Section 10 of CGST Act 2017: Composition Levy

Provisions under Section 10 of the Central Goods and Services Tax (CGST) Act, 2017 relating to “Composition Levy”:

Section 10 of CGST Act 2017: Composition Levy (CHAPTER III LEVY AND COLLECTION OF TAX)

(1) Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate, as may be prescribed, but not exceeding,– [Refer Note 1(a)]

(a) one per cent of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and

(c) half per cent of the turnover in State or turnover in Union territory in case of other suppliers

subject to such conditions and restrictions as may be prescribed.

Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding one crore and fifty lakh rupees, as may be recommended by the Council. [Refer Note 1(b)]

Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher. [Refer Note 1(c)]

Explanation.- For the purposes of second proviso, the value of 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 shall not be taken into account for determining the value of turnover in a State or Union territory. [Refer Note 2(a)]

(2) The registered person shall be eligible to opt under sub-section (1), if:—

(a) save as provided in sub-section (1), he is not engaged in the supply of services; [Refer Note 1(d)]

(b) he is not engaged in making any supply of goods or services which are not leviable to tax under this Act; [Refer Note 3]

(c) he is not engaged in making any inter-State outward supplies of goods or services; [Refer Note 3]

(d) he is not engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52; and [Refer Note 2(b), 3 & 4]

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council, and [Refer Note 2(c)]

(f) he is neither a casual taxable person nor a non-resident taxable person: [Refer Note 2(d)]

Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

(2A) Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding three per cent. of the turnover in State or turnover in Union territory, if he is not–

(a) engaged in making any supply of goods or services which are not leviable to tax under this Act;

(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 electronic commerce operator who is required to collect tax at source under section 52; [Note 4]

(d) a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and

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

Provided that where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961, the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this sub-section. [Refer Note 2(e)]

(3) The option availed of by a registered person under sub-section (1) or sub-section (2A), as the case may be, shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) or sub-section (2A), as the case may be. [Refer Note 2(f)]

(4) A taxable person to whom the provisions of sub-section (1) or, as the case may be, sub-section (2A) apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. [Refer Note 2(g)]

(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) or sub-section (2A), as the case may be, 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, mutatis mutandis, apply for determination of tax and penalty. [Refer Note 2(h)]

Explanation 1.– For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax under this section, the expression “aggregate turnover” shall include the value of supplies made by such person from the 1st day of April of a financial year up to the date when he becomes liable for registration under this Act, but shall not include the value of 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. [Refer Note 2(i)]

Explanation 2.– For the purposes of determining the tax payable by a person under this section, the expression “turnover in State or turnover in Union territory” shall not include the value of following supplies, namely:–

(i) 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; 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. [Refer Note 2(i)]

Amendments History:

1. Amendments made in section 10 of the CGST Act, 2017, vide Section 5 of the CGST (Amendment) Act, 2018 (GOI Notification dated 29/08/2018), followed with Notification 2/2019 on commencement date of 01/02/2019:

a) in sub-section (1), the text ‘in lieu of the tax payable by him, an amount calculated at such rate’ substituted with the text ‘in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate‘;

b) in the proviso to sub-section (1), the words ‘one crore and fifty lakh rupees’ substituted for the words ‘one crore rupees‘;

c) Second Proviso to sub-section (1) inserted;

d) clause (a) of sub-section (2) substituted;

(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II save as provided in sub-section (1), he is not engaged in the supply of services.

2. Amendments made in Section 10 of the CGST Act, 2017, vide Section 93 of the Finance Act, 2019 (GOI Notification dated 01/08/2019), pending notification on commencement date:

a) Explanation inserted after second proviso to sub-section (1);

b) in clause (d) of sub-section (2), the word ‘‘and’’ occurring at the end shall be omitted;

c) in clause (e) of sub-section (2), for the word ‘‘Council:’’, the words ‘‘Council; and’’ shall be substituted;

d) Clause (f) inserted in sub-section (2).

e) Sub-section (2A) inserted.

f) in sub-section (3), the text “or sub-section (2A), as the case may be,” inserted after the text “under sub-section (1)” at both the places where they occur;

g) in sub-section (4) the text “or, as the case may be, sub-section (2A)” inserted after the text “of sub-section (1)”;

h) in sub-section (5) the text “or sub-section (2A), as the case may be,” inserted after the text “under sub-section (1)”, and

i) Explanation 1 and 2 inserted after sub-section (5).

