Chapter 4 – Composition Levy

Introduction
• The Composition levy scheme is a very simple, hassle-free compliance scheme for small
taxpayers.
• It is a voluntary and optional scheme.
• Composition Scheme is a scheme to help and support small suppliers.
• Suppliers whose “aggregate turnover” is less than or equal to ₹1.5 crore (₹75 lakhs for some
specified states) in the preceding Financial Year are eligible to opt for this scheme.
• Suppliers under Composition Scheme have to pay tax at concessional rates as follows:
o Manufacturer of goods – 1% of the “turnover in the state” or union territory
o Restaurant Service – 5% of the “turnover in the state” or union territory
o Other Suppliers – 1% of the “turnover of taxable supplies” of goods and services in the
state or union territory
• However, upon opting for this scheme,
o he cannot issue taxable invoice under GST law; and
o neither collect GST from his customers
o nor can he claim Input Tax credit on his purchases.

Eligibility for Composition Scheme

• A person whose aggregate turnover is less than or equal to ₹1.5 crore in the preceding financial
year is eligible to opt for composition scheme.
• However, if the taxable person is registered in any of the following states, the aggregate
turnover should be less than or equal to ₹75 lakhs in the preceding financial year. It means
that if the aggregate turnover exceeds ₹75 lakhs for a taxable person registered in any of the
below mentioned states, then the person cannot opt for Composition Scheme, even if his
turnover doesn’t exceed ₹1.5 crore.
• The states are:
o Arunachal Pradesh
o Manipur
o Meghalaya
o Mizoram
o Nagaland
o Sikkim
o Tripura
o Uttarakhand
• Aggregate Turnover means the aggregate value of:
o All taxable supplies
o Exempt supplies
o Exports of goods or services or both, and
o Inter-state supplies
of persons having the same PAN, to be computed on all India basis, but excludes:
o Value of inward supplies on which tax is payable by a person on reverse charge basis
o Central Tax, State Tax, Union Territory Tax, Integrated Tax, and Cess.
• Explanation for Calculation of Aggregate Turnover: Aggregate turnover should

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 o Include the value of supplies made by such person from 1st April of a financial year
upto the date when he becomes liable for registration under this act, but
o Exclude 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.

Question 1 – May, 2018 – 3 Marks

M/s NISH10 Trading Company, an eligible registered dealer in goods making intra-state supplies within
the state of Andhra Pradesh, has reported an aggregate turnover of ₹78 lakhs in the preceding financial
year.

1. Determine whether NISH10 Trading Company will be eligible for composition levy, as on 31-
10-2021.
2. Will your answer be different, if in the above scenario, M/s NISH10 Trading Company is making
intra-state supply within the state of Jammu and Kashmir?

Solution

1. A registered person, whose aggregate turnover in the preceding financial year does not exceed
₹1.5 crore, will be eligible to opt for payment of tax under the composition scheme. However,
this limit is ₹75 lakh in the case of an eligible registered person, registered in any of the
following states, namely Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, and Uttarakhand.
Since NISH10 Trading Company is making intra-state supplies in Andhra Pradesh, it will be
eligible to opt for composition scheme.
2. The turnover limit in Jammu and Kashmir is ₹1.5 crore. Hence, NISH10 Trading Company will
still be eligible for composition scheme.

Question 2

NISH10 Ltd. is a manufacturing concern in Pune. In Financial Year 2021-22, total value of supplies
including inward supplies taxed under reverse charge basis are ₹1,53,60,000 (exclusive of taxes). The
breakup of supplies are as follows:

Particulars ₹
Intra-State supplies made under forward charge 75,00,000
Intra-state supplies of goods which are chargeable to GST at NIL rate 43,00,000
Intra-state supplies which are wholly exempt under section 11 of CGST Act, 2017 32,00,000
Value of exempt supply of services being interest earned on fixed deposits with bank 1,00,000
Value of inward supplies on which tax is payable under RCM 2,60,000
Briefly explain whether NISH10 Ltd. is eligible to opt for composition scheme in F.Y. 2022-23.

Solution

Computation of Aggregate Turnover of NISH10 Ltd.

