CMA B.
Mallikarjun Gupta
Corporate Trainer and Advisor on GST
COMPOSITION LEVY IN GOODS AND
SERVICE TAX
G
oods and Service Tax is implemented in threshold amount in the erstwhile regime for
India from 1st July 2017 with the intention Central Excise is Rs 150 Lacs.
of making a single market for the trade
and industry and for this reason it is being Another sea change introduced in GST is in the
dubbed as One Nation, One Market, and One Tax. areas of reporting, now under GST reporting is
In reality, it is true. The rollout for the GST has online and transaction level data has to be
been received by the trade and industry as a submitted by the taxpayers. Once the transaction
knee-jerk reaction as most of them are not level data is submitted, the same is matched for
prepared for the same. The government on its processing of the input tax credits. As this is a
side has conducted many outreach programs for cumbersome process and all taxpayers will do not
the trade and industry so that all the stakeholders have the technical know-how, they have retained
can understand and implement it smoothly and the turnover tax scheme of VAT in GST also
ensure that none of them are impacted. The major known as Composition Scheme, Section 10 of the
objective of the government is to ensure that the CGST Act.
end consumer does not pay higher price as input
tax credit is available across the supply chain In GST, the taxpayer can be classified as regular
cycle. To address this, the ant profiteering is taxpayer and composition taxpayers broadly
introduced in the GST Act by taking a clue from keeping the others like Casual Taxpayer, TDS Tax
the Malaysian GST Implementation. Payers & TCS Tax Payer. The provisions for the
Composition Levy is given in Section 10 of the
In the erstwhile tax regime, the threshold limit CGST Act 2017 and from Rule 3 to Rule 8 in the
was varying from state to state for the Value CGST Rules. There will be provisions for the SGST
Added Tax, and now under GST, the same is and UT GST Laws.
increased to Rs 20 Lacs in all states except in the
states with special category status, where it is Rs Threshold
10 Lacs. The threshold for the registration is
given Section 22(1) of the CGST Act. This amount The threshold limit for the composition levy is
is higher amount compared to the erstwhile VAT given in section 10 (1) of the CGST Act. As per the
Regime and Service Tax, but when it comes to the provisions, the threshold limit which is
Central Excise, it is on a very lower side. The prescribed minimum is Rs 50 Lacs, and there is a
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provision to extend it maximum to Rs 1 Crore. VII. Sikkim,
The increase in the limit can be notified based on VIII. Tripura,
the recommendations of the GST Council. IX. Himachal Pradesh
The limit has been increased to Rs 75 Lacs for the Now the same has been increased to Rs 1 crore
composition levy during 16th GST Council Meeting during the 22nd GST Council Meeting held on 6th
held on 11th June 2017. The same is notified wide October 2017. The formal notification is expected
Notification No 8 /2017 Central Tax. shortly.
The threshold limit for the taxpayers having Tax Rates
registration in the given states below is Rs 50
Lacs. These states are of special category status, The tax rates for the supplies made by the
and they are composition are taxed at a lower rate. The tax
rates are given in Section 10 (1) clause (a) to (c).
I. Arunachal Pradesh,
II. Assam,
III. Manipur,
IV. Meghalaya,
V. Mizoram,
VI. Nagaland,
Sr.
