Section 10 of the CGST Act 2017 deals with the Composition Levy Scheme. As Per the Said Section notwithstanding to the contrary contained in the Act but subject to Sec 9(3) & (4) (Which basically deals with the payment of Tax under Reverse charge), a Registered Person, whose aggregate turnover in the preceding financial year does not Exceed Rs. 50 lakhs may opt for Composition Scheme and pay Tax at the following rates: (Section 10(1) of CGST Act,2017)
|Category of the Registered Person
|Rate of Tax
|Manufacture, Other than manufacturers of Such goods as may be notified by the Government
|1% of the Turnover in the state or the Union Territory (Refer Note)
|Suppliers making supplies of food or any other article for human consumption including non-alcoholic drinks
|2.5% of the Turnover in the state or the Union Territory (Refer Note)
|Any other supplier eligible for the composition levy under Section 10 and the composition rules
|0.5% of the Turnover in the state or the Union Territory (Refer Note)
Note: Effective/Total Rate of Tax Under Composition Levy Scheme
It is worth noting here that there shall be an equivalent rate of SGST/UTGST. As a Result total GST payable shall be double of the above-mentioned rates.
Now Let Us Understand the meaning of Aggregate Turnover.
Aggregate turnover” means the aggregate value of all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt supplies, exports of goods or services or both and inter-State supplies of persons having the same Permanent Account Number, to be computed on all India basis but excludes central tax, State tax, Union territory tax, integrated tax and cess.
The registered person shall be eligible to opt for the Composition Scheme, if(Section 10(2) of CGST Act,2017): —
(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II; (Analysis: This means that the Composition scheme is available for the service provider only if he is engaged Supply, by way of or as a part of any service or any other manner whatsoever of goods being food or other article for Human Consumption or any drink)
(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.
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 unless all such registered persons opt to pay tax under that sub-section.
The threshold of ` 50 lacs would be applicable to a person having the same PAN and should be understood as follows:
— All taxable persons covered by the same PAN shall be under composition across India. Any intimation of option to avail composition scheme in respect of any place of business in any State or UT shall be deemed to be an intimation in respect of all other places of business registered on the same PAN;
— Goods supplied by the person which are chargeable to tax on reverse charge basis will not be includable in computing the aggregate turnover; such inward supplies will be liable to tax in the hands of the composition dealer, as it will be liable to tax when received by non-composition taxable persons.
— Will include value of supply of goods in all forms (supply of goods simplicitor and mixed and composite supplies which are taxed as supply of goods);
— Will include value of supplies of all business verticals of the same taxable person
(Proviso to Section 10(2) of CGST Act,2017)
In order to avail the benefit of the Composite Levy Scheme, it is necessary that all business verticals/registrations which are separately held by the registered person having same PAN must opt for the Composition levy. Thus a registered person shall not be eligible to opt for the composition scheme only for business vertical/registration out of his multiple business vertical/registrations.
Section 10(3) of CGST Act,2017) Lapse of Option for the Composition Scheme
The option for the Composition Scheme availed by the registered person shall lapse from the Day on which the aggregate turnover during a financial year exceeds Rs. 50 lakhs. It is to be noted carefully that word “day’’ has been used in Section 10(3).
Let us understand Sec 10(3) with the help of an Example.
Assume the aggregate turnover of Ms. Mehak Seth, a registered person during a financial year 2018-19 44.50 lakh. In financial year 2019-20, her aggregate turnover upto 30.12.2019 is Rs.49.80 lakh. Further on 31.12.2019 she supplied goods of Rs. 1 lakh issuing 2 invoices i.e Rs.75000/- and Rs 25000/-. On both the Invoices she shall be liable to discharge GST liability under normal scheme of taxation.
It is Important to note here that as per section 18(1) (c) of the CGST Act 2017, if a person ceases to pay tax under section 10 i.e composition scheme, he shall be entitled to take credit of the Input tax in Respect of Inputs held in stock, Inputs contained in the semi finished goods or the finished goods held in stock and the capital goods on the day immediately preceeding the date on which he is liable to pay tax under the normal scheme. Accordingly, there is no loss of credit to the registered person.
A taxable person who has opted for the composition scheme shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. (Section 10(4) of CGST Act, 2017)
If the proper officer has reasons to believe that a taxable person has paid tax under composition scheme 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. (Section 10(5) of CGST Act, 2017)
Section 73 and 74 of the CGST Act has been reproduced as under: –
Section 73 Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized for any reason other than fraud or any willful misstatement or suppression of facts.
Section 74 Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilized due to fraud or any wilful misstatement or suppression of facts.
Intimation of the Composition Levy-Rule 1 of the Composition Rules,2017
Tax payment under this scheme is an option available to the taxable person. This scheme would be available only to certain eligible taxable persons (conditions / criteria discussed). The taxable person should make an application exercising his option to pay tax under this scheme. There are three possibilities in which such option can be exercised:
(a) Taxable Person migrating from existing registration to GST registration: Exercising Option in Form GST CMP 01 prior to appointed date or within 30 days after the appointed date. In this case, the option to pay tax under composition scheme shall be effective from the appointed date. However, in terms of Proviso to Rule1(1) where Intimation in Form GST CMP 01 is filed after the appointed date, the registered person shall not collect any tax from the appointed day but shall issue bill of supply for the supplies made after the said date.
(b) Taxable Person obtaining new registration under GST laws: Such option can be exercised at the time of obtaining registration under section 22 in Part B of Form GSTREG-1. In this case, the option to pay tax under composition scheme shall be effective from the effective date of registration.
(c) Taxable Person paying tax under normal levy in one financial year and wants to opt for composition scheme in next financial year, under the GST regime – Such option can be exercised by filing intimation in Form GST CMP 02 prior to commencement of the year for which the option to pay tax under composition scheme is exercised.
In this case, the option to pay tax under composition scheme shall be effective from the beginning of the financial year. In such case, provisions of section 18(4) shall become applicable and person shall be required to file statement containing details of stock and inward supply of goods received from un-registered persons, held in stock, on the immediately preceding the date from which he opts for composition levy, in Form GST CMP 03 within 60 days of the date from which such option is exercised.
Once granted, the eligibility would be valid unless the permission is cancelled or is withdrawn or the person becomes ineligible for the scheme.
Effective date of the Levy of the Composition Scheme- Rule 2 of the Composition Rules,2017
|Time of filing of the Intimation for the Composition Levy
|Effective date for the Composition Levy-Rule 2(1)
|Prior to the commencement of the financial year for which option to pay tax under composition Levy is Exercised
|From the beginning of the Financial Year
|Prior to the Appointed Date
|From the Appointed date
Conditions and Restrictions for Composition Levy- Rule 3 of the Composition Rules,2017
To explain further, where a taxable person effects inter-State barter transaction (supply) or inter-State warranty contract (supply), he will not be eligible to opt for composition scheme.
Validity of the Composition Levy- Rule 4 of the Composition Rules,2017
Various Composition Levy Forms at a Glance
|Intimation for Opting for Composition Scheme by a Person granted with Provisional Registration
|Intimation for opting for Composition Scheme by a Registered Person
|Details of Stock, including the inward supply of goods received from unregistered persons furnished by a person granted with provisional registration.
|Application for withdraw from the Composition Scheme
|Show Cause Notice for Denial of Composition Scheme to registered Person
|Reply to Show Cause notice for Denial of Composition Scheme
|Order of withdrawal/acceptance of Composition Scheme
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