Particulars ₹
Intra-State supplies made under forward charge 75,00,000
Intra-state supplies of goods which are chargeable to GST at NIL rate 43,00,000
Intra-state supplies which are wholly exempt under section 11 of CGST Act, 2017 32,00,000
Value of exempt supply of services being interest earned on fixed deposits with bank -
Value of inward supplies on which tax is payable under RCM -

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 Aggregate Turnover for Composition Scheme 1,50,00,000
Since the aggregate turnover does not exceed ₹1,50,00,000 during the F.Y. 2021-22, NISH10 Ltd. is
entitled for Composition Scheme for F.Y. 2022-23.

Question 3

Mr. NISH10, of Assam, provides the following information for the preceding financial year 2022-23.
You are required to find out the aggregate turnover for the purpose of eligibility of composition levy
scheme and determine whether he is eligible for composition levy scheme or not, for the F.Y. 2023-24.

Particulars ₹
Value of taxable outward supplies (out of above ₹10 lakhs was in course of inter-state 50,00,000
transactions)
Value of exempt supplies (which includes ₹30 lakhs received as interest on loans and 70,00,000
advances)
Value of inward supplies on which he is liable to pay tax under reverse charge 5,00,000
Value of exports 5,00,000
All the amounts are exclusive of GST

Solution

Computation of Aggregate Turnover of Mr. NISH10

Particulars ₹
Value of taxable outward supplies (including inter-state transactions) 50,00,000
Value of Exempt Supplies 70,00,000
Less: Interest on Loans and Advances 30,00,000 40,00,000
Value of Inward Supplies on which he is liable to pay tax under RCM -
Value of exports 5,00,000
Aggregate Turnover for Composition Scheme 95,00,000
Even though NISH10's aggregate turnover is less than ₹1.5 crore, he still won't be eligible for
composition scheme because he is making inter-state supplies as well. As per Section 10(2), an inter-
state supplier of goods cannot avail the benefit of composition scheme.

Tax Rates Under Composition Scheme

S. Eligible Person Rate of tax cannot exceed (% of turnover) Total rate of tax
No. CGST SGST cannot exceed
(a) Manufacturer 0.5% of the turnover in 0.5% of the turnover in 1% of the turnover in
the State or Union the State or Union the State or Union
Territory Territory Territory
(b) Restaurant 2.5% of the turnover in 2.5% of the turnover in 5% of the turnover in
Service the State or Union the State or Union the State or Union
Territory Territory Territory
(c) Other Suppliers 0.5% of the turnover of 0.5% of the turnover of 1% of the turnover of
(Trader of taxable supplies of taxable supplies of taxable supplies of
Goods) goods and services in goods and services in goods and services in
the State or Union the State or Union the State or Union
Territory Territory Territory

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Question 4

Mr. NISH10, a retailer who keeps no inventories, presents the following estimated information for the
year:

1. Purchases of goods: ₹50 lakhs (GST @ 5%)

2. Sales (at fixed selling price inclusive of all taxes): ₹60 lakhs (GST on sales @5%)

Discuss whether he should opt for composition scheme if composite tax is 1% of turnover.

Expenses of keeping detailed statutory records required under GST Laws will be ₹1,20,000 p.a., which
shall get reduced to ₹50,000 if composition scheme is opted for. Other expenses are ₹3,00,000 p.a.

Solution

Computation of Profit for the Dealer

Particulars Normal Scheme Composition Scheme
Sales (inclusive of all taxes) 60,00,000 60,00,000
Less: GST 2,85,714 60,000
Net Sale Consideration 57,14,286 59,40,000
Costs
Purchase of Goods 50,00,000 50,00,000
GST (only for Composition Scheme) - 2,50,000
Costs of Maintaining Records 1,20,000 50,000
Other Expenses 3,00,000 3,00,000
Total Costs 54,20,000 56,00,000

Profit 2,94,286 3,40,000

Since profit is higher in composition scheme, composition scheme should be adopted.

Restriction on Suppliers of Service

• The composition scheme is primarily only for the suppliers of goods and restaurant services.
• However, composition suppliers are permitted to supply services (other than restaurant
services) upto a specified marginal value in the year of opting for composition.
• Please note that a composition supplier does not have the option to go both ways, i.e., paying
tax on part of supplies on composition scheme, and on other supplies on normal scheme.
• A composition supplier who is either a manufacturer or a restaurant service provider or a
trader of goods, may supply some other services upto a specified marginal value.
• The marginal value specified is higher of the following:
o 10% of the “Turnover in State” or Union Territory in the preceding financial year, or
o ₹5,00,000

Question 5

Tolaram is engaged in supply of goods. His aggregate turnover in the preceding F.Y. is ₹110 lakhs.

