Composition levy is for small taxpayer

The composition levy is an alternative method of levy of tax designed for small taxpayers whose turnover is up to prescribed limit.

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Objective of composition levy is to reduce compliance cost

The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers.

√

Composition dealer need not be worry for classification of goods and GST rate.

Suppliers opting for composition levy need not worry about the classification of their goods or services or both, the rate of GST applicable on their goods and/ or services, etc.

They are not required to raise any tax invoice, but simply need to issue a Bill of Supply wherein no tax will be charged from the recipient.

√

Composition dealer need not to apply tax on every invoice

Composition dealer shall, instead of paying tax on every invoice at the specified rate, pay tax at a prescribed percentage of his turnover every quarter.

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A very simple Annual Return

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Composition dealer is not required to maintain elaborate records and filing detailed returns.

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Initially only supply of goods is covered under composition levy. Later, supply of services has also been covered under composition levy.

2 types of composition scheme are available

(a) u/s 10(1) & (2) for supply of goods and restaurant services of AT upto 1.5/0.75 Cr

(b)  u/s 10(2A) for supply of goods or services of AT upto 0.50 Cr

For composition levy, 3 conditions must be satisfied

(a) Aggregate Turnover must be within limit prescribed.

(b) Registered person must be eligible for composition levy.

(c) Applicable GST rate on composition levy.

Section 10(1)

Notwithstanding anything to the contrary contained in this Act [Overrides Section 9]

but subject to section 9(3) and (4), [RCM is applicable to Composition dealer]

RP, whose aggregate turnover in the preceding FY <= Rs.50 lacs,

may opt to pay tax calculated at such rate as prescribed in Rule 7.

Section 10 overrides section 9

CGST shall be levied as per Section 9 for regular dealer and as per Section 10 for Composition Dealer.

RCM is applicable to composition dealer

Composition dealer is also required to pay GST under RCM as per section 9(3) and (4).

1^st Proviso to Section 10(1)

Government may, by notification, increase the said limit of Rs.50 lacs to such higher amount, not exceeding [1][R.1.5 Cr]

Vide notification No. 14/2019-Central Tax dt. 07-03-2019, government has prescribed AT limit to

(a) Rs.75 lacs for specified special category states [AP, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, UK] and

(b) Rs.1.5 Cr for other states.

Refer above notifications for complete details

In case of Special Category States of Assam, Himachal Pradesh and J&K, the turnover limit will be Rs.1.5 crore only.

Question & Answer

Refer Section 2(6) for Meaning of Aggregate Turnover. As per section 2(6),

AT = All supplies of (Taxable + Exempt + Export + Inter State supplies by RP of same PAN)

AT does not include GST & Inward supplies on RCM

Ex

Mr X has offices in Maharashtra and Goa. He makes intra-State supply of goods from both these offices.

In order to determine whether Mr X is eligible to avail benefit of the composition  for goods, turnover of both the offices would be taken into account and if the same does not exceed Rs.1.5 crore, Mr. X can opt to avail the composition levy scheme (subject to fulfilment of other prescribed conditions) for goods for both the offices.

[2][Explanation 1 to Section 10

For computing AT of person for determining his eligibility to pay tax under this section,

AT includes value of supplies made prior to registration under GST

AT includes value of supplies made from 1st day of April of a FY up to the date when he becomes liable for registration under this Act,

AT does not include Interest and Discount Income

AT does not include 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.

Clarification by following order

(i) CGST (Removal of Difficulty) Order No. 01/2017-Central Tax dt. 13-10-2017

(ii) CGST (Removal of Difficulty) Order No. 01/2019-Central Tax dt. 01-02-2019

AT does not include Interest and Discount Income

Before insertion of above explanation, 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 was not to be included in AT.

Hence in view of above provision, for composition levy AT includes

Taxable supplies

Exempt supplies other than interest and discount income

Export

Inter State supplies by RP of same PAN

Value of supplies made prior to registration

Question & Answer

Section 10(2)

RP shall be eligible to opt for composition levy, if he is not

[3][(a) engaged in supply of services, other than restaurant and marginal supply of services]

(b) engaged in any supply of goods [4][or services] which are not leviable to tax under this Act.