Category of Registered Persons Rate of Tax
No
All manufacturers are eligible except for the manufacturers of
goods listed below
1. Ice cream and other edible ice, whether or not containing
cocoa. (HSN Code – 21050000)
1 2. Pan masala (HSN Code – 21069020) CGST 1% + SGST 1%
3. All goods, i.e., Tobacco and manufactured tobacco
substitutes (HSN Code – 24)
The list of the manufactures who are not eligible for composition
levy is notified through Notification No 8 /2017 Central Tax
supply, by way of or as part of any service or in any other manner
whatsoever, of goods, being food or any other article for human
consumption or any drink (other than alcoholic liquor for human CGST 2.5% + SGST
2
consumption), where such supply or service is for cash, deferred 2.5%
payment or other valuable consideration. Services specified in
clause (b) of paragraph 6 of Schedule II
Any other supplier eligible for composition levy under section 10
and the provisions of this Chapter, i.e., is applicable for all other CGST 0.5% + SGST
3
taxpayers who are not manufactures or not providing services to 0.5%
point 2 of this table
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Eligibility under Composition Levy Bill of Supply
Every supplier of goods or services is not eligible A bill of supply is required to be issued by a
to register under the composition scheme of GST. registered taxpayer under composition levy on
There are certain conditions laid down in the outward supplies based on clause (c) of sub-
CGST Act, and they are section (3) of section 31 of the CGST Act 2017 and
should contain the following on the basis of Rule
The taxpayer should not be a supplier of 49 of the CGST Rules
services other than services mentioned in
clause (b) of paragraph 6 of Schedule II. a) name, address, and Goods and Services
The taxpayer is not manufacturing any Tax Identification Number of the
goods listed in Notification No 8 /2017 supplier;
Central Tax b) a consecutive serial number not
The taxpayer should not make any exceeding sixteen characters, in one or
interstate supplies multiple series, containing alphabets or
The taxpayer is not engaged in making numerals or special characters hyphen or
any supply of goods which are not dash and slash symbolized as “-” and “/”
leviable to tax under this Act respectively, and any combination
The taxable person is neither a casual thereof, unique for a financial year;
taxable person or non-resident taxable c) date of its issue;
person d) name, address, and Goods and Services
Tax Identification Number or Unique
The taxpayers how are not falling in any of the Identity Number, if registered, of the
above-mentioned points are eligible to take opt recipient;
for composition levy under GST. e) Harmonized System of Nomenclature
Code for goods or services;
Tax Implications f) description of goods or services or both;
g) value of supply of goods or services or
The person registered under composition levy both taking into account discount or
has to follow these abatement, if any; and
h) signature or digital signature of the
supplier or his authorized representative:
Should not issue a tax invoice and in lieu
of tax invoice a bill of supply for the
outward supplies Provided that the provisos to rule 46 shall,
mutatis mutandis, apply to the bill of supply
Is not eligible to take input tax credit on
issued under this rule:
all inward supplies, i.e., supply of goods
or services or inputs or capital goods
The composition taxpayer may not issue a bill of
Should not levy or collect taxes from the
supply if the supplied value is less than Rs 200 or
customers on his /her outward supplies
if the recipient does not ask for it or the recipient
On inward supplies should be paying on
is a unregistered taxpayer.
reverse charge for supplies from
unregistered taxpayers and not eligible to
take input tax credit.
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Conditions for Composition Levy The person registering under
composition levy shall mention the
The following are the conditions are to be met by words “composition taxable person” on
a taxpayer registering under composition levy as every notice or signboard displayed at a
per Rule 5 of the CGST Rules prominent place at his principal place of
business registered and at every
The person registering under GST for additional place or places of business
composition levy should not be a casual registered under GST.
taxable person or non-resident taxable
person Renewal
Taxpayer registered under the erstwhile
tax regime will be eligible under GST for The person registering under composition levy
composition levy only if the goods held as may not file fresh application/intimation for
on the appointed day does not contain every financial year and continue to be under
purchases from the following sources composition levy till he follows/satisfies all the
o Goods imported from outside the conditions for a composition levy in place from
country time to time.
o Goods purchased from outside the
state from where he is taking Returns under Composition Levy
registration
o Goods received from a branch Return filing for the taxpayers under GST is
outside the state different from the regular taxpayers. The number
o Goods received from an agent or of returns to be filed will be lesser, and it will be
principal outside the state only one return per quarter as they will be paying
very lesser tax rate and also not availing input tax
Goods in stock are not purchased from credit. They have fileonereturn for each and
unregistered taxpayers as per provisions every quarter known as GSTR - 4. Filing of returns
of sub-section (4) of section 9 of CGST Act on a quarterly basis is based on the provisions of
2017 Sub-section 2 of section 39 of the CGST Act 2017.
The person registering under
composition levy is required to pay The GSTR – 4 contains the following information
reverse charge on inward supplies from
unregistered taxpayer’s or based on a list Inward supply of goods or services or
of goods or services notified by the both including the supplies which attract
government on the recommendations of reverse charge or tax is to be paid on
the GST Council and will not take input reverse charge.
