducherry, Sikkim, Telangana, Tripura or Uttarakhand. Rs 20 lakh applies (Section 22, CGST Act), Rs 10 lakh in some special category states.
Any service income at all
You're no longer an exclusive goods supplier. The Rs 20 lakh limit applies to phone sales and service income added together.
Selling to buyers in other states
Inter-State supply of goods needs registration whatever your turnover (Section 24, CGST Act).
Source: Sections 22 and 24, CGST Act 2017; Notification 10/2019-Central Tax, dated 7 Mar 2019
Example: a phone shop in Pune sells Rs 32 lakh of handsets and accessories in a year and earns Rs 2 lakh from repairs.
- On goods alone it would sit under Maharashtra's Rs 40 lakh limit.
- The Rs 2 lakh of repairs makes it a goods-and-services supplier, so the Rs 20 lakh limit applies.
- Aggregate turnover is Rs 32,00,000 + Rs 2,00,000 = Rs 34,00,000, so it must register.
Our GST registration service handles the application, and our turnover limit guide explains how aggregate turnover is counted.
Should a mobile shop choose the composition scheme?
A trader whose aggregate turnover in the previous year was within Rs 1.5 crore (Rs 75 lakh in eight special category states, Notification 14/2019-Central Tax) can pay composition tax of 1% (0.5% CGST + 0.5% SGST) on taxable turnover (Rule 7, CGST Rules). You can also supply services such as repairs, up to 10% of your previous year's turnover or Rs 5 lakh, whichever is higher (Section 10(1), second proviso).
The trade-off is sharp for phones. A composition dealer can't charge GST on the bill and can't claim input tax credit (Section 10(4)), and can't make inter-State sales of goods (Section 10(2)(c)). The 18% GST on every phone you buy becomes a cost, and business buyers who want a tax invoice will go elsewhere. Our composition scheme guide walks through the full conditions.
Brand schemes, price-drop credit notes and input tax credit
Distributors pass on price protection, sell-out incentives and target bonuses through credit notes. How the note is issued decides what happens to your input tax credit (ITC).
Comparison
Brand and Distributor Credit Notes: What Happens to Your ITC?
| Type of credit note | Effect on your ITC | Source |
|---|---|---|
| Financial or commercial credit note (no GST shown) | No reversal. The supplier's tax isn't reduced, so your credit stays in full. | Circular 251/08/2025-GST, S. No. 1 |
| GST credit note for a post-sale discount | Supplier can reduce its value only if you reverse the ITC attributable to the discount | Section 15(3)(b) read with Section 34, CGST Act |
| Post-sale discount to push your own sales (no separate service agreed) | Not a payment for a service by you, so no GST on it | Circular 251/08/2025-GST, S. No. 3 |
| Payment for a defined promotional service (co-branding, in-store campaign) in your agreement | Your supply of a service. You charge GST on it | Circular 251/08/2025-GST, S. No. 3 |
Source: CBIC Circular 251/08/2025-GST, dated 12 Sep 2025; Sections 15(3) and 34, CGST Act 2017
Read your distributor agreement for any line that pays you for advertising, display or campaigns. The circular says GST applies when such services are explicitly stated in the agreement with a defined consideration. If it does, raise your own invoice for that amount. Our credit note and debit note guide covers the mechanics.
Recharge and SIM commission: TDS and Section 44AD
TDS. When a company or other liable payer pays you commission, it deducts TDS at 2% once the year's total crosses Rs 20,000. For FY 2025-26 that's Section 194H of the 1961 Act; from 1 April 2026 it's Section 393(1), Table Sl. No. 1(ii) of the Income-tax Act 2025. If your distributor credits Rs 1,50,000 of commission in the year, TDS is 2% of Rs 1,50,000 = Rs 3,000. Match it against your Form 26AS or AIS before filing. Our TDS on commission guide explains the payer's side.
