Section 10 of CGST Act (Composition Scheme)

For the easiness of small entrepreneurs, section 10 is introduced in the CGST ACT 2017. In this section the assessee can get the registration as composition taxpayer in GST rather than normal taxpayer and pay lump sum of tax amount as per the prescribed rates.

SECTION 10

(1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by under sub-section (1) of section (9), an amount calculated at such rate as may be prescribed, but not exceeding, ––

(a) one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

(c) half per cent of the turnover in State or turnover in Union territory in case of other suppliers, subject to such conditions and restrictions as may be prescribed:

Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore and fifty lakh rupees, as may be recommended by the Council.

“Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.

“Explanation.–– For the purposes of second proviso, the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account for determining the value of turnover in a State or Union territory.”;

(2) The registered person shall be eligible to opt under sub-section (1), if: —

(a) save as provided in sub-section (1) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;

(b) he is not engaged in making any supply of goods or services which are not leviable to tax under this Act;

(c) he is not engaged in making any inter-State outward supplies of goods or services;

(d) he is not engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52; and

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council; and

(f) he is neither a casual taxable person nor a non-resident taxable person

(2A) Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding three per cent. of the turnover in State or turnover in Union territory, if he is not

(a) engaged in making any supply of goods or services which are not leviable to tax under this Act;

(b) engaged in making any inter-State outward supplies of goods or services;

(c) engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52;

(d) a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and

(e) a casual taxable person or a non-resident taxable person: Provided that where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961, the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this subsection.”;

Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

(3) The option availed of by a registered person under sub-section (1) sub-section 2A as the case may be shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) sub-section 2Aas the case may be.

(4) A taxable person to whom the provisions of sub-section (1) as the case may be sub-section 2A apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.

Explanation 1.–– For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax under this section, the expression “aggregate turnover” shall include the value of supplies made by such person from the 1st day of April of a financial year upto the date when he becomes liable for registration under this Act, but shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.

Explanation 2. –– For the purposes of determining the tax payable by a person under this section, the expression “turnover in State or turnover in Union territory” shall not include the value of following supplies, namely: ––

(i) supplies from the first day of April of a financial year upto the date when such person becomes liable for registration under this Act; and

(ii) exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.’.

Explanation:

Section 10(1)

The benefit of composition registration can be availed by the following person having annual turnover up to Rs 1.5 crore^$ in the preceding financial year

• Manufacturer, except* manufacturer of (i) Ice cream and other edible ice, whether or not containing cocoa (HSN 2105 00 00); (ii) Pan Masala (HSN 2106 90 20) and (iii) All goods, i.e. Tobacco and manufactured tobacco substitutes (Chapter 24);
• Restaurants (not serving alcohol); and
• Other Suppliers of goods / Dealers / Traders

^$ as per Notification 8/2017-Central Tax Dated 27.06.2017 threshold limit increase from 50 Lacs to 75 Lacs (50 Lacs for Specific States).

Further, as per notification no. 46/2017-Cetral Tax Dated 13.10.2017 threshold limit increase from 75 Lacs to 1 Crore (50 Lacs to 75 Lacs to Specific States).

Now as per notification No. 14/2019 – Central Tax dated 7.03.2019, CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5 Crores with effect from 1st April 2019.

Specific Sates are :-

(i) Arunachal Pradesh,

(ii) Manipur,

(iii) Meghalaya,

(iv) Mizoram,

(v) Nagaland,

(vi) Sikkim,

(vii) Tripura,

(viii) Uttarakhand

Rate of tax

• In case of manufacturer, other than manufacturer of notified goods*:- 1% (0.5% SGST and 0.5% CGST) of the turnover in the State/UT.
  Note : * as per notification no.1/2018-Central Tax Dated 01.2018 tax rate changed.
• In case of food/restaurant services: 5% (2.5% CGST+ 2.5% SGST) (i.e., in case of composite supply of service specified in Entry 6(b) of Schedule II);
• In case of other suppliers: 1% (0.5% CGST+ 0.5% SGST) of the turnover of taxable supplies in the State/UT (such as like traders, agents for supply of goods, etc.)

Note : “Aggregate turnover” means the aggregate value of all—

(i) taxable supplies,

(ii) exempt supplies,

(iii) exports of goods or services or both, and

(iv) inter-State supplies of persons having the same Permanent Account Number computed on all India basis

but excludes :

(i) central tax,

(ii) State tax/Union territory tax,

(iii) integrated tax, and

(iv) cess.

Further, it will also exclude the value of inward supplies on which tax is payable by the registered person (i.e. recipient of supply) on reverse charge basis.

Section 10(2)

Option to come under composition levy (sec 10(1)) can be exercised on fulfillment of certain prescribed conditions and restrictions. Which are as below :-

• Not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II (Not Service Provider).
• not engaged in making any supply of goods or services which are not leviable to tax under this Act(Not deal in Exempted supplies).
• Not engaged in making any inter-State outward supplies of goods or services (Only sale within own State)
• Not engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52 (No supply through e_commerce operators like Amazon, Flipkart, Snapdeal etc.).
• Not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council (not manufacture of notified goods).
• Neither a casual taxable person nor a non-resident taxable person (Casual taxpayer and NRI not avail this scheme).

Section 10(2A)

However, before this sub-section Service providers cannot register under this scheme. But now they can also register and enjoy the relaxation of composition scheme.

As per Notification No. 2/2019-Central Tax (Rate) Dated: 7.3.2019

A person, who is not eligible to pay tax under section 10(1)(i.e. Taxpayers supplying services and / or mixed supplies) having aggregate turnover in the preceding financial year was fifty lakh rupees or below can opt the scheme and pay tax at 6% (3% CGST+ 3% SGST) with the following conditions:-

if he is not

• engaged in making any supply of goods or services which are not leviable to tax under this Act (exempted goods);
• engaged in making any inter-State outward supplies of goods or services (out state supply);
• engaged in making any supply of goods or services through an e_commerce operator (Like Amazon, Flipkart, Snapdeal, OLA, Uber, Zomato, Swiggy etc.).  ;
• a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council (manufacture of notified goods); and
• a casual taxable person or a non-resident taxable person (Casual taxpayer and NRI not avail this scheme).

Section 10(3)

This section explains that the casual taxpayer scheme shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) sub-section 2Aas the case may be.

Section 10(4)

The casual taxpayer shall not collect the GST from receiver of goods or services or both and he also not eligible to take input tax credit of GST on any purchase of goods or services or both.

Section 10(5)

If a person register under composition scheme but he is not eligible to register for the same then he will be liable for penalty and provisions of section 73 or section 74 apply.

(Author can be reached at pawansharmaca@gmail.com)

Disclaimer: The contents of this article are for information purposes only and does not constitute an advice or a legal opinion and are personal views of the author. It is based upon relevant law and/or facts available at that point of time and prepared with due accuracy & reliability. Readers are requested to check and refer relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.  The possibility of other views on the subject matter cannot be ruled out. By the use of the said information, you agree that Author is not responsible or liable in any manner for the authenticity, accuracy, completeness, errors or any kind of omissions in this piece of information for any action taken thereof.