Composition Scheme under Section 10
of the CGST Act, 2017
The
Composition Scheme under the Central Goods and Services Tax (CGST) Act, 2017
provides a simplified tax compliance regime for small and medium taxpayers.
This scheme is particularly beneficial for businesses with a turnover below a
specified threshold, allowing them to pay taxes at reduced rates with minimal
compliance requirements. However, opting for this scheme entails certain
restrictions, such as the inability to claim Input Tax Credit (ITC) and the
prohibition on collecting tax from customers.
Eligibility Criteria for the
Composition Scheme: A registered person can opt for the
Composition Scheme if their aggregate turnover in the preceding financial year
did not exceed ₹1.5 crore. For certain northeastern states (Arunachal Pradesh,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura), the threshold is ₹75
lakh as per Notification No. 14/2019-Central Tax dated March 7, 2019. The
aggregate turnover includes all taxable supplies (excluding inward supplies
taxable on reverse charge basis), exempt supplies, exports, and inter-state
supplies, calculated on an all-India basis, excluding taxes like Central Tax,
State Tax, Union Territory Tax, Integrated Tax, and Cess.
Permissible and Non-Permissible
Activities: Businesses eligible for the Composition
Scheme can supply services up to 10% of their turnover or ₹5 lakh, whichever is
higher, except for restaurant services. They must not engage in:
·
Supply of services other than restaurant
services beyond the specified limit.
·
Supply of goods not taxable under the
CGST Act.
·
Inter-state outward supplies of goods.
·
Supplies through e-commerce operators
who are required to collect tax at source.
·
Manufacture of notified goods such as
pan masala, ice cream, tobacco, and aerated water.
Tax Rates Under the Composition
Scheme:
Under
Rule 7 of the CGST Rules, 2017, the tax rates for various categories of
businesses are as follows:
|
Sl.
No.
|
Category
of registered persons
|
Rate
of CGST
|
Rate
of SGST
|
Total
tax
|
|
1.
|
Manufacturers,
other than manufacturers
of such goods
as may be notified by the
Government.
Presently, the
Government has notified
Pan Masala,
Ice Cream and other edible
ice, whether
or not containing cocoa,
Tobacco and
manufactured tobacco
substitutes as
the goods not eligible* for
composition
levy.
|
0.5% of the
turnover in
the
State or Union
Territory
|
0.5% of the
turnover in
the
State or Union
Territory
|
1% of the
turnover
in the State
or
Union
Territory
|
|
2.
|
Suppliers
making supplies referred to in
clause (b) of
paragraph 6 of Schedule
II [i.e.,
supply, by way of or as part of
any service or
in any other manner
whatsoever, of
goods, being food or any
other article
for human consumption or
any drink
(other than alcoholic liquor for
human
consumption), where such supply
or service is
for cash, deferred payment
or other
valuable consideration] [mainly
Restaurant
Service].
|
2.5% of the
turnover in
the
State or Union
Territory
|
2.5% of the
turnover in
the
State or Union
Territory
|
5% of the
turnover in
the
State or Union
Territory
|
|
3.
|
Any other
supplier eligible for composition
levy under
section 10 and the provisions
of this
Chapter [mainly traders].
|
0.5% of the
turnover of
taxable
supplies
of goods and
services in
the
State or Union
Territory
|
0.5% of the
turnover of
taxable
supplies
of goods and
services in
the
State or Union
Territory
|
1% of the
turnover
of taxable
supplies of
goods
and services
in the State
or
Union
Territory
|
|
|
|
|
|
|
Restrictions and Conditions: A
person opting for the Composition Scheme:
·
Cannot collect tax from recipients on
supplies made.
·
Cannot claim ITC on purchases.
·
Must issue a bill of supply instead of a
tax invoice, clearly mentioning "composition taxable person, not eligible
to collect tax on supplies."
·
Must display "composition taxable
person" on signage at their business premises.
Compliance and Procedural Aspects: To
opt for the Composition Scheme, a registered person must:
·
File an intimation in Form GST CMP-02
before the start of the financial year.
·
Submit a statement of ITC reversal on
stock in Form GST ITC-03 within 60 days of the start of the financial year.
·
File quarterly returns in Form CMP-08,
summarizing outward supplies and tax payment details.
Procedural Compliance for
Composition Scheme:
·
Initial Intimation: Newly registered
persons must file Form GST CMP-01 or CMP-02.
·
Annual Intimation: Intimation in Form
GST CMP-02 must be filed before the financial year begins.
·
Stock Details: Details of stock held
must be furnished in Form GST CMP-03.
·
Withdrawal: If opting out, an
application in Form GST CMP-04 must be filed.
Conclusion: The
Composition Scheme under Section 10 of the CGST Act, 2017, simplifies tax
compliance for small and medium businesses by offering reduced tax rates and
minimal procedural requirements. However, it also imposes restrictions, such as
the inability to claim ITC and the prohibition on inter-state supplies.
Businesses must carefully assess their eligibility and compliance with the
scheme's provisions to benefit from this simplified tax regime.
Disclaimer: All the Information is based on the notification, circular and order issued by the Govt. authority and judgement delivered by the court or the authority information is strictly for educational purposes and on the basis of our best understanding of laws & not binding on anyone.