tax credit on the same. Any changes or debit/credit notes issued
The person registering under for the above supplies
composition levy should not have Taxes payable on outward supplies by
manufactured goods during the previous rate wise for central and state taxes
financial year Advance received during the month and
The person registering under also supplies made against advances
composition levy shall mention the received in the previous months.
words “composition taxable person, not TDS credit received
eligible to collect tax on supplies” at the
top of the bill of supply issued by him.
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The amount of total tax payable along and also allow to sell at a competitive price or sell
with the amount of tax paid. to more customers from the B2B category.
Any late fee or interest payable or paid
If any refund received In such cases also there is provision for the
taxpayer to move from composition levy to
The registration of the composition taxpayer is regular taxpayer based on the provision of clause
liable to be canceled by the concerned office if the (c) of subsection 1 of Section 18 of the CGST Act
taxpayer under composition levy does not file 2017.
returns continuously for three quarters. This
based on the provisions given in clause (b) of The taxpayer has to file FORM GST ITC-01 to
subsection 2 of section 29 of the CGST Act 2017. claim the credit on closing stock within 30 days
from the date of from the date of becoming
Transition from regular taxpayer to eligible to avail the input tax credit. These
composition taxpayer provisions are based on Rule 40 the CGST Rules
2017.
In the normal course of business, it is common for
a taxpayer to migrate from the regular scheme to Who should go for composition levy?
composition based on their business reasons or
for any other reason. In such cases, the taxpayer Till now we have seen the additional facilities
has to pay the input tax credit on the stock of which a taxpayer registered under composition
goods as on the date of shifting from regular to levy will get and also the conditions for availing
composition levy. The provisions for the same are the same. Now the question which comes to
given in subsection 4 of section 18 of the CGST Act. everyone’s mind is to whom the composition
scheme is beneficial? Anyone would say that it
For migrating from regular to composition would be beneficial to a taxpayer whose turnover
scheme, the taxpayer has to submit the FORM GST is less than or equal to the threshold limit
CMP-02, which is duly signed or verified through prescribed in the law.
electronic verification code, on the common
portal, either directly or through a Facilitation As a CMA’s we need to do a deep dive and come to
Centre notified by the Commissioner. The form a conclusion. Underlined is an illustration which
has to be filed before the beginning of the explains clearly the basis for composition levy.
financial year.
For payment of taxes on the stock of goods, the
taxpayer has to file the FORM GST ITC-03 within
60 days from the date of the beginning of the
financial year basis of the provision of sub-rule 4
of rule 44 of the CGST Rules.
Transition from composition levy to regular
taxpayer
There will be certain business cases where the
taxpayer registered under composition levy
wants to shift to regular tax payment as he may
feel that it will provide him more market access
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Particulars Regular Composition Un Registered
Purchase Price 50,000 50,000 50,000
GST @ 28% 14,000 14,000 14,000
Total Cost 50,000 64,000 64,000
Profit 5,000 5,000 5,000
Selling Price 55,000 69,000 69,000
GST @ 28% 15,400
Cost to Customer 70,400 69,000 69,000
Tax paid by composition taxpayer 690
Actual Profit 5,000 4,310 5,000
Cost to B2C 70,400 69,000 69,000
Cost to B2B 55,000 69,000 69,000
Form the illustration it is clear that for the taxpayers who have more revenue from the B2B category
should opt as regular taxpayers and for taxpayers who have more revenue or only from the B2C
category they should opt for the composition levy. The tax amount paid by the composition taxpayer
can be paid from his profit earned as shown above or charges to the customer as extra amount
inclusive of the tax. This decision is purely based on the composition taxpayer.
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