[CA. Dr. Gurcharan Sachdeva] [P.G.D.A.V.

College] [Composition Scheme]

Composition Levy
Topics to be covered
Section 10 (1)/ 10(2) [Goods focused] and 10(2A) [Service Focused] the CGST Act:
Composition Levy
Introduction
A taxpayer is required to pay GST at notified rates. Moreover, he is adhering to the compliances
under the GST Law. In case of small taxpayers, the high rate of tax and complicated procedural
requirement creates trouble for the small tax payers. For the smooth implementation and to provide
the relief to the small tax payers, an alternative scheme of tax was introduced i.e. composition levy.
Composition Levy is an alternative method of levy of tax designed for small tax payers whose
turnover is up to prescribed limit. It is voluntary and optional scheme. Its purpose is to bring
simplicity and to reduce the compliance cost for the small tax payers.
Initially, the scheme was designed to benefit the small traders, manufactures and restaurant service
providers. That means initially, the scheme was designed for goods and only for restaurant service
providers. However, subsequently, suppliers availing composition scheme were permitted to
supply other services also, though only up to a small specified value.
Optional Scheme: The composition scheme is optional scheme and the eligible person, who has
opted for the scheme, can pay GST at a prescribed percentage of his turnover in every quarter,
instead of paying tax at normal rate applicable in his case.
Tax Payable under Composition Scheme:
Taxpayer opting for Composition scheme shall pay tax as a percentage of their turnover instead of
tax payable on the invoice value of the transaction u/s 9(1). The section 9(1) is applicable in case
of regular tax payers.
Important considerations
1. A registered person who has opted for composition levy is not permitted to collect GST
from customers
2. The benefits of ITC cannot be availed by person opting for composition scheme.
3. Under this scheme, simple annual return and quarterly payment of tax [through form GST
CMP 08].
4. Easy compliance as no elaborate accounts and records to be maintained.
5. Aggregate turnover under the composition levy is to be computed as hereunder:
Aggregate turnover is the sum of all outward supplies falling in the following categories
• Taxable supplies
• Exempt supplies
• Export of goods or services or both
• Inter-State supplies

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[CA. Dr. Gurcharan Sachdeva] [P.G.D.A.V. College] [Composition Scheme]

But it excludes the following

• The value of inward supplies on which tax is payable under RCM basis.
• Taxes including cess paid under GST Law
6. Moreover, Aggregate turnover is to be computed on all India basis under the same PAN
7. However, while computing aggregate turnover, interest or discount on Deposits, Loans or
Advances shall be completely ignored as it is not given in the question.
Rate of tax under Composition Levy
S.N. Category of Registered Rate of Tax
Persons CGST SGST/UTGST
Total GST
1. Manufacturer [other than 0.5% 0.5% 1%
manufacturer of notified [half percent of [half percent of
[One percent
goods namely, Tobacco and the turnover in the turnover in
of the turnover
manufactured tobacco, Ice the state or UT] the state or UT]
in the state or
cream and other edible ice UT]
whether containing cocoa or [Taxable T/O [Taxable T/O [Taxable T/O
not, Pan Masala, Aerated +Exempted +Exempted +Exempted
Water, Fly Ash Bricks, Fly T/O] T/O] T/O]
Ash Aggregates, Fly Ash
Blocks, bricks of fossil
meals, or similar siliceous
earths, building bricks,
earthen or roofing tiles]
2. Suppliers making supplies 2.5% 2.5% 5%
referred to in clause (b) of [two and a half [two and a half [Five percent
para 6 of schedule II [i.e. percent of the percent of the of the turnover
supply by way of or as part of turnover in the turnover in the in the state or
any service or in any other state or UT] state or UT] UT]
manner whatsoever, of goods,
being food or any other article [Taxable T/O [Taxable T/O [Taxable T/O
for human consumption or +Exempted +Exempted +Exempted
any drink (other than T/O] T/O] T/O]
alcoholic liquor for human
consumption)] Restaurant
3. Traders or any other supplier 0.5% 0.5% 1%
eligible for composition levy [half percent of [half percent of [one percent of
u/s 10 of the CGST Act and the turnover of the turnover of the turnover of
Chapter -II [Composition taxable supplies taxable taxable
Rules] of CGST rules 2017 of goods and supplies of supplies of
services in the goods and goods and
state or UT] services in the services in the
[Taxable T/O+ state or UT] state or UT]
Exempted T/O] [Taxable T/O+ [Taxable T/O+
Exempted T/O] Exempted
T/O]

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[CA. Dr. Gurcharan Sachdeva] [P.G.D.A.V. College] [Composition Scheme]

Key points:
1. Manufacturer [other than manufacturer of Tobacco & manufactured Tobacco
substitutes, Ice Cream and other edible ice whether containing cocoa or not, Pan masala,
Aerated Water, Fly Ash Bricks, Fly Ash Aggregates, Fly Ash Blocks, bricks of fossil
meals, or similar siliceous earths, building bricks, earthen or roofing tiles] is required to
pay tax as percentage of total turnover i.e. exempted as well as taxable.
2. Restaurant supplier is also required to pay tax as a percentage of total turnover i.e.
aggregate of exempted and taxable.
3. Traders or other eligible supplier is required to pay tax as a percentage of turnover of
taxable supplies only. W.e.f 1-2-2019, the taxable supplies of services are also included.