1. Is he eligible for composition scheme?

2. If yes, can he supply services other than Restaurant services?
3. If yes, is there any limit to such supply of services?
4. If yes, calculate upto what value can Tolaram engage in supply of services (other than
restaurant services).

Solution

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 1. Since the aggregate turnover of Tolaram does not exceed ₹1.5 crore in the preceding F.Y., he
is eligible for composition scheme.
2. Composition scheme is primarily meant for supplier of goods and restaurant services.
However, a supplier opting for composition scheme may engage in supply of services (other
than restaurant services) upto a specified marginal value. Therefore, Tolaram may engage in
supply of services (other than restaurant services), but only upto the specified marginal value.
3. Yes, there is a limit to such supply of services.
4. The limit is higher of the following:
a. 10% of “Turnover in State” in the preceding F.Y., i.e., 10% × ₹1,10,00,000 = ₹11,00,000
b. ₹5,00,000
Therefore, Tolaram can supply services (other than restaurant services upto ₹11,00,000.

Question 6 – May, 2018 – 5 Marks

M/s NISH10 and Company is a partnership firm of interior decorators and also running a readymade
garment showroom. Turnover of the showroom was ₹130 lakh and receipts of the interior decorator
service was ₹22 lakh in the preceding financial year.

With reference to the provisions of the CGST Act, 2017, examine whether the firm can opt for the
composition scheme?

Will your answer change, if the turnover of the showroom was ₹120 lakh and receipts of the interior
decorator service was ₹22 lakh in the preceding financial year?

Also discuss whether it is possible for M/s NISH10 and Company to opt for composition scheme only
for Showroom?

Solution

• A registered person, whose aggregate turnover in the preceding financial year does not exceed
₹1.5 crore, will be eligible to opt for payment of tax under the composition scheme. However,
this limit is ₹75 lakh in the case of an eligible registered person, registered in any of the
following states, namely Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, and Uttarakhand.
In the present case, the aggregate turnover of M/s NISH10 and Company exceeds ₹1.5 Crore
(₹130 lakhs from showroom + ₹22 lakhs receipts of interior decorator services). Therefore, the
firm is not eligible for composition scheme.
• As per the provisions of the CGST Act, 2017, a person supplying goods and services (other than
restaurant services) can opt for composition scheme only if the value of such services does not
exceed 10% of his turnover in a state, or ₹5,00,000, whichever is higher.
In the second case, the turnover of the showroom is ₹120 lakh and receipts from interior
decorator services is ₹22 lakhs. Therefore, the total is ₹142 lakhs. In this case, NISH10 and
Company is eligible to provide services to the extent of higher of the following:
o 10% of ₹142 lakhs = ₹14,20,000, or
o ₹5,00,000
However, since NISH10 and Company is providing services of value ₹22,00,000, i.e., exceeding
₹14,20,000, the firm is not eligible for composition scheme.
• As per the provisions of the CGST Act, 2017, if more than one registered person is having the
same PAN, then either all, or none of them will be eligible to opt for the composition scheme.

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 Therefore, it is not possible for M/s NISH10 and Company to opt for composition scheme only
for showroom.

Question 7

NISH10 Traders is engaged in trading of goods within the state of Maharashtra. In the preceding
financial year, it has a turnover of ₹140 lakh from the trading of goods. Further, it has also earned a
bank interest of ₹20 lakh from the fixed deposits. NISH10 traders wishes to opt for composition scheme
in the current year. You are required to advise NISH10 traders on the same. Would your answer be
different if NISH10 traders is also engaged in supply of farm labour and the turnover from the said
activity is ₹14 lakhs?

