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COMPOSITION SCHEME
Section 10 Composition Scheme
• The composition levy is an alternative method of levy of tax designed for small
taxpayers.
• Small taxpayers with an aggregate turnover in a preceding financial year up to `1.5
crore shall be eligible for composition levy. However, Threshold limit is `75 lakh in
respect of 8 of the Special Category States namely [NUSTA-M3] Nagaland Uttarakhand
Sikkim Tripura Arunachal Pradesh Mizoram Manipur Meghalaya
Section 10(1) & (2) Composition Scheme for Goods & Restaurant Services
• Initially, the scheme was designed to benefit the small traders, manufacturers and
restaurant service providers.
• Subsequently, suppliers availing the composition scheme were permitted to supply
other services also upto higher of following:
(a) 10% of turnover in the state or union territory in the preceding financial year or
(b) `5,00,000 whichever is higher.
Calculation of Aggregate Turnover
Aggregate Turnover includes
1. Taxable supplies
2. Exempt supplies
3. Exports
4. Inter-State supplies of persons having the same PAN be computed on all India basis.
Exclusions
• Value of inward supplies on which tax is payable under reverse charge
• Taxes Under GST (i.e. CGST/SGST/UTGST/IGST/ Compensation Cess)
• 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.
Note: Aggregate turnover includes value of supplies from 1st April of a FY up to the date of
his becoming liable for registration
Withdrawal From Composition Scheme
As per Section 10(3), the option of a registered person to avail composition scheme for
services shall lapse with effect from the day on which his aggregate turnover during a
financial year exceeds the threshold limit of `150 Lakh /75 Lakh.
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Composition Rates
Registered Person Rate
Manufacturer, other than manufacturer of 1% Of Turnover in state or UT
Specified Goods
Person engaged in restaurant services 5% Of Turnover in state or UT
Any other Supplier of goods 1% Of Taxable Turnover in state or UT
Note: for the purposes of determining the Composition tax, turnover in State or UT shall
not include
(i) supplies from 1st 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.
Section 10(2A) Composition Scheme for Service Provider
A registered person whose aggregate turnover in the preceding financial year is up to `50
lakh, shall be eligible to pay tax under this scheme @ 6% upto Rs. 50 lakhs made from 1st
April of CFY.
Section 10(2)/(2A) Conditions for Opting to Pay Tax under Composition Scheme
a. Restricted from making supply of goods or services which are not liable to GST
b. Restricted from affecting inter-State outward supplies of goods or services
c. Restricted from making supplies through an e-commerce operator – Only for Service
Providers. Supplier of Goods are now eligible to make supplies through E-COM while
being under Composition scheme.
d. Restriction on manufacture of notified goods- Notified Goods: (i) Ice cream and other
edible ice, whether or not containing cocoa (ii) Pan masala (iii) Tobacco and
manufactured tobacco substitutes (iv) Manufacture of Aerated Water (v) Fly ash bricks
or fly ash aggregate with 90% or more fly ash content; Fly ash blocks (vi) Bricks of fossil
meals or similar siliceous earths (vii) Building bricks (viii) Earthen or roofing tiles
e. Not Available to CTP/NRTP
f. Would be applicable for all transactions under the same PAN
g. Shall not collect tax also Not entitled to input tax credit.
h. Such supplier shall mention the words “composition taxable person not eligible to
collect tax on supplies” at the top of the bill of supply. (not allowed to issue tax
invoice)
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RULES
As per Rule 3, A person applying for registration have the option to opt for composition
scheme in part B of REG01. Such intimation shall be considered only after the grant of
registration to the applicant and his option to pay tax under composition levy shall be
effective from the effective date of registration.
As per Rule 4, A registered person who opts to pay tax under composition scheme shall file
an intimation in prescribed form on the Common Portal, prior to the commencement of
the FY for which said option is to be exercised. Composition schemen shall be effective
from the beginning of the next financial year.
Also such person shall have to furnish statement in ITC-03 for reversal of tax credit within a
period of 90 days from the date of commencement of composition scheme.
As per Rule 6, If turnover exceeds `1,50,00,000/75,00,000/50,00,000 RP shall be shifted to
normal scheme with immediate effect and he will give an intimation in CMP-04 within 7
days of exceeding the limit.
RP can also voluntarily opt out of the scheme at any time and shall file an application in
CMP-04 and he will get shifted to normal scheme with immediate effect.
RP shall be required to submit ITC-01 for availing ITC within 30 days from the date of
withdrawal. Such withdrawal shall be applicable to all the places in all the states/UTs.