Conditions Pertaining to Composition Scheme

1. A person can opt for composition scheme if the aggregate turnover [all outward supplies
i.e. taxable, exempted etc. of a person in Previous FY does not exceed Rs. 75 lakhs in
special category states [i.e. Manipur, Mizoram, Nagaland, Tripura, Arunachal Pradesh,
Meghalaya, Uttarakhand, Sikkim, Puducherry, Telangana] and Rs. 150 lakhs in rest of the
states or UTs in India.
2. Once the person eligible for composition scheme, he will remain eligible up to turnover of
Rs. 150 lakh/Rs. 75 Lakh [Note: for calculation of this limit counting of turnover will be
started from day -1 i.e. from zero.
In current FY after exceeding aggregate turnover of Rs. 150 lakh/Rs. 75 lakhs; the scheme
will be lapsed and the person required to pay tax as per regular rate of taxes under regular
scheme. And then regular scheme shall continue until or unless situations permit otherwise
as per the provisions of GST Law.

Examples:
a. New Registered Person: An enterprise started business on 1st April, 2024 and T/O
exceeds by 10L/20L/40L on 1st July 2024 and exceeds Rs. 1.50 cr. on 1st October, 2024
and the total turnover achieved at the end of FY 2025 is Rs. 5.0 cr. Determine whether
eligible for composition scheme in Current FY. Up to what time he will remain eligible?
And what will be the GST liability? Assume that the normal tax rate is 18% in question.
b. Existing Registered Person: what will be your answer if the above-mentioned
enterprise is an existing enterprise and had total turnover in the previous FY was just
Rs. 150 lakhs.
3. Other conditions: Following are not eligible for composition levy
i. Person making inter-state supply of goods/services [e.g. one state to another,
export of goods] is not eligible for composition scheme.
ii. Supplier of service other than
a. Restaurant services
b. Interest/discount (ID) received on extending deposits Advances and loans
(DAL) shall be ignored completely.

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[CA. Dr. Gurcharan Sachdeva] [P.G.D.A.V. College] [Composition Scheme]

c. Limited value services along with main business [Maximum value: 10% of
turnover within the state /UT or Rs. 500000 whichever is higher] i.e. if the value
of these services exceeds the maximum amount, then the person is not eligible
for the scheme.
iii. Supplier of non-taxable goods or services i.e. liquor or 5 petroleum products
iv. The person who supplies goods/ services through E-commerce operator: That
means the supplier engaged in intra-state supply through ECO can avail the
benefit of composition scheme. However, the person supplying services on intra-
state basis through ECO can not avail the benefit of composition levy
v. Manufacturer of specified goods like TIPAB
vi. Casual Taxable Person and NRTP

Other considerations:
• Composite tax rates not applicable on RCM supplies
• No ITC can be claimed
• Issue bill of supply instead of Invoice
• Quarterly payment and Returns
• Fraudulent intent: if the PO has reason to believe that a taxable person has paid tax under
composition scheme despite being not eligible,
o Such person, shall in addition to any tax that may be payable by him under any
other provisions of this Act,
o Be liable to penalty and
o The provisions of section 73 or section 74 shall, mutatis mutandis, apply for
determination of tax and penalty.
Key points:
• A person has to mention in the front entrance of the shop that the supplier is composite
dealer and not able to collect GST from customer. Moreover, he is also required to mention
this fact on its bill of supply.

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[CA. Dr. Gurcharan Sachdeva] [P.G.D.A.V. College] [Composition Scheme]