Solution

• A registered person, whose aggregate turnover in the preceding financial year does not exceed
₹1.5 crore, will be eligible to opt for payment of tax under the composition scheme. However,
this limit is ₹75 lakh in the case of an eligible registered person, registered in any of the
following states, namely Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim,
Tripura, and Uttarakhand.
Aggregate turnover shall include the value of supplies made by such person from the 1st day
of April of a Financial Year upto 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.
Thus, while calculating aggregate turnover, interest received of ₹20 lakhs shall not be included.
Therefore, the aggregate turnover of NISH10 traders is ₹1.4 crore, which is less than ₹1.5 crore,
and hence NISH10 traders is eligible to opt for composition scheme.
• A supplier who is registered under the composition scheme can supply services (other than
restaurant services) to the extent of higher of 10% of turnover in the state, or ₹5,00,000.
However, in the present case, if NISH10 traders is also engaged in supply of farm labour and
the turnover from the said activity is ₹14 lakhs, the aggregate turnover would be ₹140 lakhs +
₹14 lakhs = ₹154 lakhs. This is greater than ₹1.5 crore, and hence NISH10 is not eligible for
composition scheme.

Meaning of “Turnover in State” or “Turnover in Union Territory”

• Simply stated, “Turnover in State” is calculated in the exact same way as “Aggregate
Turnover”, i.e., add everything, and subtract the following three things –
o Inward Supplies on which RCM is applicable;
o GSTs and Cess; and
o Interest or discount from any loans, advances, or deposits.
• A supplier of goods becomes liable for registration when his aggregate turnover exceeds
₹40,00,000.
• If a supplier starts his business in the current financial year, then he doesn’t need to get himself
registered under GST till the time his turnover is less than or equal to ₹40,00,000.
• The point where his turnover crosses ₹40,00,000, he becomes liable for registration, and at
this point, he may get himself registered under composition scheme, because his turnover still
doesn’t exceed ₹1.5 crore/₹75 lakhs.
• Now, suppose his total “turnover in the state” this year comes out to be ₹1 crore.

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 • He will be liable to pay tax only on ₹60,00,000, and not on the entire ₹1 crore.
• This has been given by way of an explanation, which reads as follows: For the purposes of
determining the tax payable by a person under this section, “Turnover in State” or “Turnover
in Union Territory” shall not include the value of the following supplies, namely –
o Supplies from the 1st day of April of a financial year upto the date when such person
becomes liable for registration under this Act; and
o 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.
• Please note that this exemption of ₹40,00,000 will be available only in the first year of
registration.
• From the next year, he will be liable to pay tax on even one rupee of turnover.

What Happens When Turnover Exceeds ₹1.5 Crore/₹75 Lakhs?

• As per Section 10(3), a supplier registered under composition scheme can avail the benefit of
composition scheme only till the time the turnover does not exceed ₹1.5 crore/₹75 lakhs.
• As soon as the turnover exceeds ₹1.5 crore/₹75 lakhs, the supplier shall be required to get
himself registered under Normal Scheme and pay GST on the excess value at normal rates.
• This implies that in the first year when the supplier’s turnover exceeds ₹1.5 crore/₹75 lakhs,
he can still pay the tax at composition scheme on the value of ₹1.5 crores/₹75 lakhs, but he’ll
have to pay tax at normal rates on anything over and above that.
• From the next year, however, he’ll have to pay GST at normal rates even on one rupee of
turnover.

Question 8

Mr. NISH10 opened a retail shop – ‘Aapki Dukaan’ in Janta Market, Jaipur, Rajasthan on 1st April, 2022.
He opted to pay tax under section 10(1) of the CGST Act, 2017 in the said financial year. The aggregate
turnover of the retail shop for the quarter ending 30th June, 2022 was ₹40 lakh. Further, for the half
year ending 30th September, 2022, the turnover reached ₹85 lakh. Aapki Dukaan recorded a rapid
growth and the turnover reached ₹150 lakh by the end of December, 2022 and ₹165 lakh by the end
of January, 2022. Determine the total tax liability of Aapki Dukaan. Mr. NISH10 has duly complied with
the provisions of GST laws. Normal rate of tax in respect of goods sold in shop is 12%.

Solution

Section 10(1) of the CGST Act, 2017 provides that a registered person, whose aggregate turnover in
the preceding financial year did not exceed ₹1.5 crore in the State of Rajasthan, will be eligible to opt
for payment of tax under the composition scheme.

