COMPOSITION LEVY

The Composition Scheme is a simple and easy scheme under GST for taxpaye₹ Small
taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover.

Objectives of Composition Scheme

To bring simplicity & to reduce the compliance cost for the small taxpayer

Benefits of Composition Scheme

Suppliers opting for a composition scheme are not required to worry about the classification of
goods or services, rates of GST applicable on their goods or services.

• They are not required to raise any tax invoice; however, they need to issue a Bill of Supply
in which no tax can be charged from the recipient.
• Yearly filing of Return (GSTR 4)
• Quarterly Payment of Tax.
Notes:
✓ Composition Dealers cannot avail the benefit of Input Tax Credit.
✓ Registration under GST is compulsory for opting for a composition scheme.

❖ Composition Scheme for Goods

• Eligibility
Registered person, whose Aggregate turnover in Last FY ≤ ₹ 1.5 crore.
• Rate of GST

Non - Eligibility [Sec 10(2)]

• Supply of services other than restaurant services.
• Supplier of goods that are not leviable to tax under GST.
• Person Making Inter-State Supply of goods [Supplying goods outside state]
• Persons supplying goods through ECO [who are required to collect tax u/s 52].
• Manufacturers of Ice cream, pan masala & tobacco, Aerated Water.
• Person who is CTP/NRTP.

Notes:
• If more than one registered persons are having same PAN, registered person shall not be
eligible to opt for composition scheme unless all such registered persons opt to pay tax
under composition scheme

• There is no restriction on composition suppliers to receive the inter-state supply of goods

or services or both.

Example: Taxpayer ‘Kamlesh’ is a manufacturer having one unit - A1 in UP & another unit -
A2 in MP. The total turnover of two units in last FY was ₹ 115 lacs (₹ 85 lacs + ₹ 30 lacs).
Turnover of Unit A1 & A2 in the first quarter of this FY was ₹ 5 lacs & ₹ 10 lacs respectively.
Compute the amount payable under composition levy by Taxpayer ‘Kamlesh’.
Unit Location Turnover in previous Turnover in 1st quarter of this Total Tax
FY FY (@1%)
A1 UP ₹ 85 lacs ₹ 5 lacs ₹ 5,000
A2 MP ₹ 30 lacs ₹ 10 lacs ₹ 10,000
₹ 115 lacs ₹ 15 lacs ₹ 15,000
A PERSON ENGAGED IN MARGINAL SUPPLY OF SERVICES OTHER THAN
RESTAURANT SERVICE ALSO ELIGIBLE FOR COMPOSITION LEVY OF GOODS
[SECOND PROVISO TO SECTION 10(1) READ WITH SECTION 10(2)(A)

• Fundamentally, a composition scheme for goods can be availed i.r.o. goods & only
restaurant service.
• However, there are cases where a manufacturer/trader is also engaged in the supply of
services other than restaurant service though % of such supply of services is very small as
compared to supplies of goods.
• There may also be cases where a restaurant service provider is also engaged in supplying a
small percentage of other services.
• With a view to enabling such taxpayers to avail of the benefit of composition scheme for
goods, the second proviso to section 10(1) permits the marginal supply of services [other
than restaurant services] for a specified value along with the supply of goods and/or
restaurant service, as the case may be.

• Registered person opting for composition scheme are permitted to supply services (other
than restaurant services) of specified value not exceeding: [Higher of (a) or (b)]
• 10% of Turnover in State/UT in Preceding FY or (b) ₹ 5 Lacs
Example: Mr. Hemant has opted for a composition scheme in FY 2019-20. His ATO in FY
2018-19 is ₹ 60 lacs. In FY 2019-20, he can supply services (other than restaurant services) up
to a value of not exceeding: (a) 10% of ₹ 60 lacs [i.e., ₹ 6 lacs] OR (b) ₹ 5 lacs {Whichever is
higher}.
Thus, he can supply services up to a value of ₹ 6 lacs in FY 2019-2020.
If the value of services supplied exceeds ₹ 6 lacs, he becomes ineligible for the composition
scheme.
It can be inferred that where the turnover of a registered person opting for a composition
scheme for goods is up to ₹ 50 lacs in preceding FY, he can supply services [other than
restaurant services] up to a maximum value of ₹ 5 lacs in current financial year.

COMPOSITION SCHEME FOR SERVICE PROVIDER [SECTION 10(2A)]