Few Examples:
Q.1 Mr. X, a manufacturer submits the following details for PFY 2023-24. Determine whether he
is eligible for composition scheme in the current financial year 2024-25
Particulars Amount (Rs.)
1. Value of intra state supply under FCM 1,05,00000
2. Intra-state exempted supply 1300000
3. Intra-state supply covered under 100% exemption notification 3200000
4. Value of inward supplies covered under RCM 250000
5. Value of inward supplies covered under FCM 300000
Q.2 Mr. X, running a restaurant, submits the following details pertaining to the PFY 2023-24.
Determine whether he is eligible for composition scheme for current FY 2024-25
Particulars Case 1 Case 2 Case 3
Value in lakhs Value in lakhs Value in lakhs
Value of Restaurant Services 130 130 130
Interest received from banks 30 30 30
Other services: renting of 10 15 25
commercial property1
Q.3 Mr. X, a trader (eligible for composition scheme), submits the following details for the current
financial year 2023-24. Determine whether Mr. X should opt for composition scheme. Estimated
data for current FY are as under:
• Inward supplies Rs. 100 Lakhs chargeable to GST @12%
• Outward supplies Rs. 125 Lakhs (inclusive of GST@12%
• Inherent nature of expenses Rs. 500000 under both the schemes
• Books of accounts maintenance cost under normal scheme Rs. 250000 p.a. whereas under
composition scheme it was Rs. 100000 p.a.
• Return of filing expenses under normal scheme Rs. 50000 p.a. whereas under composition
scheme it will be Rs. 10000 p. a.
As an expert in GST, you are requested to recommend the scheme beneficial to client
Q.4 (service focused): A Photographer ‘Mr. Rahul Chawla’ has commenced providing
photography services in the heart of Delhi, Lajpat Nagar from April, 2025. His turnover for the
various quarters till 31st December, 2025 is given as hereunder:
Quarter end Turnover (₹)
April – June 20 Lakh
July – September 30 lakh
October – December 25 lakh
As an expert in GST, you are required to determine whether Mr. Chawla is eligible for
composition scheme?

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[CA. Dr. Gurcharan Sachdeva] [P.G.D.A.V. College] [Composition Scheme]

Composition Scheme (Service Focused) Section 10(2A)

Eligibility conditions
1. An eligible person whose aggregate turnover in Previous FY was limited to Rs. 50 Lakhs
2. Will be eligible to pay tax under this scheme @3%+3% = 6% on first supplies of
goods/services made from 1st April of current FY up to Rs. 50 Lakhs
Example: X started business on 1st April, 2020 in service sector [Normal rate = 18%, Composition
rate = 6%]
Financial Turnover Eligibility of the Taxable Value Tax
Year Scheme
2020-21 45 lakhs
2021-22 65 lakhs
2022-23 30 lakhs
2023-24 40 lakhs
Note: Interest/Discount on Deposits, Advances or Loans shall be completely ignored (ID on
DAL)
Who is not eligible for the scheme?
i. Whose aggregate turnover exceeds Rs. 50 lakhs in Previous FY
ii. Who is engaged in making
a. Non-taxable Supplies: for example 5 petroleum products and alcoholic liquor for
human consumption
b. Inter-State outward Supplies of goods or services. That means there is no
restriction on the composition supplier to receive inter-state inward supply of
goods or services.
c. Four specified supplies i.e. TIPAW, fly ash bricks etc.
d. Supplying services through E-Commerce operator who is required to collect tax u/s
52.
iii. CTP/NRTP
iv. Who is eligible to pay tax under original composition scheme
Other Conditions
1. PAN Based: This scheme is PAN based; it will be decided for all premises/registrations
under same PAN.
2. The supplier shall issue Bill of Supply instead of Invoice and not entitled to collect GST
from recipient.
3. No ITC shall be availed by the supplier who is availing the scheme. Moreover, tax paid by
such supplier out of his pocket (i.e. 6%) will not be Input tax for Recipient and Recipient
cannot book ITC.
4. The supplier shall mention on the top of bill of supply as “Not Eligible to collect Tax on
supplies”
5. While calculated composite tax, exempted supplies will also be considered.

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[CA. Dr. Gurcharan Sachdeva] [P.G.D.A.V. College] [Composition Scheme]

6. The composite rate is applicable only on “outward supplies made by him” i.e. if any inward
supplies taken by him under RCM then regular rate of tax will be applicable & not
composite rate of taxes.
7. Remaining provisions of original composition scheme shall be applicable
mutatis/mutandis.

Differences between both the Schemes

Basis Goods focused Composition Services focused Composition Scheme
Scheme section 10(1) /10(2) 10(2A)
Available Person engaged in the business of Person engaged in the business of
for Exclusive goods exclusive services [other than
Restaurant restaurant]
Goods +Services (but up to A mixed supplier primarily engaged in the
marginal level of Rs. 500000 or supply of services (other than restaurant)
10% whichever is higher along with marginal supply of goods can
also avail the benefit of the scheme.
Negative Persons engaged in the business Persons engaged in the business such as –
list such as – Inter-state SOGs/SOSs
Inter-state SOGs/SOSs CTP/NRTP
CTP/NRTP Through e-commerce operator services
Through e-commerce operator
goods/services
Notified goods and other non- Notified goods and other non-taxable
taxable supply of goods or supply of goods or services
services
Composite 1%, 5%, 1% 6%
rate
Turnover Rs. 150 lakhs /Rs. 75 Lakhs Rs. 50 Lakhs in all states or UTs without
limit in any exception
PFY/CFY

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