Ankit Jain

Q.1 What is Composition Levy?

Under composition levy scheme, a registered taxable person is eligible to pay, in lieu of tax payable by him, an amount calculated at such rate as may be prescribed, but not less than 2.5% in case of a manufacturer and 1% in any other case of the turnover in a state during the year i.e. the min. rate of tax payable by a manufacturer is 2.5% and 1% in any other case under composition levy.

Q.2 Who are eligible to opt for Composition Levy?

Any registered taxable person whose “aggregate turnover” in a preceding financial year does not exceed Rs. 50 lakhs can opt for composition levy under GST.

“Aggregate turnover” means the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act.

“Aggregate turnover” does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies.

Q.3 Who are ineligible to opt for Composition Levy?

a) A taxable person –

b) Who is engaged in the supply of services i.e. service provider cannot opt for composition scheme; or

c) Who makes any supply of goods which are not leviable to tax under this Act i.e. supplier of exempted goods; or

d) Who makes inter-state outward supply of goods i.e. the benefit of Composition Levy is available only for Intra-state suppliers; or

e) Who makes any supply of goods through an E-commerce operator who is required to collect tax at source u/s 56; or

f) Who is manufacturer of such goods as may be notified on the recommendation of the council:

Q.4 Other Provisions?

> Composition scheme will have to be adopted by all registered taxable persons under same PAN. No such permission shall be granted to a registered taxable person unless all the registered taxable person, having same PAN as held by the said taxable person, also opt to pay tax under the composition scheme.

In simpler terms, if a person having multiple businesses in multiple states registered under same PAN, then he has to opt for composition scheme for all such businesses.

> Taxable person who has opted for composition scheme shall not collect any tax on the supplies made by him.

> Taxable person who has opted for composition scheme is not entitled to any Input Tax Credit.

> Taxable person shall automatically be opted out of Composition Scheme the day on which his aggregate turnover exceeds Rs. 50 Lacs in a Financial Year.

> Any taxable person who opts for composition scheme without being so eligible, shall have to pay tax that would have been payable had he not opted for the scheme. GST officer may also levy penalty of an amount equal to tax payable. No penalty shall be imposed without giving a notice to show cause and without affording a reasonable opportunity of being heard to such taxable person.

> Where a composition dealer turns into a normal dealer than he will be entitled to take Input Tax Credit held in stocks on the day immediately preceding the day on which he becomes normal dealer.

> No Input Tax Credit is allowed to the person who has bought goods from Composition Dealer.

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September 2021