Section 10 of CGST ACT 2017– We will discuss today provisions of Section 10  in simplified manner-

Section 10- This Section provides for a registered person to opt for payment of taxes under a scheme of composition, the conditions attached thereto and the persons who are entitled, but not mandated, to make payment of tax under this Scheme.

Have u understood- This scheme is not mandatory but optional for registered person to opt this scheme but have to satisfied certain conditions, Now question comes in your mind- what are those conditions ?

Let us discuss in very simplified manner-

  • Payment of taxes- The registered person opting to pay tax under composition scheme needs only to ascertain the aggregate value of outward taxable supplies and compute the tax thereon at a fixed rate, regardless of the actual rate of tax applicable on the said outward supply .Now what is that fixed rate-?

As per section 10(1) of CGST Act and rule7 of CGST Rules, 2017 , The rates of composition scheme are as follows-

Tax payable by Manufacturer Rate of tax -1 % (0.5%+0.5 %) of turnover in State
Tax on restaurant services not serving alcohal Rate of tax -5 % (2.5%+2.5 %) of turnover in State
Tax payable

by traders

Rate of tax -1 % (0.5%+0.5 %) of turnover in State
  • Eligibility to opt this scheme – The conditions for eligibility to opt for payment of tax under the composition scheme is as follows:

I. Registered persons having an ‘aggregate turnover’ as defined under Section 2(6) of the Act (i.e., aggregate of turnovers across all States under the same PAN, including exempt supplies, supplies specified under Schedule I, etc.) does not exceed the prescribed limit in the preceding financial year will be eligible to opt for payment of tax under the composition scheme.

II. A taxpayer whose turnover is below Rs 1.5 crore* can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75* lakh.

* CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5 Crores.(w.e.f 01.02.2019)

III    The ‘aggregate turnover’ as computed for a composition taxpayer shall not include any interest income, which is earned by way of supply of services such as extending deposits, etc. where such interest or discount is exempted under the GST Law.

‘Aggregate turnover’ means ‘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 (except interest income as discussed above), exports of goods or services or both or inter-state supplies of a person having the same PAN (i.e., across India) excluding CGST, IGST, SGST, UGST and cess. As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘Turnover of taxable supplies of goods’.

IV The scheme cannot be opted for during the middle of a financial year, except in the case where the person obtains registration, and opts for composition scheme at the time of applying for registration under the GST Law .

A person is required to file an intimation before the commencement of the financial year for which he opts to pay tax under the scheme. In such cases, the provisions of section 18(4) shall stand attracted and the registered person shall be required to file a statement containing details of stock and inward supply of goods received from un-registered persons, held in stock, on the date immediately preceding the date.

V In order to be eligible to opt for the scheme, the registered person must not be in possession of stock of goods which has been purchased from unregistered persons. In any such case, due tax ought to have been paid thereon under Section 9(4) .

In case of migrated registrations from the erstwhile laws, the GST Law imposes an additional condition that the stock of goods held on the GST appointed day (01.07.2017) does not include any goods which have been procured in the course of inter-State trade or commerce or received from his branch / his agent /his principal situated outside the State or imported from a place outside India.

VI Further, The registered person would not be eligible to effect –

√ Supply of goods through an e-commerce operator who is liable to collect tax at source (TCS)

√ Supply of non-taxable goods, i.e., alcoholic liquor for human consumption, petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel;

√ Supply of services, other than services specified in Entry 6(b) to Schedule II.

Exception- Central Goods and Services Tax (Amendment) Act, 2018

A registered person under Section 10 is allowed to supply services up-to a value not exceeding 10% of the turnover in a State or UT in preceding financial year or 5 lakhs whichever is higher. This has been inserted through a proviso to Section 10.

√ Inter-State outward supplies –not allowed.

√ Not entitled to input tax credit: Taxable person opting to pay tax under the composition scheme will not be eligible to claim any input tax credits.