(c) engaged in inter-State outward supplies of goods [5][or services];

(d) engaged in supply of [6][***] [7][ services] through an ECO who is to collect TCS u/s 52;

(e) a manufacturer of notified goods; and]

[8][(f) a casual taxable person or a non-resident taxable person:]

Question & Answer

Position of clause (a) before 01/02/2019

(a) he is not engaged in the supply of services other than restaurant services”

From 01/07/2017 to 31/01/2019, supply of all type of services other than restaurant services was not available for composition levy.

From 01/02/2019 only marginal value of supply of services was allowed in composition levy under 2^nd Proviso to 10(1).

Question & Answer

[9][2^nd Proviso to Section 10(1)

A person who opts to pay tax u/s 10(1)

may supply services (other than Restaurant service), of value not exceeding

10% of turnover in a State/UT in the preceding FY or

Rs.5 lacs,

whichever is higher.]

[10][Explanation - Turnover in state or UT does not include interest & Discount income]

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Position before 01/01/2020 [Before insert of Explanation]

CGST (Removal of Difficulty) Order No. 01/2019-Central Tax dt. 01-02-2019.

It has been clarified that Interest and Discount income not to be included in Turnover.

Concept of marginal supply of service was inserted from 01-02-2019.

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Purpose of 2^nd Proviso

Fundamentally, the composition scheme can be availed in respect of goods and only one service namely, restaurant service.

Manufacturer/ Trader / Restaurant may also be engaged in supply of services in very small values

However, there are cases where a manufacturer/ trader is also engaged in supply of services other than restaurant service though the percentage of such supply of services is very small as compared to the supplies of goods. There may also be cases where a restaurant service provider is also engaged in supplying a small percentage of other services.

With a view to enable such taxpayers to avail of the benefit of composition scheme, second proviso to section 10(1) permits marginal supply of services [other than restaurant services] for a specified value along with the supply of goods and/or restaurant service, as the case may be.

Ex

Ramsewak is engaged in supply of goods. His turnover in preceding FY is Rs.60 lakh. Since his aggregate turnover in the preceding FY does not exceed Rs.1.5 crore, he is eligible for composition scheme for goods in current FY. Further, in current FY, he can supply services [other than restaurant services] upto a value of not exceeding:

(a) 10% of Rs.60 lakh, i.e. Rs.6 lakh

(b) Rs.5 lakh,

whichever is higher.

Thus, he can supply services upto a value of Rs.6 lakh in current FY. If the value of services supplied exceeds Rs.6 lakh, he becomes ineligible for the composition scheme for goods and has to opt out of the same.

Question & Answer

Section 10(2)(b)

he is not engaged in any supply of goods or services which are not leviable to tax under this Act.

He must not be engaged in non-gst supplies, like supply of alcohol, Petrol etc

Question & Answer

Section 10(2)(c)

he is not engaged in any inter-State outward supplies of goods or services

He must not be engaged in inter-state outward supplies of goods and services.

There is no restriction on composition supplier to receive inter-State inward supplies of goods or services.

Question & Answer

Section 10(2)(d)

he is not engaged in making any supply of [11][***] [12][services] through an ECO who is to collect TCS u/s 52;

Provision upto 30-09-2023

Composition levy was not available to person who was engaged in making supply of goods or services through ECO who is to collect TCS u/s 52.

Provision wef 01-10-2023

Composition levy is not available to person who is engaged in making supply of goods or services through ECO who is to collect TCS u/s 52.

Hence, wef 01-190-2023, person making supply of goods through ECO, may avail composition levy.

Question & Answer

Rule 7 read with Section 10(2)(e)

he is not a manufacturer of such goods as may be notified by the Government

2^nd Proviso to Notification No. 14/2019-Central Tax dt. 07-03-2019,

Composition levy is not available for notified manufacturer of goods.

For list of specified goods, please refer 2^nd proviso of above notification.

Question & Answer

√

Primarily, the composition scheme was available in respect of goods and only one service namely, restaurant service.

However, a person engaged exclusively in supply of services or goods and services both other than restaurant service was not eligible for the composition scheme.

In order to provide benefit to such suppliers, a scheme to pay tax at the concessional rate has been formulated primarily for small service providers like salon, stylist, tailors etc. who are not otherwise eligible for composition scheme.

A mixed supplier who is primarily engaged in supplying services other than restaurant service along with marginal supply of goods could also avail the benefit of this scheme.