❖ Eligibility
• A registered person who is not eligible to pay tax u/s 10(1) & 10(2) &
• Aggregate turnover in Last FY ≤ ₹ 50 Lacs &
• who is exclusively engaged in supplying services other than restaurant services
Rate of GST
• 6% (3% + 3%) of the turnover in State/UT
• on first supplies of G&/S up to Aggregate turnover of ₹ 50 lacs made on/after 1st April in
any FY.
Non – Eligibility
• Supplier of goods or services which are not leviable to tax under GST.
• Person Making Inter-State Supply of goods or services
• Persons supplying goods or services through ECO [who collect tax u/s 52]
• Manufacturers of notified goods or supplier of notified services. Notified goods are: Ice
cream, pan masala & tobacco, Aerated Water.
• Person who is CTP/NRTP.
Notes:
➢ If more than one registered persons are having same PAN, registered person shall not be
eligible to opt for composition scheme unless all such registered persons opt to pay tax
under composition scheme.
➢ There is no restriction on composition suppliers to receive an inter-state supply of Goods
or services.
Other Conditions:
• Registered Person shall not collect any tax from the recipient on outward supplies made by
him.
• Registered person shall not be entitled to ITC. ▪ RP shall issue a bill of supply instead of a
tax invoice. It shall have the following words at its top - ‘taxable person paying tax u/s
10(2A), not eligible to collect tax on supplies’.
Example: Taxpayer Mr. X is a salon stylist, who has opted for composition levy for services,
having one branch – B1 in Vasant Kunj, Delhi & another branch – B2 in Gurgaon, Haryana.
Total turnover of two branches in last FY was ₹ 45 lacs (₹ 25 lacs + ₹ 20 lacs). Turnover of
branches B1 & B2 in the first quarter of current FY is ₹ 5 lacs & ₹ 10 lacs respectively. Compute
GST payable under composition levy u/s 10(2A) by ‘Mr. X’.
Answer:
Unit Location Turnover in previous Turnover in 1st quarter of this Total Tax
FY FY (@6%)
B1 Delhi ₹ 25 lacs ₹ 5 lacs ₹ 30,000
B2 Haryana ₹ 20 lacs ₹ 10 lacs ₹ 60,000
₹ 45 lacs ₹ 15 lacs ₹ 90,000

Other Points:
• Bill of supply shall be issued instead of tax invoice.
• The tax shall not be collected from a recipient of the supply.
• Input tax credit shall not be availed
• Composition scheme if availed shall include all registered persons having the same PAN
• Penalty shall be imposed in case of irregular availment of the composition scheme

REGISTRATION UNDER GST

• Registration in GST is PAN-based. Once a supplier is liable to register, he has to obtain
registration in each of the States/UTs in which he operates under the same PAN.
• There is no concept of centralized registration. Supplier is required to obtain State-wise
registration.
• A supplier has to obtain registration in every State/UT from where he makes a taxable
supply provided his aggregate turnover exceeds a specified threshold limit. Thus, he is not
required to obtain registration from a State/UT from where he makes a non-taxable supply.
• Normally, the Supplier is required to obtain single registration in a State/UT. However,
where he has multiple places of business in a State/UT, he has two options:
1. Either to get a single registration for the said State/UT [wherein it can declare one place
as a principal place of business (PPoB) & other branches as additional place(s) of
business (APoB)] or
2. to get separate registrations for each place of business in such State/UT.
• Registration under GST is not tax specific. Thus, there is single registration for all the taxes
i.e., CGST, SGST/UTGST, IGST & GST compensation cess.

Advantages of Registration
• Only Registered Person can collect taxes from customers & pass on ITC of G/S supplied to
recipients.
• Only Registered Person can claim ITC of taxes paid & can utilize same for payment output
tax liability.
• Registered person is eligible to apply for Government bids or contracts or assignments.
Notification no. 10/2019 is not applicable in the following cases & thus Threshold Limit is ₹
20 Lacs: (exceptions of Section 22)
• Persons required to take compulsory registration u/s 24 of the CGST Act.
• Person who has opted for voluntary registration or such registered persons who intend to
continue with their registration under the CGST Act.
• Supplier of ice cream, Pan masala & Tobacco products.
• Persons engaged in making Intra-State supplies in the States of –
- Uttarakhand, Arunachal Pradesh; Puducherry & Telangana; Meghalaya, Sikkim;
- Manipur, Mizoram, Nagaland, Tripura → [Limit of ₹ 10 Lacs].
Notes:
• Suppliers making Inter-State supply of goods are liable to compulsory registration & are
thus covered in (a) above.
• Explanation – For the purposes of this subsection, a person shall be considered to be
engaged exclusively in the supply of goods even if he is engaged in the exempt supply of
services by way of extending deposits, loans or advances in so far as the consideration is
represented by way of interest or discount.
 Example:
Supplier Engaged Aggregate Threshold Registration
turnover limit required
U/S 22?
Mr. A of Exclusively in supply of Shoes (Intrastate) ₹ 25 Lac ₹ 40 Lac NO
Gujarat Exclusively in supply of Pan Masala ₹ 25 Lac ₹ 20 Lac YES
Exclusively in supply of taxable services ₹ 25 Lac ₹ 20 Lac YES
in supply of both taxable G&S ₹ 25 Lac ₹ 20 Lac YES
Mr. B of Exclusively in supply of ice cream ₹ 25 Lac ₹ 20 Lac YES
Sikkim Exclusively in supply of Pan Masala ₹ 25 Lac ₹ 20 Lac YES
Exclusively in supply of taxable services ₹ 25 Lac ₹ 20 Lac YES
in supply of both taxable G&S ₹ 25 Lac ₹ 20 Lac YES
Mr. C of Exclusively in supply of Paper ₹ 11 Lac ₹ 10 Lac YES
Manipur Exclusively in supply of Tobacco ₹ 11 Lac ₹ 10 Lac YES
Exclusively in supply of taxable services ₹ 9 Lac ₹ 10 Lac NO
in supply of both taxable G&S ₹ 11 Lac ₹ 10 Lac YES

