CGST Section 10 — Composition levy
CGST Act · Composition levy
Quick Answer
Section 10 of the CGST Act, 2017 governs Composition levy. It provides the core statutory basis, outlining the essential legal principles, rights, and liabilities under Indian indirect tax law. Section 10 GST: Composition levy — eligibility, conditions, case laws and compliance impact under Indian tax law.
Plain-English Explanation
Section 10 of the CGST Act introduces the Composition Levy, a simplified scheme for small businesses to pay GST. It offers a way to avoid the complexities of regular GST compliance by paying a fixed percentage of turnover as tax.
This scheme primarily targets businesses with a relatively low annual turnover. Specifically, it applies to registered individuals whose aggregate turnover in the preceding financial year did not exceed ₹1.5 crore (this limit was initially ₹50 lakhs, then ₹1 crore before being amended to ₹1.5 crore). The original act stipulated a ₹50 lakh limit, but that has been revised by government notification, acting on Council recommendations. Businesses opting for the composition scheme pay tax at a lower rate than the standard GST rates. These rates are defined as:
* 1% for manufacturers.
* 2.5% for suppliers engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II (which includes restaurants).
* 0.5% for other suppliers.
These rates are calculated on the turnover within the State or Union Territory.
However, availing the composition scheme comes with certain conditions and restrictions. Here's a breakdown:
- Service Restrictions: Generally, businesses opting for the composition scheme are restricted from supplying services. However, there's a provision allowing them to supply services (other than restaurant services) up to a certain limit. This limit is the higher of 10% of their turnover in the preceding financial year, or ₹5 lakhs.
- Non-Taxable Supplies: Businesses making supplies that are not subject to GST are ineligible.
- Inter-State Supplies: Businesses cannot make inter-state outward supplies (i.e., selling goods or services across state lines).
- E-commerce Operators: Businesses supplying goods or services through e-commerce operators who are required to collect tax at source (TCS) under Section 52 of the CGST Act are ineligible.
- Manufacturers of Notified Goods: Manufacturers of certain goods, as notified by the government on the Council's recommendation, are excluded from the scheme.
- Casual Taxable Persons & Non-Resident Taxable Persons: These types of taxpayers are not eligible.
- Common PAN: If multiple registered persons have the same Permanent Account Number (PAN), they all must opt for the composition scheme together if one chooses to do so.
Practical Examples:
- Manufacturer: A small-scale manufacturer of furniture in Jaipur, Rajasthan, had a turnover of ₹90 lakhs in the previous financial year. They can opt for the composition scheme and pay GST at 1% of their turnover in Rajasthan.
- Restaurant Owner: A restaurant owner in Delhi had a turnover of ₹1.2 crore last year. They can opt for the composition scheme and pay GST at 2.5% of their turnover in Delhi.
- Trader: A Kirana store owner in Chennai, Tamil Nadu, had a turnover of ₹75 lakhs last year. They can opt for the composition scheme and pay GST at 0.5% of their turnover in Tamil Nadu. However, if this Kirana store owner also sold goods online through Amazon (where Amazon is liable to collect TCS), they would not be eligible for the composition scheme.
A crucial point to understand is that a taxpayer under the composition scheme cannot claim Input Tax Credit (ITC). Also, they cannot issue tax invoices; they must issue a "bill of supply". They are also required to mention "composition taxable person, not eligible to collect tax on supplies" on every bill of supply issued by them.
Important Amendments:
Several amendments have impacted Section 10, most notably:
* Turnover Limit Increase: The threshold was increased from ₹50 lakhs to ₹1 crore, and subsequently to ₹1.5 crore, allowing more businesses to benefit.
* Service Supply Allowance: The introduction of the provision to supply limited services alongside goods has broadened the scheme's appeal.
* Clarifications: Amendments have clarified the ineligibility criteria, particularly regarding services and supplies through e-commerce operators.
Section 10(2A):
There is also a distinct provision under Section 10(2A), allowing a certain class of service providers (who were not eligible for composition scheme earlier) to opt for a composition scheme for service providers, with a rate not exceeding 3% and with a turnover limit of ₹50 lakhs.
In conclusion, Section 10 offers a simplified tax regime for eligible small businesses, reducing compliance burdens while contributing to the GST ecosystem. However, it's crucial to carefully consider the conditions and restrictions before opting for the composition scheme, as it might not be the best fit for every business. Always consult with a tax professional to determine the most advantageous option for your specific situation.
No case laws found for this section yet.
Browse all case laws →Frequently Asked Questions
What is the composition levy under CGST Section 10, and who is eligible for it?
The composition levy is a simplified scheme under GST for small businesses, allowing them to pay a fixed percentage of their turnover as GST instead of normal tax rates and procedures. To be eligible, a taxpayer's aggregate turnover in the preceding financial year must not exceed a specified threshold (currently ₹1.5 crore, or ₹75 lakh for special category states). Certain businesses, like those making inter-state supplies, supplying goods through e-commerce operators required to collect TCS, or manufacturing specified goods, are ineligible.