According to Section 10(3), the benefit of composition scheme can be availed up to the aggregate
turnover of ₹1.5 crore in the current financial year. The option availed of by a registered person under
Section 10(1) shall lapse with effect from the day on which his aggregate turnover during a financial
year exceeds the limit of ₹1.5 crore.

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:

1. Supplies from the first day of April of a Financial Year upto the date when such person becomes
liable for registration under this Act; and

CA NISHANT KUMAR 7
 2. 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.

Thus, Aapki Dukaan is eligible to pay tax under this section upto the turnover of ₹150 lakh. The total
tax payable by it is as under:

Turnover
Cumulative Tax
Period for the Tax Rate
Turnover Liability
Period
Since the turnover did not exceed ₹40
1st Quarter 40,00,000 40,00,000 lakhs, there's no need to obtain -
registration. Hence, no tax is to be paid.
2nd Quarter 85,00,000 45,00,000 1% 45,000
3rd Quarter 1,50,00,000 65,00,000 1% 65,000
4th Quarter 1,65,00,000 15,00,000 12% 1,80,000
Total 2,90,000

Question 9

NISH10 Ltd., a manufacturing concern of Rajasthan having aggregate turnover of ₹120 lakhs in financial
year 2021-22 has opted for composition scheme and furnishes you with the following information for
F.Y. 2022-23. It requires you to determine its composition tax liability and total tax liability. The break-
up of supplies are as follows:

Particulars ₹
Intra state supplies of goods X chargeable @ 5% GST 30,00,000
Intra state supplies of goods which are chargeable to GST at NIL rate 18,00,000
Intra state supply of services chargeable with 5% GST 6,00,000
Interest earned on fixed deposits with banks 8,00,000
Intra state supplies which are wholly exempt under section 11 of CGST Act, 2017 2,40,000
Value of inward supplies on which tax is payable under RCM (GST Rate 5%) 5,00,000
Intra state supplies of goods Y chargeable @ 18% GST 30,00,000
Also determine the composition tax liability if NISH10 Ltd. is a trader.

Solution

Computation of Turnover in State for Manufacturer

Particulars ₹
Intra state supplies of goods X chargeable @ 5% GST 30,00,000
Intra state supplies of goods which are chargeable to GST at NIL rate 18,00,000
Intra state supply of services chargeable with 5% GST 6,00,000
Interest earned on fixed deposits with banks -
Intra state supplies which are wholly exempt under section 11 of CGST Act, 2017 2,40,000
Value of inward supplies on which tax is payable under RCM (GST Rate 5%) -
Intra state supplies of goods Y chargeable @ 18% GST 30,00,000
Total turnover in State 86,40,000
Composite Tax @ 1% 86,400
Add: Tax on Reverse Charge (5% × ₹5,00,000) 25,000
Total Tax Liability 1,11,400

Computation of Turnover of Taxable Supplies in State for Trader

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 Particulars ₹
Intra state supplies of goods X chargeable @ 5% GST 30,00,000
Intra state supplies of goods which are chargeable to GST at NIL rate -
Intra state supply of services chargeable with 5% GST 6,00,000
Interest earned on fixed deposits with banks -
Intra state supplies which are wholly exempt under section 11 of CGST Act, 2017 -
Value of inward supplies on which tax is payable under RCM (GST Rate 5%) -
Intra state supplies of goods Y chargeable @ 18% GST 30,00,000
Total turnover in State 66,00,000
Composite Tax @ 1% 66,000
Add: Tax on Reverse Charge (5% × ₹5,00,000) 25,000
Total Tax Liability 91,000
Note: A supplier who is registered under the composition scheme can supply services (other than
restaurant services) to the extent of higher of 10% of turnover in the state, or ₹5,00,000. While
calculating turnover in the state, all the taxable supplies, exempt supplies, export of goods, and inter-
state supplies are included, but value of inward supplies on which tax is paid under reverse charge
mechanism, and 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 is excluded. Therefore, the
turnover in state for NISH10 Ltd. is ₹1,20,00,000 lakhs – ₹5,00,000 – ₹8,00,000 = ₹1,07,00,000.
Therefore, the supplier can supply the services upto 10% × ₹1,07,00,000 = ₹10,70,000, or ₹5,00,000
whichever is higher, i.e., ₹10,70,000. Since the value of taxable supply of services is ₹6,00,000, which
is less than ₹10,70,000, NISH10 Ltd. is eligible for composition scheme.