√ Shall not collect tax: Taxable person opting to pay tax under the composition scheme is prohibited from collecting tax on the outward supplies

The registered person must not be:

1. A manufacturer of such goods as may be notified by the Government (based on the recommendations of the GST Council), in the year for which he opts for the scheme, or in the preceding financial year (E.g. Ice cream, pan masala, tobacco). However, there is no restriction in trading of such goods, i.e., where the person has not manufactured the goods.

2. A casual taxable person;

3. A non-resident taxable person;

√ Lower GST Rate Composition Scheme for Service Providers- Earlier, the scheme was available to only the suppliers of goods. However, in the 32nd GST Council Meeting, it has been announced that the scheme will now be available to service providers too. The scheme for service providers is available from  1 April 2019 .The composition scheme for service providers gives an option to taxpayers rendering services having aggregate annual turnover up to Rs. 50 lakh to pay tax at a nominal rate, subject to conditions.

The following persons can opt into this scheme:

1. Supplier of services only (i.e., service providers)

2. Suppliers of goods and services (i.e., those suppliers who were not eligible for composition scheme earlier)

3. Rate for composition service providers: For composition service providers, the applicable GST rate is 6% (being 3% CGST + 3% SGST)

√ The scheme would become applicable for all the registrations under same PAN and it cannot be applied for select verticals only .The scheme will be applicable to all the outward supplies ,it must be noted that a taxable person cannot opt for payment of taxes under composition scheme for supply of one class of goods and opt for regular scheme of payment of taxes for supply of other classes of goods or services.

VII Conditions applicable on a composition supplier –Once a person has opted to pay tax under the composition scheme, the following conditions he must follow-

> Every notice or signboard in every registered place of business, displayed at a prominent place, shall carry the words “Composition taxable person”

> Every bill of supply issued by the composition suppliers shall carry the declaration “Composition taxable person, not eligible to collect tax on supplies”

> RCM on inward supplies – The composition supplier shall be liable to make payment at the rate applicable on the supply in respect of every inward supply liable to tax under the reverse charge mechanism, regardless of the rate of tax that is applied by him on the outward supplies effected by him

VIII How can a taxpayer opt for composition scheme?

To opt for composition scheme a taxpayer has to file GST CMP-02 with the government. This can be done online by logging into the GST Portal. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme.

  • Important Note: The option to pay tax under the composition scheme will remain valid so long as the registered persons comply with all of the aforesaid conditions.

Where the proper officer has reasons to believe that the taxable person was not eligible to the composition scheme, the proper officer may cancel the permission (in order CMP-7) and demand the following:

a. Differential tax and interest – viz., tax payable under the other provisions of the Act after deducting the tax paid under composition scheme;

b. Penalty determined based on the demand provisions under Section 73 or 74.

  • Returns to be filed by a composition dealer- Composition dealers have to make following compliance after registration-

1. Challan-cum-statement in form CMP-08– Due date- 18th of the month succeeding the quarter of an F.Y. (Financial Year)

2. GSTR-4 annual return- Due date – With in one month of end of financial year.

3. The annual return in GSTR-9A continues to apply with exemptions for FY 2017-18 and FY 2018-19.

 Updated due dates due to COVID-19-

1. The time limit to opt into the composition scheme for the FY 2020-21 in form CMP-02 has been extended up to 30th June 2020.

2. The time limit to file form ITC-03 has accordingly been extended till 31st July 2020.

3. The dealers can submit challan-cum-statement in form CMP-08 for the January-March 2020 quarter by 7th July 2020.

4. The time limit to file GSTR-4 annual returns for the FY 2019-20 by the composition dealers has been extended till 15th July 2020.

 I have tried to cover all aspects related to Composition Scheme still readers can mail me their queries/doubts at    Have a nice day……

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One Comment

  1. RAMAN GOEL says:

    Let me correct one mistake tax payable by traders shall be 1% of taxable supplies not turnover in the state .thus trader will pay 1% tax only on supplies which are taxable under gst law .but for other supplier they have tk pay on turnover in state (including all supplies )

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December 2023