Section 44AD. This is the point most shop owners miss. Section 44AD(6)(ii) says the section doesn't apply to "a person earning income in the nature of commission or brokerage", and (iii) excludes anyone carrying on agency business. Section 58(11)(a)(iv) and (v) of the 2025 Act keep the same conditions. The Act sets no minimum amount, so even modest recharge commission puts the whole presumptive basis in question. If you earn commission, keep books and file on actual profit, or get advice specific to your contracts before using 44AD.
If you earn no commission, 44AD works as usual: a resident individual, HUF or partnership firm (not an LLP) with turnover within Rs 2 crore, or Rs 3 crore if cash receipts are within 5%, declares 6% of bank and UPI receipts and 8% of the rest. See our Section 44AD guide.
Example (phone and accessory sales only, proprietor, new tax regime, FY 2025-26): turnover Rs 1,20,00,000, of which Rs 15,00,000 was cash. Cash is 12.5% of turnover, so the Rs 2 crore limit applies.
- 6% of Rs 1,05,00,000 = Rs 6,30,000.
- 8% of Rs 15,00,000 = Rs 1,20,000.
- Deemed profit: Rs 7,50,000. Tax: Rs 4-7.5 lakh at 5% = Rs 17,500, fully covered by the Section 87A rebate, so tax payable is nil.
Watch the margin. Phone retail often earns less than 6% net. If your actual profit is lower and you declare it, Section 44AD(4) bars you from 44AD for the next five years if you used it in any of the previous five, and Section 44AD(5) then requires books and a tax audit when income exceeds the basic exemption limit. Our tax audit guide explains when that applies.
Tax Rate Chart
New Tax Regime Slabs, FY 2025-26 (AY 2026-27)
Up to Rs 4 lakh
Rs 4-8 lakh
Rs 8-12 lakh
Rs 12-16 lakh
Rs 16-20 lakh
Rs 20-24 lakh
Above Rs 24 lakh
Source: Section 115BAC(1A), Income-tax Act 1961, as amended by Finance Act 2025
Cash and deadlines. Section 269ST (Section 186 of the 2025 Act) bars receiving Rs 2 lakh or more in cash from one person in a day or for one transaction. A customer paying Rs 2,10,000 in cash for two flagship phones breaches it, and the penalty is Rs 2,10,000 (Section 271DA, now Section 451); see our cash transaction limits guide. Presumptive-basis businesses pay their whole advance tax by 15 March (Section 211 of the 1961 Act; Section 408(2) of the 2025 Act). If you missed the original AY 2026-27 due date, a belated return can still be filed by 31 December 2026 (Section 139(4)), with a late fee of Rs 5,000, or Rs 1,000 if total income is within Rs 5 lakh (Section 234F).
Common mistakes mobile phone shops make
- Charging GST on the cash part of an exchange sale. GST is on the full price of the new phone under Rule 27.
- Taking ITC on used phones and then using the margin scheme. Rule 32(5) works only where no input tax credit was taken on the purchase.
- Claiming the Rs 40 lakh limit while earning repair or recharge income. Any service income moves you to the Rs 20 lakh limit, and Telangana shops never had Rs 40 lakh.
- Using 44AD with commission income. Section 44AD(6)(ii) excludes persons earning commission. Keep books instead.
- Reversing ITC on financial credit notes. Circular 251/08/2025-GST says you don't need to, because the supplier's tax hasn't been reduced.
- Ignoring TDS credit on commission. The 2% deducted shows in Form 26AS and AIS; claim it in your return.
How Tax Garden helps mobile phone shops
We work out which registration limit applies to your mix of sales, repairs and commission, register you and file your GST returns. We check each brand credit note against your ITC and set up margin-scheme records for used phones. At year end we decide whether 44AD is open to you, keep books through our accounting and bookkeeping service where it isn't, and file through our ITR filing service. If you also stock TVs and home appliances, our electronics shop guide covers those lines.
