Who can opt for such scheme?
As per Section 10(1), subject to sub-sections (3) and (4) of section 9 of CGST Act 2017, a registered person whose aggregate turnover in the previous financial year is not more than Rs. 1.5 Crore in relation to supply of goods and restaurant services, can opt, in lieu of tax payable under sub-section (1) of section 9, to pay an amount calculated as given under Rule 7 of CGST Rules of 2017, but the limit of aggregate turnover is Rs. 75 Lakhs for Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Sikkim, Nagaland, Tripura and Uttarakhand.
W.r.t ‘aggregate turnover’, the same include aggregate value of taxable supplies (excluding such inward supplies where tax is payable on reverse charge basis), export supplies, exports of goods or services or both and inter-state supplies of such persons having same PAN, but also excludes Central/State/UT/Integrated Tax/Cess.
Rule 7 of CGST Rules, 2017:
| No. | Category of Registered Persons | CGST (tax calculated on turnover in state or UT) | SGST (tax calculated on turnover in state or UT) | Total Tax |
| 1. | Manufacturers, other than manufacturers of such goods as may be notified by the Government. Presently, the Government has notified Pan Masala, Ice Cream and other edible ice, whether or not containing cocoa, Tobacco. |
0.5% |
0.5% |
1% |
| 2. | Supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption), where such supply or service is for cash, deferred payment or other valuable consideration] [mainly Restaurant Service] |
2.5% |
2.5% |
5% |
| 3. | Any other supplier eligible for composition levy under section 10 (mainly traders) | 0.5% | 0.5% | 1% |
Eligibility (Section 10(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;
(b) he is not engaged in making any supply of goods which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods;
(d) he is not engaged in making any supply of goods 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:
Ice cream and other edible ice, whether or not containing cocoa, Pan Masala, Aerated Waters and Tobacco & manufactured tobacco substitutes thereof.
– 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.
Lapse (Section 10(3))
Such option being availed by such registered person will thereby lapse from the day on which his aggregate turnover in such previous/preceding financial year exceeds the limit as given under sub-section (1).
Restriction on collecting Tax (Section 10(4))
A taxable person to whom the provisions of sub-section (1) 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.
Rather, such taxable person opting composition scheme shall consider tax payable under such scheme as its cost and factor in the price itself. It will not collect such tax as tax separately in the invoices issued to the recipient. Neither, it can avail input tax credit charged by its suppliers.
A person not eligible makes payment as per this scheme (Section 10(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, accordingly stands applicable for determining tax and penalty.
Eligibility to claim ITC under following circumstances:
As per Section 18(1)(c), if any registered person ceases to pay tax under this scheme, he is eligible for ITC for such inputs held in stocks, inputs in semi-finished or finished goods held in stock, and on capital goods from such day immediately preceding the date on which, he is liable for paying tax under regular scheme.
But as per Section 18(4), if any registered person having availed of ITC opts to pay tax under section 10, he shall pay an amount, by debiting in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option, subject to the condition that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse, or by debiting electronic cash ledger. If any balance remains in the credit ledger, it would lapse.
New Composition Scheme w.e.f. 01/04/2019:
The new composition scheme has been made available for suppliers of services (or mixed suppliers) with a tax rate of 6% (3% CGST + 3% SGST) having an annual turnover in preceding financial year up to Rs. 1.5 crores.
- The said scheme shall be applicable to both service providers as well as suppliers of goods and services, who are not eligible for the presently available composition scheme for goods and restaurant services.
- They would be liable to file one annual return with quarterly payment of taxes (along with a simple declaration).
- Effective date: The said scheme is operational from the 1st of April, 2019.
- The registered person opting for new composition scheme shall neither be eligible to avail input tax credit not it shall be entitled to charge outward tax from its recipients of supply.
- The registered person shall issue Bill of Supply [instead of tax invoice].
- Where a person has opted for this scheme, he shall pay the tax there under at 3% CGST + 3% SGST in respect of all outward supplies made by him.
- However, the registered person shall be paying tax on inward supplies reverse charge at the applicable rates as per tariff.
Optees allowed to provide limited quantum of services:
“A person who opts to pay tax under composition scheme may supply services (other than restaurant service) of value not exceeding 10% of turnover in a State or Union territory in the preceding financial year or Rs. 5 Lakhs, whichever is higher.
For the above purpose, 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.” [1]
List of Forms needed to be submitted here:
| Form No. | Description |
| GST CMP-01 | Intimation to pay tax under section 10 (composition levy) (for such persons registered under existing law having migrated on appointed day) |
| GST CMP-02 | Intimation to pay tax under section 10 (composition levy) (For persons registered under the Act) |
| GST CMP-03 | Intimation of details of stock on date of opting for composition levy (Only for persons registered under the existing law migrating on the appointed day) |
| GST CMP-04 | Intimation / Application for withdrawal from composition Levy |
| GST CMP-05 | Notice for denial of option to pay tax under section 10 |
| GST CMP-06 | Reply to the notice to show cause |
| GST CMP-07 | Order for acceptance/rejection of reply to show cause notice. |
Note:
Sections, Rates, and related information are Ad Verbatim as per the CGST Act of 2017.
Readers should supplement the Article with respective Rules of Composite Levy under CGST Rules of 2017, the link for which is given below:
https://dvat.gov.in/App_Themes/GST/composition-gst-rules-17052017.pdf
[1] Amendment in Section 10, w.e.f 01/02/2019
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Disclaimer:- The entire contents of this document have been prepared on the basis of relevant provisions and rules and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information.
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