COMPOSITION LEVY SECTION 10 OF THE CGST ACT

(1) This scheme offers to a registered person, who is required to pay tax at fixed rate on the value of outward supply, regardless of the actual rate of tax applicable on the said outward  SECTION 10(1)

Following are the prescribed rate of tax : Rule 7 Rate of tax for the composition levy

(a) In case of manufacturer :- 1% (.5% SGST and .5% CGST) of the turnover in the State/UT. (N/N. 1/2018-Central Tax Dated 01.2018)

(b) In case of food/restaurant services: 5% (2.5% CGST+ 5% SGST) (i.e., in case of composite supply of service specified in Entry 6(b) of Schedule II);

(c) In case of other suppliers: 1% (0.5% CGST+ 5% SGST) of the turnover of taxable supplies in the State/UT (such as like traders, agents for supply of goods, etc.)

Aggregate Turnover :- Value of outward taxable supplies – taxable supplies + exempt supplies + exports + interstate supplies. Of person having the same PAN be computed on all india basis.

GST Composition Scheme

(2) Eligible Person :- Registered person having aggregate turnover defined u/s 2(6) of the Act in the last financial year under the same PAN does not exceed the threshold limit will be eligible to opt for the payment of tax under this  SECTION 10(1) READ WITH RULE 7

Prescribed threshold limit :-

Threshold Turnover States
Below 75 Lacs Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, and Tripura.
Below 1.5 Crore Other than special category states.
Below 50 Lacs Taxpayers supplying services and / or mixed supplies.

(3) Ineligible Persons who cant opt for composition scheme :- SECTION10(2)

(a) He is not engaged in the supply of services except food and restaurant services;

(b) He is not engaged in making any interstate outward supply of goods;

(c) 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;

(d) He is not engaged in making any supply of non taxable goods, e., alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel;

(e) The registered must not be a casual taxable person and non resident

(f) Manufacturer of ice cream, pan masala and

(4) Where more than one registered persons are having the same PAN, all such registered persons have to opt to pay tax under this  Eg. If MR. A is registered in Delhi and Kolkata under GST act and he wants to opt to pay tax under composition scheme, he will have to get registered under this scheme for both the GST number. PROVISO TO SECTION 10(2)

(5) A taxable person, who opts this scheme, shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input  SECTION 10(4)

(6) The option availed of by a registered person under section 10 shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified. SECTION10(3).

e.g. A person is availing the benefit of composition scheme and exceeds the turnover of Rs. 1.5 Crore on 10th January, 2019. The option availed by registered person shall lapse with effect from 10th January, 2019 as registered person crosses the threshold limit on 10th January 2019.

(7) Composite Dealers can supply the taxable services along with the goods, if the amount of services which is provided by the dealer is upto a maximum value of 10% of the turnover in a state/union territory in the preceding financial  PROVISO TO SECTION 10(1)

Eg. Mr.A (composite dealer) is engaged in supplying of goods and having aggregate turnover of Rs. 65 lacs in the preceding financial year. Further, in current F.Y. he can supply of services upto a value of not exceeding

(a) 10% of 65 lacs i.e. Rs. 6.5 lacs

Or

(b) 5

Whichever is higher. Thus, he can supply of services in the current financial year not more than Rs. 6.5 lacs. If the supply of service exceeds 6.5 Lacs, has to opt out of the composition scheme.

(8) If a taxable person has paid the tax under the composition scheme though he was not eligible for paying tax under this scheme, the person would be liable to penalty and the provision of section 73 or 74 of the CGST Act. SECTION10(5)

(9) Order No. 1/2019, CT dated 01.02.2019, has been issued to clarify that the value of supply of exempt services by way of extending deposit, loans or advances in so far as the consideration represented by way of interest or discount, shall not be taken into account for computing aggregate turnover in order to determine eligibility for composition scheme and determining the eligibility for composition scheme under second proviso to section10(1).