[13][Section 10(2A)

Notwithstanding anything to the contrary contained in this Act,

but subject to the Section 9(3) and (4),

RP, not eligible to opt to pay tax u/ss (1) and (2),

whose aggregate turnover in the preceding FY did not exceed Rs. 50 lacs,

may opt to pay tax calculated at such rate as prescribed in Rule 7, but not exceeding 3% of the turnover in State/UT,

Eligible Person for Composition Levy u/ss (2A)

Section 10(2A) also provides that

He is not

(a) engaged in making any exempt supply of goods/ services;

(b) engaged in making any inter-State outward supplies of goods or services;

(c) engaged in making any supply of goods or services through an ECO who is required to collect tax at source u/s 52;

(d) a manufacturer of such goods or supplier of such services notified by the Government; and

(e) a casual taxable person or a non-resident taxable person:

Person not eligible u/ss (1) and (2) above but eligible u/s (2A), may opt composition levy to pay CGST @ 3% as prescribed in rule 7.

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Position from 01/04/2019 to 31/12/2019

Composition levy was available to the small service providers vide Notification No. 02/2019-Central Tax (Rate) dt. 07-03-2019.

The Provision of said notification was incorporated in section 10(2A) by Finance (No. 2) Act, 2019.

Question & Answer

Section 10(1)

Eligible RP shall pay tax under composition levy at rate prescribed u/r 7, but not exceeding,–

(a) 1% of the turnover in State/UT in case of a manufacturer.

(b) 2.5% of the turnover in State/UT in case of persons engaged in making supplies referred to clause 6(b) of Schedule II, [Restaurant services] and

(c) 0.5% of the turnover in State/UT in case of other suppliers

subject to such conditions and restrictions as may be prescribed

Section 10(2A)

RP eligible u/s 10(2A)

may opt to pay tax at rate as prescribed in Rule 7, but not exceeding 3% of the turnover in State/UT.

For meaning of turnover in state/UT refer section 2(112)

Explanation 2 to Section 10

For determining the tax payable by a person under this section, “turnover in State/ UT” shall not include the value of following supplies, namely:–

(i) supplies from the first day of April of a FY up to the date when such person becomes liable for registration under this Act; and

(ii) 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. 43 of 1961.]

By virtue of section 2(112) and Explanation 2 to Section 10

For payment of tax by composition dealer, turnover in state/ UT includes

All taxable supplies and

Exempt supplies

made within the State/UT

Turnover in state/ UT does not includes

(a) central tax, State tax, Union territory tax, integrated tax and cess;

(b) inward supplies on which tax is payable under RCM

(c) supplies from the 1^st day of April of a FY up to the date when he becomes liable for registration under this Act; and

(d) 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

Ex

Mr X has commenced providing photography services in Delhi from April this year. His turnover for various quarters till December is as follows:

Apr – Jun = Rs.20 lacs

Jul – Sep = Rs.30 lacs

Oct – Dec = Rs.20 lacs

In the given case, since Mr X has started the supply of services in the current FY, his aggregate turnover in the preceding FY is Nil.  

Consequently, in the current FY, he is eligible for composition scheme for services.

He becomes eligible for the registration when his aggregate turnover exceeds Rs.20 lakh. While registering under GST, he opts for composition scheme for services.

For determining his turnover of the State for payment of tax under composition scheme for services, turnover of April-June quarter [Rs.20 lakh] shall be excluded as the value of supplies from the first day of April of a financial year up to the date when such person becomes liable for registration under this Act are to be excluded for this purpose.

Rule 7

Registered person who is

eligible for composition levy u/s 10 and the provisions of this Chapter, and

specified in column (2) of the Table below

shall pay tax u/s 10 at the rate specified in column (3) of the said [14][Table]:-

.

1. In case of Trader, GST is payable only for taxable turnover

2. In Other cases, GST is payable for entire turnover whether taxable or exempt

Question & Answer

Proviso to Section 10(2) and (2A)

where more than one RPs are having same PAN,

RP shall not be eligible for composition levy u/ss (1) or (2A) 

unless all such RPs opt to pay tax under that sub-section.

If any one branch of RPs having same PAN is not paying GST under composition levy, then no branches of that RPs shall be eligible to pay GST under composition levy. 