Persons Not Eligible to opt for Composition Scheme

• Supplier of Services other than Restaurant Services
• Supplier of Goods or Services which are not taxable under the CGST Act/SGST Act/UTGST Act
• An inter-state supplier of goods or services
• Person supplying goods or services through an electronic commerce operator who is required
to collect tax at source under section 52
• Manufacturer of certain notified goods
• Casual taxable person or a non-resident taxable person

Note: “Casual taxable person” means a person who occasionally undertakes transactions involving
supply of goods or services or both in the course or furtherance of business, whether as principal,
agent or in any other capacity, in a State or a Union territory where he has no fixed place of business.

Ineligible Manufacturers
The manufacturers of following goods will not be eligible to opt for composition scheme:

• Ice cream and other edible ice, whether or not containing cocoa
• Pan masala
• Aerated water
• All goods, i.e., Tobacco and manufactured tobacco substitutes
• Fly ash bricks or fly ash aggregate with 90% or more fly ash content; fly ash blocks
• Bricks of fossil meals or similar siliceous earths
• Building bricks
• Earthen or roofing tiles

The last four points have been added w.e.f. 01-04-2022.

CA NISHANT KUMAR 9
Other Important Points
• A composition supplier cannot collect tax from his customers; therefore, he cannot issue a tax
invoice.
• A composition supplier cannot avail Input tax credit.
• If the proper officer has reasons to believe that a supplier is paying tax under composition
scheme despite being ineligible, he may impose fines and penalties as per the provisions of
law.
• The option of payment of tax under composition scheme is not available for any tax payable
under reverse charge mechanism. Rate of tax payable on supplies taxable under RCM will be
regular rates and not the composition rates.
• Customers who purchase goods from composite suppliers cannot claim input tax credit of the
tax paid by them, because ITC can be availed only when you receive a tax invoice. Since
composite suppliers cannot issue a tax invoice, the customer won’t have the tax invoice, and
hence, won’t be able to take credit of the tax paid.

Composition Scheme for Services

• 10(2A) provides for composition scheme for suppliers of service.
• A supplier of service (other than restaurant services) may opt for composition scheme, if his
aggregate turnover in the preceding financial year does not exceed ₹50 lakhs.
• Suppliers of service under composition scheme have to pay tax @ 6% (3% CGST + 3%
SGST/UTGST, or 6% IGST).
• Rest everything is the same as it is for suppliers of goods.
• A supplier of service need not get himself registered if his aggregate turnover is less than or
equal to ₹20 lakhs.

Question 10

Mr. Ajay has a registered repair centre where electronic goods are repaired/serviced. His repair centre
is located in State of Rajasthan and he is not engaged in making any inter-state supply of services. His
aggregate turnover in the preceding financial year is ₹45 lakh.

With reference to the provisions of the CGST Act, 2017, examine whether Mr. Ajay can opt for the
composition scheme in the current financial year? Is he eligible to avail benefit of composition scheme
under section 10(2A) of the CGST Act, 2017? Considering the option of payment of tax available to Mr.
Ajay, compute the amount of tax payable by him assuming that his aggregate turnover in the current
financial year is ₹35 lakh.

Will your answer be different if Mr. Ajay procures few items required for providing repair services from
neighboring state of Madhya Pradesh?

Solution

Section 10(1) and 10(2) of the CGST Act, 2017 provides that a registered person, whose aggregate
turnover in the preceding financial year does not exceed ₹1.5 crore, will be eligible to opt for payment
of tax under the composition scheme. However, this limit is ₹75 lakh in the case of an eligible registered
person, registered in any of the following states, namely Arunachal Pradesh, Manipur, Meghalaya,
Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand. However, if, inter alia, such registered person
is engaged in the supply of services other than restaurant services, he shall not be eligible to opt for

CA NISHANT KUMAR 10
composition levy under section 10(1) and 10(2), but he can avail composition scheme under section
10(2A) of the CGST Act, 2017.