(10)  Rule 5 :- Conditions and restrictions for Composition Levy

(1) The person excercising the option to pay tax under section 10 shall comply with the following conditions:-

(a) He is neither a casual taxable nor a non resident taxable person

(b) the goods held in stock by him on the appointed day have not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State, where the option is exercised under sub-rule (1) of rule 3;

(c) the goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9;

(d) he shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both

(e) he was not engaged in the manufacture of goods as notified under clause (e) ofsub-section

(f) of section 10, during the preceding financial year;

(g) he shall mention the words ―composition taxable person, not eligible to collect tax on supplies‖ at the top of the bill of supply issued by him; and

(h) he shall mention the words ―composition taxable person on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of

(2) The registered person paying tax under section 10 may not file a fresh intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act and these rules.

(11) Rule 3 :- Intimation for composition law

(1) Not applicable for now;

(2) A person who applies for registration under section 10  Composition scheme, intimate the govt. by filing Form GST REG. 01;

(3) Any registered person who is registered under normal schemes, may opt in for the composition scheme u/s 10 by filing Form CMP 02 electronically prior to the the commencement of the financial year for which the option to pay tax under scheme is excercised and shall furnish the statement in Form GST ITC 03 within a period of 60 days from the commencement of the relevant financial

(3a) Not applicable for now;

(4) Any person who files an intimation to pay tax under section 10 of the CGST  Furnish the details in the statement ie. GST FORM CMP 03 of stock held by the dealer on the day preceding the date from which he opts to pay tax under this scheme within 90 days from the date on which the option for composition levy is exercised or within such further period as may be extended by the Commissioner in this behalf.

(12) Rule 4 :- Effective date for Composition Levy

(1) The option to pay tax under section 10 shall be effective from the beginning of the financial year, where the intimation is filed in the Form CMP

(2) In case of fresh registration under composition scheme (not migrated), effective date of composition levy shall be considered only after the grant of registration certificate to the applicant.

(13) Rule 6 :- Validity of Composition Levy

(1) The option excercised to pay tax under section 10 is valid until the registered person complies with the sections and rules mentioned under the CGST

(2) If Composite dealer fails to satisfy the conditions mentioned under the act, he ceases to be a composite dealer and considered as a regular dealer, shall be liable to pay tax under section 9(1) of the CGST Act and shall issue tax invoice for every taxable supply made thereafter and he shall file an intimation for withdrawal from the scheme in FORM GST CMP 04 within 7 days of the occurrence of such

(3) If the composite dealer intends to withdraw from the composition scheme shall before the date of such withdrawal, files an application in FORM GST CMP

(4) Where the proper officer has reason to believe that composite dealer is not satisfying the conditions mentioned under the CGST Act, he may issue a notice to such person in FORM GST CMP 05 to show cause within 15 days of the receipt of such notice as to why Composition scheme shall not be

(5) Composite dealer replies for aforesaid show cause notice in FORM GST CMP 06, the proper officer shall issue an order in FORM GST CMP 07 within a period of 30 days of the receipt of such reply,either accepting the reply or denying the option to pay tax under section 10 from the date of option or from the date of the event concerning such contravention, as the case may

(6) If any composite dealer ceases to be composite dealer due to reasons mentioned in sub rule of 2 or 3 or 5 of rule 7, may file a statement in FORM GST ITC 01 containing details of the stock of inputs and input contained in semi finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of 30 days from the date on which the option is withdrawn or from the date of the order passed in FORM GST CMP 07, as the case may

NOTE :

Form CMP 01:- Intimation to pay tax u/s 10 (migration case) Form CMP 04:- Intimation for withdrawal from compositioin levy.

Form CMP 03:- Intimation to the Govt. about the amount of stock held by him on the date of opting the scheme.(for migrated taxpayer)

Form CMP 02:- intimation of conversion to composite dealer from regular dealer before the commencement of F.Y.

Form ITC 01 :- Declaration of eligibility to avail ITC u/s 18(1) of the CGST Act. Form ITC 03 :- Declaration for intimation of ITC revesal.

RAHUL SHARMA CHARTERED ACCOUNTANT 8076163814

Author Bio

Qualification: CA in Practice
Company: S RAHUL & ASSOCIATES
Location: DELHI, New Delhi, IN
Member Since: 01 Apr 2020 | Total Posts: 1

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