Composition Levy (Section 10 of CGST Act)

Composition levy is a mechanism available to taxpayers wherein they can choose to pay tax at a fixed percentage on the state turnover.

Such a scheme is introduced to provide a very simple, hassle free compliance scheme for small tax payers.

The major benefits enjoyed by taxpayers opting this scheme are,

• Non maintenance of elaborate books of accounts
• Quarterly returns
• Quarterly payment of tax.

Aggregate turnover is used for determining eligibility under this scheme, whereas the state turnover is used for determining the tax liability under this scheme.

Aggregate turnover  (computed on an all India basis)		State Turnover (Turnover made within the state, including interstate supply made from the state)
Inclusions	Exclusions	Inclusions	Exclusions
Value of taxable supplies	Value of inward supplies on which tax is liable to be paid on reverse charge basis	Value of taxable supplies	Value of inward supplies on which tax is liable to be paid on reverse charge basis
Value of exempt supplies	CGST, SGST, IGST, UTGST & cess.	Value of exempt supplies	CGST, SGST, IGST, UTGST & cess.
Value of export of goods  or services or both	Exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.	Value of export of goods  or services or both	First supplies of goods or services or both *(1)
Value of Interstate supplies		Value of Interstate supplies	Exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
First supplies of goods or services or both *(1)

*(1) First supply of goods or services or both – Supplies from 1^st April of FY to the date when such person becomes liable to register under this act

• Taxpayers whose aggregate turnover in the preceding FY does not exceed 5 crores
• The above threshold limit shall be 75 lakhs in case of 8 special category states.

Frequently Asked Question

1. I have branches in several Indian states, all the branches are separtely registered under GST but having the same PAN, can I opt for composition levy in respect of any one state?

No, the registered person shall not be eligible to opt for the scheme unless all the registered persons having the same PAN opt to pay tax under the composition scheme.

• Suppliers of service, except supplier of restaurant service.
  • However, an amendment to the CGST Act, has enabled taxpayers opting for composition scheme to supply services of value not exceeding 10 % of state turnover in the preceding FY (or) 5,00,000/- (whichever is higher)
    • Note: For computing the value of supply of service for the above mentioned provision, the value of Exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be included.
  • Persons engaged in making supply of goods or services, which are not taxable under GST (eg. petrol, diesel, alcoholic liquor for human consumption etc.)
  • Persons engaged in making inter-state outward supply of goods or services,
  • Persons engaged in making any supply of goods or services through an e-commerce operator.
  • Casual taxable person or a non-resident taxable person.
  • Manufacturer of certain goods notified by the central government.
    • Ice cream, pan masala & tobacco

Frequently Asked Question

2. Is there any restriction for procuring goods from interstate suppliers after opting for composition scheme?

No, the only condition is that a person opting for composition levy cannot make interstate supply, but is free to procure/purchase from other states.

• Taxpayers who opt for composition levy are not allowed to collect tax from their customers.
• Instead, they are required to pay tax a specific percentage on the state turnover on a quarterly basis
• Tax rates to be adopted by composite dealers are

S. No	Applicable to	Rate of tax (CGST)	Rate of tax (SGST)
1	Manufacturer	0.5%	0.5%
2	Supplier of  restaurant service	2.5%	2.5%
3	Traders or any other supplier	0.5%	0.5%

Note: The tax liability for manufacturer & supplier of restaurant service is calculated on the total state turnover whereas, the tax liability for traders or any other suppliers is calculated on the taxable state turnover.

• By opting to pay tax under composition scheme, he is opting out of the credit chain. Therefore he is not allowed to avail ITC in respect of inward supplies received by him.

Frequently Asked Question

3. I am purchasing goods from a composite dealer, can I avail input tax in respect in such purchase?

No, a composite dealer is not allowed to charge GST in his bill of supply, and since he is not part of the credit chain, any inward supply from a composite dealer is not eligible for ITC. It is a blocked credit under section 17(5).

A composite dealer cannot,

• Issue an invoice, he can only issue a bill of supply
• Claim ITC in respect of inward supplies

Do’s:

A composite dealer should,

• Pay tax on reverse charge (i.e. reverse charge mechanism is applicable for dealers opting to pay tax under composition scheme.)
• 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
• Mention the words “composition taxable person” on every notice board or signboard displayed at the prominent place at his every place of business.

Service providers whose aggregate turnover in the preceding FY does not exceed 50 lakhs shall pay tax at the rate of 6% (3% CGST & 3% SGST) of the state turnover.

The above mentioned scheme shall not apply to,

• Persons engaged in making supply of goods or services, which are not taxable under GST (eg. petrol, diesel etc.)
• Persons engaged in making inter-state outward supply of goods or services,
• Persons engaged in making any supply of goods or services through an e-commerce operator.
• Manufacturer of certain goods notified by the central government.
  • Ice cream, pan masala & tobacco
• Casual taxable person or a non-resident taxable person.
• Persons who have opted to pay tax under the above mentioned composition scheme.

The composition scheme shall lapse with effect from the day on which the aggregate turnover during a financial year exceeds 1.5 Cr / 75 lakhs / 50 lakhs as the case maybe.

The taxpayer has to file an intimation in Form GST CMP-04 within 7 days from the day on which the threshold limit is exceeded.

Alternatively, a composite dealer can opt out the scheme voluntarily by filing an intimation in Form GST CMP-04 within 7 days of opting out of the scheme.

Form GST COMP-02 to opt for composition scheme is to be filed prior to the commencement of the relevant financial year.

Frequently Asked Question

4. I am a dealer registered under GST (Normal scheme), can I convert to composition scheme?

Yes, by filing form GST COMP-02 before the commencement of the FY for which the option to pay tax under the aforesaid section is exercised.

S. No	Form Name	Particulars	Due date
1	GSTR 4	Annual Return	30th April of the following FY
2	GST CMP-08	Quarterly statement cum payment of tax	18th day of the month succeeding the quarter

Frequently Asked Question

5. Can a composite dealer supply goods to SEZ developer or units in SEZ?

No, Supply to SEZ or SEZ developer is deemed to be an interstate supply, dealers who make interstate supply are not qualified to opt for composition scheme.