Question & Answer

Section 10(4)

Composition Dealer u/ss (1) or (2A)]

shall not collect any tax from the recipient on supplies made by him

nor shall he be entitled to any credit of input tax.

Composition Dealer shall not charge GST on outward supplies from his customer and he shall also not claim any ITC.

Question & Answer

Rule 5(1)

Composition dealer shall comply with the following conditions, namely:-

(a) he is neither a casual taxable person nor a non-resident taxable person;

(b) 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 u/sr 3(1);

(c) goods held in stock by him have not been purchased from an URP and if purchased, he pays the tax u/s 9(4);

(d) he shall pay tax u/s 9(3) or (4) on inward supplies;

(e) he was not engaged in the manufacture of goods as notified u/c 10(2)(e), during the preceding FY;

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

(g) he shall mention words “composition taxable person” on every notice or signboard displayed at his principal place of business and at every additional places of business.

Question & Answer

Rule 3(1)

Person granted provisional registration u/r 24(1)(b) [Migrating to GST]

and who opts to pay tax u/s 10

shall intimate in GST CMP-01, [duly signed or verified through EVA],

prior to the appointed day,

but not later than 30 days after the said day, or

such further period as may be extended by the Commissioner.

1^st Proviso - If intimation filed after appointed day

RP shall not collect any tax from the appointed day

but shall issue bill of supply for supplies made after the said day.

Ex

A person registered under existing law (Central Excise/Service Tax/VAT) and who has been granted registration on a provisional basis wants to opt for composition scheme.

He must intimae in CMP-01 before appointed day i.e. 01/07/2017 but not later than 30 days.

Vide Order No. 01/2017-GST dt. 21-07-2017, Board has extended the period for filing an intimation in GST CMP-01 upto 16th August, 2017

Rule 3(4)

RP intimation u/sr 3(1), shall furnish

stock details &

inward supply of goods received from URP,

held by him just before day of exercising of composition levy,

in GST CMP-03, within

[15][90] days of exercising of composition levy or

such further period as may be extended by the Commissioner.

Question & Answer

Order No. 11/2017-GST dt. 21-12-2017

Commissioner has extended time limit of intimating CMP-03 till 31-01-2018.

Rule 3(2)

Person applies for new registration u/sr 8(1) [First time registration]

may give an option to pay tax u/s 10 in Part B of REG-01,

which shall be considered as intimation for composition levy

Any person applying for new registration under GST laws and he is opting to Composition Levy, then he may select composition scheme at the time of new registration and no separate intimation is required for composition levy.

Question & Answer

Rule 3(3)

RP under normal levy who opts to pay tax u/s 10

shall file an intimation in GST CMP-02, [duly signed or verified through EVC]

prior to commencement of the FY [for which option to pay tax u/s 10 is exercised]

AND

Furnish the statement in GST ITC-03 u/r 44(4)

within 60 days from commencement of the relevant FY.

Any person who switches from normal levy to composition levy in any FY shall

- intimate in CMP-02 prior to commencement of FY and;

- furnish ITC-03 within 60 days from commencement of the relevant FY

Question & Answer

[16][1^st Proviso to Rule 3(3)

RP who opts to pay tax u/s 10 for the FY 2020-21 shall

file an intimation in GST CMP-02, [duly signed or verified through EVC] on or before 30-06-2020 and

furnish the statement in GST ITC-03 in accordance with rule 44(4) upto 31-07-2020]

[17][Rule 3(3A)

Notwithstanding anything contained in sub-rules (1), (2) and (3),

a person who has been granted

registration on a provisional basis u/r 24 or [Migration from existing law]

certificate of registration u/r 10(1) [New Registration under GST Law]

may opt to pay tax u/s 10 wef 1^st day of the month immediately succeeding the month in which he files an intimation in GST CMP-02, on or before the 31st day of March, 2018, and

shall furnish the statement in GST ITC-03 u/r 44(4) within a period of [18][180 days] from the day on which such person commences to pay tax u/s 10:

1^st Proviso - Tran-1 not allowed to be filed after furnishing ITC-03

Said persons shall not be allowed to furnish the declaration in GST TRAN-1 after the statement in GST ITC-03 has been furnished.]

Rule 3(5)

Any intimation u/sr (1) or (3) or (3A)

in respect of any place of business in any State/UT

shall be deemed to be an intimation in respect of all other places of business under same PAN.