Section 10(2A) has provided an option to a registered person whose aggregate turnover in the
preceding financial year is upto ₹50 lakh and who is not eligible to pay tax under composition scheme,
to pay tax @ 3% [Effective rate 6% (CGST + SGST/UTGST)] on first supplies of goods and/or services
upto an aggregate turnover of ₹50 lakh made on/after 1st April in any financial year, subject to specific
conditions.

Thus, in view of the above-mentioned provisions, Mr. Ajay is eligible to avail the benefit of concessional
payment of tax under section 10(2A) as his aggregate turnover in the preceding financial year does not
exceed ₹50 lakh and he is not eligible to opt for the composition scheme.

Thus, the amount of tax payable by him under section 10(2A) is 6% of ₹35,00,000 = ₹2,10,000.

A registered person cannot opt for Section 10(2A), if, inter alia, he is engaged in making any inter-state
outward supplies. However, there is no restriction on inter-state procurement of goods. Hence, answer
will remain the same even if Mr. Ajay procures few items from neighboring state of Madhya Pradesh.

Question 11

Chanchal started providing beauty and grooming services and inaugurated “Care & Care Beauty
Centre” in Janak Puri, Delhi on 1st April, 2022. She opted to pay tax under section 10(2A) of the CGST
Act, 2017 in the said financial year. The aggregate turnover of Care & Care Beauty Centre for the
quarter ending 30th June, 2022 was ₹20 lakhs. Further, for the half year ending 30th September, 2022,
the turnover reached ₹50 lakhs. Care & Care Beauty Centre recorded a rapid growth and the turnover
reached ₹70 lakh by the end of October, 2022. Determine the total tax liability of Care & Care Beauty
Centre by the end of October, 2022.

Care & Care Beauty Centre wishes to opt for composition scheme under section 10(1) from the next
financial year. You are required to advise it whether it can do so.

Note: Rate of GST applicable on such services is 18%.

Solution

Section 10(2A) of the CGST Act, 2017 provides an option to a registered person to pay CGST @ 3%
[Effective rate 6% (CGST + SGST/UTGST)] on first supplies of goods and/or services upto an aggregate
turnover of ₹50 lakh made on/after 1st April in any financial year, subject to specified conditions.

According to the Explanation, 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:

1. Supplies from the first day of April of a financial year upto the date when such person becomes
liable for registration under this Act; and
2. 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.

Thus, Care & Care Beauty Centre is eligible to pay tax under this notification upto the turnover of ₹50
lakh. The total tax payable by it is as under:

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 Cumulative Turnover for Tax
Period Tax Rate
Turnover the Period Liability
Since the turnover did not exceed ₹20
1st Quarter 20,00,000 20,00,000 lakhs, there's no need to obtain -
registration. Hence, no tax is to be paid.
2nd Quarter 50,00,000 30,00,000 6% 1,80,000
October 2022 70,00,000 20,00,000 18% 3,60,000
Total 5,40,000
No, Care & Care Beauty Centre cannot opt for composition scheme u/s 10(1) from the next financial
year. Fundamentally, the composition scheme can be availed in respect of goods and only one service,
namely, restaurant service. As regards services other than restaurant services are concerned, only
marginal supply of such services for a specified value along with the supply of goods and/or restaurant
service, as the case may be, is permitted under section 10(1) of the CGST Act, 2017. Therefore, a person
engaged exclusively in supply of services other than restaurant services is not eligible to opt for
composition scheme.

Section 10: Composition Levy

The provisions of Composition Levy that we’ve just studied are given in Section 10 of the CGST Act,
2017.

(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,–
(a) one percent 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.
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 percent of turnover in a State or Union territory in the preceding
financial year or five lakh rupees, whichever is higher.
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.
(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
(b) he is not engaged in making any supply of goods or services which are not leviable to
tax under this Act
(c) he is not engaged in making any inter-State outward supplies of goods or services

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 (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;
(e) he is not a manufacturer of such goods as may be notified by the Government on the
recommendations of the Council; and
(f) he is neither a casual taxable person nor a non-resident taxable person.
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;
(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.
(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.
(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.
(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.
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 upto 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.
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 upto 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.