Compulsory Registration [Section 24]

1. Person making any Inter-State taxable supply
Note: However, limit of Rs. 20/10 lacs is available in case of Inter-State supply of taxable
Services & Specified Handicraft Goods.
2. Casual Taxable Persons making taxable supply.
Note: However, limit of Rs. 20/10 lacs is available in case of Inter-State taxable supply of
Specified Handicraft Goods & availing the benefit of NN 10/2019.
3. Persons who are required to pay tax under Reverse Charge.
Note: If a person is engaged exclusively in making supplies, tax on which is payable on
RCM basis is not required to obtain registration
4. Non-resident taxable person making taxable supply
5. Electronic Commerce;
(a) Every ECO who is required to collect tax at source u/s 52 [AMD];
(b) Persons who supply G/&S through ECO who is required to collect tax at source u/s 52
[other than specified u/s 9(5)]. But, threshold limit of Rs. 20 lacs (Rs. 10 lacs: MMT, Nagaland)
is available in case of suppliers supplying only services through ECO.
6. Persons required to deduct tax at source u/s 51 (whether or not separately registered under
GST)
7. Persons making taxable supply of G/&S on behalf of other taxable person (as
agent/otherwise)
8. Input Service Distributor (ISD) [whether or not separately registered under GST]
9. Every person supplying OIDAR services
• from a place outside India
• to a person in India (other than registered person)
10. Person required to pay tax on RCM basis u/s 9(5) of CGST;
PERSONS NOT LIABLE FOR REGISTRATION [SECTION 23]
1. Person engaged exclusively in supply of Non-taxable or Exempt G/&S.
Ex: Madhur Oils is exclusively engaged in supplying petrol. Supply of petrol is not leviable to
GST. Thus, Madhur Oils is not liable for registration as it is engaged exclusively in supplying
wholly exempt goods.
2. Agriculturist (Individual/HUF), to the extent of ‘supply of produce out of cultivation of
land’. Ex: Jay is an agriculturist engaged in cultivation of wheat in his field in Punjab. He was
exclusive
Ex: Jay is an agriculturist engaged in cultivation of wheat in his field in Punjab. He was
exclusively engaged in supply of wheat cultivated in his field in the previous year. Thus, he
was not liable to registration as he was exclusively engaged in supply of produce out of
cultivation of land. In current year, he decides to start trading in rice along with supplying his
wheat produce. His turnover in current year is Rs. 32 lacs from supply of wheat produced &
Rs. 9 lacs from trading of rice. Since he is engaged in trading of rice, he is not covered u/s 23
above. The threshold limit for registration applicable to a person exclusively engaged in supply
of goods in Punjab is Rs. 40 lacs. Aggregate turnover of Jay in current year is Rs. 41 lacs [32
lacs + 9 lacs] which > threshold limit. Thus, he is liable to registration.

3. Persons making only RCM supplies. [Under RCM, tax is payable by the recipient]

Ex: Manikaran Transporters is a Goods Transport Agency (GTA) engaged exclusively in

supplying GTA services liable to tax under reverse charge [since tax is payable on GTA
services @ 5% in the given case]. Thus, it is exempt from registration as it is engaged
exclusively in making supplies, tax on which is liable to be paid on RCM. Further, Manikaran
Transporters supplies said service to Diwakar Manufacturing Pvt. Ltd. whose aggregate
turnover does not exceed threshold limit. Since Diwakar Manufacturing Pvt. Ltd. has to pay
tax on GTA services [@ 5%] under RCM, it is required to obtain registration mandatorily
irrespective of its aggregate turnover.

4. Persons making inter-State supplies of taxable services upto Rs. 20/10 Lacs.
Ex: Dhola & Co., located in Delhi, is engaged in supply of taxable goods in the neighbouring
States of Punjab & Haryana. Its aggregate turnover in current FY is Rs. 10 lacs. Since it is
engaged in making inter-State taxable supply of goods, it is required to register mandatorily
under GST irrespective of its aggregate turnover. However, if in above case, Dhola & Co. is
engaged in inter- State supply of taxable services instead of goods, it will be eligible for
exemption from registration till its aggregate turnover does not exceed Rs. 20 lacs.

5. CTP making taxable supplies of specified handicraft goods upto Rs. 20/10 Lacs.

6. Person making Inter-state supplies of specified handicraft goods upto Rs. 20/10 Lacs. Note:
Such person must have obtained a PAN & generated an e-way bill.
Ex: Ariza Pvt. Ltd., located in Madhya Pradesh, is a supplier of taxable & notified handicraft
goods. It supplies these goods in the neighbouring States of Uttar Pradesh & Orissa. Its
aggregate turnover in the month of April is Rs. 15 lacs. Although Ariza Pvt. Ltd. is engaged in
making inter-State supplies of taxable goods, it is not liable to obtain registration till its
aggregate turnover does not exceed Rs. 20 lacs.