Composition levy
Presentation by:
VISHAL SOMAI
Sr. faculty of Direct & Indirect tax
TOPIC
REFERENCE
Composition Levy - Statutory
Provisions
Presumptive Scheme for
Services Suppliers and Mixed
Suppliers
Composition Levy -
Procedural Requirements
COMPOSITION SCHEME
Optional Scheme
Tax payment under this scheme is an option
available to the taxable person. This scheme is
available only to certain eligible taxable persons.
Eligibility
Aggregate turnover in preceding financial year
ALL states except Special
Special Category States
Category States
Upto Rs. 1.5 crore Upto Rs. 75 lakh
Special Category States
1. Arunachal Pradesh
2. Manipur
3. Meghalaya Upto Rs. 75 lakh
4. Mizoram
5. Nagaland
6. Sikkim
7. Tripura
8. Uttarakhand
9. Assam
Upto Rs. 1.5 crore
10. Himachal Pradesh
11. Jammu and Kashmir
Eligibility
Aggregate turnover in preceding financial year
ALL states except Special
Special Category States
Category States
Upto Rs. 1.5 crore Upto Rs. 75 lakh
Note :
In case of Assam, Himachal Pradesh and Jammu and Kashmir, the
turnover limit will be Rs. 1.5 crore.
Eligibility - If aggregate turnover is upto Rs. 1.5 crore/ Rs. 75 lakh in
preceding financial year [Section 10(1)]
A registered person, whose aggregate turnover in the preceding financial
year did not exceed Rs. 1.5 crore, will be eligible to opt for payment of tax
under the composition scheme.
However, the aggregate turnover in the preceding financial year shall be Rs.
75 lakh in the case of an eligible registered person, registered under Section
25 of the said Act, in any of the following States, namely:-
Special Category States
Arunachal Pradesh Manipur Meghalaya
Mizoram Nagaland Sikkim
Tripura Uttarakhand
Note : In case of Assam, Himachal Pradesh and Jammu and Kashmir, the turnover limit will be Rs.
1.5 crore.
• "Aggregate turnover" means the aggregate 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,
exports of goods or services or both, and y inter-State supplies
of persons having the same Permanent Account Number, to be computed on all
India basis, but excludes -
Central tax,
State tax,
Union territory tax
Integrated tax, and
Cess. [Section 2(6)]
Scheme will be applicable for all goods
and restaurant services
Primarily, the composition scheme is available to the suppliers of goods and
restaurant service, but composition suppliers are permitted to supply services
upto a specified marginal value in the year of opting for composition. It must be
noted that a taxable person cannot opt for payment of taxes under composition
scheme say for supply of class of goods and opt for regular scheme of payment of
taxes for supply of other classes of goods.
Rates of composite tax [Section 10(1)]
A composition supplier may opt to pay, in lieu of the tax payable by him under
section 9(1), an amount of tax calculated at under mentioned rates —
S. Eligible Person Rate of Tax cannot exceed (% of Total rate of tax cannot
No. turnover) exceed
CGST SGST
(a) Manufacturer 0.5% of the 0.5% of the 1% of the turnover in
turnover in the turnover in the the State or Union
State or Union State or Union territory
territory territory
(b) Restaurant service 2.5% of the 2.5% of the 5% of the turnover in
turnover in the turnover in the the State or Union
State or Union State or Union territory
territory territory
(c) Other Suppliers 0.5% of the 0.5% of the 1% of the turnover of
turnover of taxable turnover of taxable taxable supplies of
supplies of goods supplies of goods goods and services in
and services in the and services in the the State or Union
State or Union State or Union territory
territory territory
Services can be supplied by the composition suppliers [Second Proviso to Section 10(1)]:
A person who opts to pay tax under (a) or clause (b) or clause (c) may supply services
(other than those referred to in clause (b) of paragraph 6 of Schedule II i.e. restaurant
services), of value -
(a) not exceeding 10% of turnover in a State or Union territory in the preceding
financial year; or
(b) Rs. 5,00,000, whichever is higher.