What are the benefits of opting for the composition scheme under CGST Section 10?
The key benefits include reduced compliance burden (fewer returns to file), simplified tax calculation (fixed percentage), and potentially lower tax liability for certain types of businesses. It also leads to less complex record-keeping requirements.
What are the conditions and restrictions imposed on businesses opting for the composition scheme under CGST Section 10?
Composition scheme dealers cannot claim Input Tax Credit (ITC) on their purchases. They cannot make inter-state supplies. They cannot supply goods through e-commerce operators who are required to collect TCS. They must issue a 'bill of supply' instead of a tax invoice and cannot collect tax from customers. They must prominently display 'composition taxable person' on their place of business.
What is the rate of tax applicable under the composition scheme as per CGST Section 10?
The tax rates vary depending on the type of business. Typically, manufacturers and traders pay 1% (0.5% CGST + 0.5% SGST/UTGST) of turnover in the state or Union territory. Restaurants not serving alcohol pay 5% (2.5% CGST + 2.5% SGST/UTGST). Service providers (other than restaurants not serving alcohol), subject to notification, pay 6% (3% CGST + 3% SGST/UTGST). Special rates apply for specific categories of suppliers as notified by the government.
How does a business opt into or out of the composition scheme under CGST Section 10?
A registered person can opt for the composition scheme at the beginning of a financial year by filing intimation in Form GST CMP-02 on the GST portal before the prescribed date. They can also withdraw from the scheme at any time by filing intimation in Form GST CMP-04. Intimation should be given within the prescribed time limit mentioned in the rules.
What is 'aggregate turnover' for the purpose of determining eligibility for the composition scheme under CGST Section 10?
Aggregate turnover is defined under the GST law and includes the aggregate value of all taxable supplies (excluding inward supplies on which reverse charge is applicable), exempt supplies, export supplies and inter-State supplies of persons having the same Permanent Account Number (PAN), to be computed on all India basis but excludes Central tax, State tax, Union territory tax, Integrated tax and cess.
What returns are required to be filed by a taxpayer registered under the composition scheme as per CGST Section 10?
Taxpayers registered under the composition scheme are required to file only one return in a quarter, which is GSTR-4. They also need to file an annual return in Form GSTR-9A (however GSTR-9A filing has been waived off for FY 17-18, FY 18-19 and FY 19-20).
Key Conditions & Requirements
| Condition | Details |
|---|---|
| Aggregate Turnover Limit in Preceding Financial Year | Must not exceed fifty lakh rupees (may be increased by the Government to one crore and fifty lakh rupees based on Council recommendations). |
| Tax Payment | Pay an amount of tax calculated at a prescribed rate instead of the tax payable under sub-section (1) of section 9. |
| Rate for Manufacturers | One percent of the turnover in the State or Union Territory. |
| Rate for Suppliers under Schedule II, paragraph 6(b) | Two and a half percent of the turnover in the State or Union Territory. |
| Rate for Other Suppliers | Half percent of the turnover in the State or Union Territory. |
| Supply of Services | A person can supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher. |
No related notifications found for this section.
Browse all notifications →Amendment History
Substituted for "at such rate as may be notified by the Government on the recommendations of the Council" by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
Substituted for "one crore rupees" by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
Inserted by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
Inserted by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T. , dated 01st January, 2020.
Substituted for "(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II save as provided in sub-section (1), he is not engaged in the supply of services." by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
Inserted by s. 119 of The Finance Act, 2020 (No. 12 of 2020) - Brought into force w.e.f. 01st January, 2021 vide Notification No. 92/2020-C.T. dated 22nd December, 2020.
Inserted by s. 119 of The Finance Act, 2020 (No. 12 of 2020) - Brought into force w.e.f. 01st January, 2021 vide Notification No. 92/2020-C.T. dated 22nd December, 2020.
Inserted by s. 119 of The Finance Act, 2020 (No. 12 of 2020) - Brought into force w.e.f. 01st January, 2021 vide Notification No. 92/2020-C.T. dated 22nd December, 2020.
Omitted "and" by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T. , dated 01st January, 2020.
Substituted for - "Council" by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T. , dated 01st January, 2020.
Inserted by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T. , dated 01st January, 2020.
Omitted "goods or" by s. 137 of The Finance (No. 8) Act, 2023 (No. 08 of 2023) - Brought into force w.e.f. 01st October, 2023 vide Notification No. 28/2023-C.T. , dated 31st July, 2023 .
Omitted "goods or" by s. 137 of The Finance (No. 8) Act, 2023 (No. 08 of 2023) - Brought into force w.e.f. 01st October, 2023 vide Notification No. 28/2023-C.T. , dated 31st July, 2023 .