COMPOSITION LEVY

 

Section 10 - Composition Levy

A registered person, not having aggregate turnover exceeding Rs.50 lakh in the preceding financial year may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount calculated at such rate as may be prescribed and shown hereinbelow in flow chart.

* 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.

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.

5 Conditions, if any one satisfied, could not opt for composition levy Registered person shall not be allowed to opt for composition levy until, it satisfies the following conditions: save as provided in sub-section (1), he is not engaged in the supply of services; he is not engaged in making any supply of goods or services which are not leviable to tax under this Act; he is not engaged in making any inter-State outward supplies of goods or services; 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; he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council; and he is neither a casual taxable person nor a non- resident taxable person Where a person with a PAN has more than one registration, it shall be mandatory for all such persons with same PAN to opt for composition levy else the registered person shall become ineligible for opting for composition levy.

Restrictions:

1. No Tax to be collected from recipient

2. No entitlement of credit on Inputs

3. If PO has reason to believe that person not eligible u/s. 10, In addition to any tax, also penalty and provisions of section 73 or 74 shall apply

4. The day aggregate turnover exceeds the limit specified, the option of composition shall lapse.

Other Relevant Points to be noted

1. A person covered under Composition Levy may become liable under reverse charge on inward supplies as per Section 9(3).

2. Even from 1st January, 2020, under sub-section 2A, the registered persons including service providers whose turnover is below fifty lakh rupees and who are otherwise not eligible for composition scheme, are allowed to pay tax at the rate of 3% and all provision of section 10 relating to composition levy are made applicable to them.

3. *The rate of composition mentioned above is under CGST Act, same rate will be under SGST Act also. Therefore the rates will be double i.e., 0.5% will be 1%, 1% will be 2%, 2.5% will be 5% and 3% will be 6%.

4. A taxable person opting for the scheme has to issue bill of supply as he is not eligible to issue taxable invoice under GST. He has to mention the words “composition taxable person, not eligible to collect tax on supplies” at the top of every bill of supply issued by him (Rule 5(f)).

5. A taxable person opting for composition shall mention the words - composition taxable person on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business (Rule 5(g)).

6. From F. Y. 2019-20, a taxable person opting for composition is required to pay the tax quarterly under Form CMP 08 and is required to file the Annual Return in form GSTR 4.

7. As per amendment done by CGST (Amendment) Act, 2018 w.e.f. 01.02.2019 following persons are eligible to opt for composition i.e. (1) A manufacturer or a trader supplying service to an extent of 10% of turnover or Rs. 5 Lacs whichever is higher (2) Persons engaged in supply of food for human consumption not serving alcohol.

8. A manufacturer of ice cream, pan masala or tobacco is not permitted to opt for composition scheme.