Example : Tolaram is engaged in supply of goods. His aggregate turnover in preceding FY
is Rs. 110 lakh. Since his aggregate turnover in the preceding FY does not exceed Rs. 1.5
crore, he is eligible for composition scheme 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. 110 lakh, i.e Rs 11 lakh or
(b) Rs. 5 lakh,
whichever is higher. Thus, he can supply services upto a value of Rs. 11 lakh in current
FY. If the value of services supplied exceeds Rs. 11 lakh, he becomes ineligible for the
composition scheme and has to opt out of the composition scheme.
"Turnover in State" or "turnover in Union territory" means the aggregate value of all
taxable supplies (excluding the value of inward supplies on which tax is payable by a
person on reverse charge basis) and exempt supplies made within a State or Union
territory by a taxable person, exports of goods or services or both and inter-State
supplies of goods or services or both made from the State or Union territory by the said
taxable person but excludes central tax, State tax, Union territory tax, integrated tax and
cess. [Section 2.(112)]
Persons not eligible to opt for Composition Scheme
[Section 10(2)]
Broadly, five categories of registered person are not eligible to opt for the
composition scheme. These are —
(a) supplier of services other than those mentioned in point no. 4 above.
(b) supplier of goods which are not taxable under the CGST Act/SGST Act/UTGST Act;
(c) an inter-State supplier of goods;
(d) person supplying goods through an electronic commerce operator who is required to
collect tax at source under Section 52;
(e) manufacturer of certain notified goods;
Ineligible Manufacturers : The manufacturer of following goods will not be eligible to opt for
composition scheme:
S. No. Tariff item, subheading, Description
heading or Chapter
1. 2105 00 00 Ice cream and other edible ice, whether or not
containing cocoa
2. 2106 90 20 Pan masala
2A 22021010 Aerated Water [w.e.f. 1-10-2019]
3. 24 All goods, i.e. Tobacco and manufactured tobacco
substitutes
There is no restriction on Composition Supplier to procure goods from inter-State suppliers.
Applicable for all transactions of registered
person with same PAN [Section 10(2)]
Example :
If a taxable person has the following businesses separately registered —
Sale of footwear (Registered in Karnataka)
Sale of mobiles (Registered in Karnataka)
Sale of ready-made garments (Registered in Rajasthan)
In the above scenario, the composition scheme would be applicable for all the 3
units. Taxable person will not be eligible to opt for composition scheme say for
sale of footwear and sale of mobiles and opt to pay taxes under the regular scheme
for Ready-made garments.
Option lapses if aggregate turnover exceeds
Rs. 1.5 crore/ Rs. 75 lakh [Section 10(3)]
The benefit of composition scheme can be availed up to the aggregate turnover of
Rs. 1.5 crore/Rs. 75 lakh in current financial year. The option availed of by a
registered person under Section 10(1) shall lapse with effect from the day on
which his aggregate turnover during a financial year exceeds the limit of Rs. 1.5
crore/Rs. 75 lakh.
Composition tax not to be collected from
recipients [Section 10(4)]
A taxable person to whom the provisions of composition scheme applies shall
not collect any tax from the recipient on supplies made by him. It means that a
composition scheme supplier cannot issue a tax invoice.
Input tax credit cannot be availed
[Section 10(4)]
A taxable person to whom the provisions of composition scheme applies shall
not be entitled to any credit of input tax.
Penal Consequences [Section 10(5)]
If the proper officer has reasons to believe that a taxable person has paid tax
under composition scheme despite not being eligible, such person shall, in
addition to any tax that may be payable by him under any other provisions of
this Act, be liable to a penalty and the provisions of Section 73 or Section 74
shall be applicable for determination of tax and penalty.
State the clarifications made vide CGST (Removal of Difficulties Order),
2019 Order No. 01/2019-CT dated 01-02- 2019, ixt respect of Composition
scheme?
W.e.f. 1-2-2019, a taxable person opting for composition scheme is allowed to
supply services upto "10% of his turnover of previous financial year or Rs.
5,00,000 whichever is higher. CGST (Removal of Difficulties Order), 2019
Order No. 1/2019-CT dated 01-02-2019 has been issued to provide that the
value of supply of exempt services 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 taken into account—
(i) for determining the eligibility for composition scheme under second
proviso to Section 10(1) [which allows provision of services upto 10% of
turnover in a State or Union territory in the preceding financial year; or Rs.
5,00,000,whichever is higher];
(ii) in computing aggregate turnover in order to determine eligibility for
composition scheme.