If Composition dealer has more than one registration, then he may intimate in respect of any State/UT and that intimation shall be deemed to be intimation is respect of all other GSTIN no.

Question & Answer

Rule 5(2)

RP paying tax u/s 10

may not file a fresh intimation every year

and he may continue to pay tax u/s 10 subject to the provisions of the Act and these rules.

Rule

Circumstances

Intimation in

Time Limit

Stock Details

Time limit

3(1)

Migration from existing law to Composition levy

CMP-01

Prior to the appointed day,

but not later than 30 days after the said day

CMP-03 u/r 3(4)

within 90 days of exercising of composition levy

3(2)

New registration under GST

Part B of REG-01

At the time of application for registration

NA

NA

3(3)

Transition from normal levy to composition levy

CMP-01

Prior to commencement of the FY

ITC-03 u/r 44(4)

within 60 days from commencement of the relevant FY.

5(2)

Existing composition dealer

Not required

May continue without any intimation

NA

NA

Rule 4

.

For effective date of registration u/r 10(2) or (3), please refer para 25.12.2 of Section 25

Question & Answer

Section 10(3)

Composition levy shall lapse wef the day

when his aggregate turnover during FY exceeds the limit specified u/ss (1) or (2A)

Ex

A person availing composition scheme during a FY crosses the turnover of Rs.1.5 crore on 9th of Dec.

The option availed shall lapse from the day on which his aggregate turnover during the FY exceeds Rs.1.5 crore, i.e. on 9th December, in this case.

Question & Answer

Rule 6(1)

Composition Levy u/s 10 shall remain valid so long as he satisfies all the conditions mentioned in the said section and rules.

Rule 6(2)

On withdrawal of composition levy u/r 6(1)

person shall pay tax u/s 9(1) [Normal Levy]

from the day he ceases to satisfy

any of the conditions mentioned u/s 10 or

provisions of this Chapter

and shall issue tax invoice for every taxable supply made thereafter

Filing of Intimation of withdrawal from Composition Levy in CMP-04 within 7 days

He shall also file an intimation for withdrawal from the scheme in GST CMP-04

within 7 days of the occurrence of such event.

Question & Answer

Rule 6(3)

RP who intends to withdraw from composition scheme

shall file an application in GST CMP-04

before the date of such withdrawal.

Question & Answer

Section 10(5)

If proper officer has reasons to believe that

RP has paid tax under composition levy despite not being eligible,

such person shall be liable to pay,

tax that may be payable by him under any other provisions of this Act,

and penalty u/s 73 or 74.

Any RP who has wrongly opted for Composition Scheme, shall be liable to pay tax and penalty u/s 73 or 74.

Rule 6(4)

If proper officer has reasons to believe that

RP was not eligible to pay tax u/s 10 or

has contravened the provisions of the Act or this Chapter,

he may issue a notice to such RP in GST CMP-05

to show cause within 15 days of the receipt of such notice

as to why composition levy u/s 10 shall not be denied.

Rule 6(5)

Upon receipt of reply of the show cause notice issued u/sr (4) from RP in GST CMP-06,

proper officer shall issue an order in GST CMP-07

within a 30 days of the receipt of such reply,

either accepting the reply, or denying Composition Levy u/s 10

from the date of the option or from the date of the event concerning such contravention.

Para 5 of Circular No. 77/51/2018-GST dt. 31-12-2018 has been issued to clarify that what will be effective date

in case withdrawal from composition scheme u/r 6(1) or (3)

in case of denial from composition scheme u/r 6(5)

Para 5 of above circulars has been reproduced below

.

Rule 6(6)

Person

who withdraws u/r 6(2) for conditions not satisfied

who self withdraws u/r 6(3) or

in respect of whom, PO orders of withdrawal in GST CMP-07 u/r 6(5),

may furnish a statement in GST ITC-01

containing details of the stock of [inputs, inputs contained in semi-finished or finished goods]

on the date on which the option is withdrawn or denied,

Time Limit for furnishing ITC-01

within a period of 30 days from the date

from which the option is withdrawn or

of the order passed in GST CMP-07.

Rule 6(7)

Withdrawal from composition levy u/sr 6(2) or (3) or (5)

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 under same PAN.