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Conditions and Restrictions for Composition Levy [Rule 5]
Person opting for composition levy has to comply with the following conditions:

• he was not engaged in the manufacture of goods as notified under section 10(2)(e), during the
preceding FY.
• he shall pay tax under section 9(3)/9(4) (reverse charge) on inward supply of goods or services
or both.
• he is neither a casual taxable person nor a non-resident taxable person
• he shall mention the words “composition taxable person, not eligible to collect tax on supplies”
at the top of the bill of supply issued by him; and
• he 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.
• Further, where the goods held in stock by him are liable to be taxed under reverse charge
under section 9(4), the tax thereon has been paid under reverse charge under section 9(4).

Intimation of Opting for Composition Levy [Rules 3 & 4]

• Intimation by person applying for registration:
o Any person who is not registered and applies for registration may give an option to
pay tax under composition levy in Part B of the registration form, viz., Form GST REG-
01.
o The same shall be considered as an intimation to pay tax under composition levy.
o Such intimation shall be considered only after the grant of registration to the
applicant.
o The option to pay tax under composition levy shall be effective from the date from
which registration is effective.
• Intimation by a registered person:
o A registered person who opts to pay tax under composition levy scheme shall
electronically file an intimation in prescribed form on the GST Common Portal
[www.gst.gov.in].
o The intimation shall be filed prior to the commencement of the FY for which said
option is exercised.
o He shall also furnish the statement in prescribed form in accordance with the
provisions of rule 44(4) of CGST Rules, 2017 within 60 days from the commencement
of the relevant FY.
o Any intimation in respect of any place of business in a State/UT shall be deemed to be
an intimation in respect of all other places of business registered on the same PAN.
o The option to pay tax under composition levy shall be effective from the beginning of
the FY.
• To sum up:
o A person applying for registration can opt for composition at the time of applying for
registration [this time being any time of the financial year] and composition levy shall
be effective from the date from which registration is effective.
o A registered person can opt for composition scheme from the beginning of any FY and
composition levy shall be effective from the beginning of said FY.

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Validity of Composition Levy [Section 10(3) Read with Rule 6]
• Withdrawal from the composition scheme by a taxpayer who ceases to satisfy any of the
prescribed conditions:
o The option exercised by a registered person to pay amount under composition levy
shall remain valid so long as he satisfies all the conditions mentioned in the relevant
section and rules.
o For instance, the option to pay tax under composition scheme lapses from the day on
which aggregate turnover of a registered person exceeds the specified limit (₹1.5
crore/₹75 lakh/₹50 lakh) during the FY.
o Such person is required to pay tax under regular scheme under section 9(1) from the
day he ceases to satisfy any of the conditions prescribed for composition levy.
o He shall issue tax invoice for every taxable supply made thereafter.
o Further, he is required to file an intimation for withdrawal from the scheme in
prescribed form within 7 days of the occurrence of such event.
o The effective date from which withdrawal from the composition scheme shall take
effect shall be the date indicated by him in his intimation, but such date may not be
prior to the commencement of the financial year in which such intimation is being
filed.
• Withdrawal from the composition scheme by a taxpayer who intends to withdraw from the
said scheme:
o The registered person who intends to withdraw from the composition scheme shall,
before the date of such withdrawal, file an application in prescribed form.
o The effective date from which withdrawal from the composition scheme shall take
effect shall be the date indicated by him in his application, but such date may not be
prior to the commencement of the financial year in which such application for
withdrawal is being filed.
• Denial of option to pay tax under the composition scheme by tax authorities:
o Where the proper officer has reasons to believe that the registered person was not
eligible to pay tax under composition scheme or has contravened the provisions of the
CGST Act or provisions of this Chapter, he may issue a show cause notice (SCN) to such
person.
o Upon receipt of reply to SCN, he shall pass an order either accepting the reply, or
denying the option to pay tax under composition scheme from the date of the option
or from the date of the event concerning such contravention, as the case may be.
o In case of denial of option to pay tax under composition levy by the tax authorities,
the effective date of such denial shall be from a date, including any retrospective date,
as may be determined by tax authorities.
o However, such effective date shall not be prior to the date of contravention of the
provisions of the CGST Act/CGST Rules.
• In each of the above cases, such person may furnish a statement in prescribed form containing
details of the stock of inputs and inputs contained in semi-finished or finished goods held in
stock by him on the date on which the option is withdrawn/denied, within a period of 30 days
from the date from which the option is withdrawn/ or from the date of the order denying
composition scheme.

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