3. The text “or services” inserted after the text “of goods” in clauses (b), (c) and (d) of sub-section (2) vide Section 119 of the Finance Act 2020 (GOI Notification dated 27/03/2020), followed with Central Tax Notification 92/2020 dated 22/12/2020 on commencement date of 01/01/2021.

4. The text “goods or” omitted from clause (d) of sub-section (2) and clause (c) of sub-section (2A), vide section 137 of the Finance Act, 2023, followed with Central Tax Notification 28/2023 on commencement date of 01/10/2023.

Commentary on Section 10 of the CGST Act

Section 10 of the Central Goods and Services Tax (CGST) Act, 2017 deals with the ‘Composition Levy’ under the Goods and Services Tax (GST) regime in India. The composition levy is a simplified and more accessible tax scheme designed for small taxpayers to reduce the compliance burden and administrative costs associated with regular GST registration.

The key features and provisions of Section 10 are as follows:

i) Eligibility: Registered taxpayers with an aggregate turnover of up to ₹1.5 crore (₹75 lakh for certain special category states) in the preceding financial year can opt for the composition scheme. However, there are certain exceptions, like manufacturers of ice cream, tobacco products, and pan masala, who cannot avail of this scheme.

ii) Tax Rates: The composition scheme provides for a lower GST rate, applicable to specific categories of registered persons:

a) Manufacturers: 1% (0.5% Central tax + 0.5% State tax) of turnover in the state or union territory.

b) Traders: 1% (0.5% Central tax + 0.5% State tax) of turnover of taxable supplies in the state or union territory.

c) Restaurants (not serving alcohol): 5% (2.5% Central tax + 2.5% State tax) of turnover in the state or union territory.

iii) Conditions and Restrictions: Some of the conditions that a taxpayer must adhere to while availing the composition scheme include:

a) They should not be engaged in inter-state supply of goods or services.

b) They should not supply goods or services through an e-commerce operator.

c) They cannot avail input tax credit on their inward supplies.

d) They must pay tax at the standard GST rate for reverse charge mechanism transactions.

e) They should issue a bill of supply instead of a tax invoice for outward supplies and mention “composition taxable person” on it.

iv) Withdrawal and Cancellation: If a taxpayer’s aggregate turnover crosses the threshold limit, they must voluntarily opt-out of the composition scheme and switch to regular GST registration. Additionally, if a taxpayer is found to be non-compliant with the scheme’s provisions, their registration may be canceled, and they may be liable to pay a penalty.

Section 10 of the CGST Act aims to simplify the tax process for small taxpayers, but it is essential to understand the implications, benefits, and limitations of the composition scheme before opting for it. It is crucial for taxpayers to carefully assess their business requirements and compliance capabilities to determine if the composition scheme is a suitable option for them.

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Note: The CGST Act 2017 has been notified vide GOI Notification dt. 12/04/2017, which has subsequently been amended through CGST (Extension to J&K) Act 2017, Finance Act 2018, CGST Amendment Act 2018, Finance Act 2019, Finance Act 2020, Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance 2020, Finance Act 2021, Finance Act 2022 including various Notifications issued by the Govt./ CBIC from time to time, relating to the commencement dates of various Sections/ Provisions in the respective CGST/ Amendment Acts, wherever required. Information on this page is a Section-wise compilation of the Amendments made by various Notifications issued by CBIC from time to time, with best possible efforts for accuracy. In any case, E&OE. For official/ updated information, please visit CBIC website.