Chapter: - Composition Scheme

Section 10 of CGST ACT

(i.e tax
pay at normal
tax rate i.e
5%, 12%, 18%,
28%)

Composition levy:- an option for Advantages

specified categories of small
taxpayers to pay GST at a very low
rate on the basis of turnover.
• Low rate of tax
• Hassel free simple procedures
for such taxpayers
• Simple calculation of tax based
on turnover
• A very simple annual return
 1.Definition of Aggregate turnover:- Section 2(6) [ATO]

Includes Excludes

Value of all outward supplies 1. CGST

1. Taxable Supplies (leviable to Gst) 2. SGST
3. IGST
2. Exempt supplies ( 1. Nil Rate 4. CESS
2. Wholly Exempt u/s 11 5. Value of
3. Non taxable i.e not leviable “inward supplies”
to tax ) on which tax is
3. Exports (a.k.a Inter state supply) payable under RCM
4. Inter-State supplies of persons having
Same PAN (e.g Stock Transfer)

To be computed on “all India basis”

Comment: - If any supply under RCM, then its value to be included in “ATO” of Supplier
and not of the Recipient even though recipient is paying the tax.
 2.Definition of “T/O in State” or “T/O in UT”:- Section 2(112)

Means Excludes

Aggregate value of I. CGST

I. All Taxable Supplies (leviable to Gst) II. SGST/UTGST
III. IGST
II. Exempt supplies ( a. Nil Rate IV. CESS
Made with in b. Wholly Exempt u/s 11 V. Value of
State/UT c. Non taxable i.e not leviable “inward supplies”
to tax ) on which tax is
III. Exports (a.k.a Inter state supply) payable under RCM
IV. Inter-State supplies

3. Aggregate T/O:- sec 2(6) T/O in State:- sec 2(112)

i) It is computed on i) It includes only the T/O

All over India basis of a within a Particular State.

ii) ATO includes T/O of all the ii) It includes T/O of all the

Branches all over India under Same PAN Branches with in a State under

Whether such Braches are REG. or Not. Same PAN whether reg. or not
4. Definition of Taxable Supply [sec. 2(108)]

Means supply of Goods or services or both which is Leviable to tax under this act.

5. India

List of Special Categories States (11) Rest of India

3
MT: - SATNAM + 3 HILLY AREAS

1. S- Sikkim
2. A- Assam
3. T- Tripura
4. N- Nagaland
5. A- Arunachal paradesh
6. M- Mizoram
7. M- Manipur
8. M- Meghalaya
+
9. J&K
10. Uttrakhand
11. Himachal pardesh (H.P)

6. Objective of Composition Scheme is to bring simplicity and to reduce the

compliance cost for the small taxpayers.

7. Small taxpayer with an “ATO” in a preceding financial year upto rs 1.5 cr (rs 75
lakh for special categories states except J&K, H.P., Assam) shall be eligible for
composition levy during Current F.YR for “ATO” upto rs 1.5cr (rs75 lakh) in the
Current F.YR

8. They are not required to raise any “ Tax invoice”, But simply need to issue a
“bill of supply” wherein no tax shall be charged from the Recipient.
9. An eligible person opting to pay tax under the composition scheme shall,
instead of paying tax on every invoice at the specified rate, pay tax at a
prescribed percentage of .

10. Supplier opting for composition levy need not worry about the classification
of their goods or services or both, the rate of GST applicable on their goods
and/or services etc.

11. At the end of a quarter, he would pay the tax, without availing the benefit of
input tax credit (ITC). i.e in other words he would be required to fill return at
quarterly basis’s.

It is an optional scheme

12.Composition scheme u/s 10

Taken by “REG. Person”

States States

Special categories (11-3=8) Rest of India (+ 3 SC)

Excluding Including

• J&L J&K
• H.P H.P.
• Assam Assam

Limit: - ATO 75 lakh in PFY Limit:- ATO 1.5cr (150lakh) in PFY

Note: - If ‘1’ unit is located in “SATNAM” & another is located in Normal, then
T/O limit will be RS 75 Lakh

13. primarily, the composition scheme is available to the

 • Suppliers of goods and
• Restaurant service
• But composition suppliers are permitted to supply services upto a specified marginal
value in the year of opting for composition.

14. Rates under composition scheme:-

Sr.no Categories of registered persons Total rate (cgst+sgst)

1 Manufacturers, other than manufacturers of 1% of T/O in State
such goods as may be notified by the
government, (i.e. other than ice cream, pan
masala and tobacco.)
2 Restaurant, Catering, mess, or any other 5% of T/O in State
service contract where goods as food or drink is
supplied for Human consumption (Except
Alcohol for human consumption)
[i.e. Restaurant & outdoor catering services]
( para6(b) of Schedule II)
3 Any other supplier eligible for composition 1% of T/O of Taxable
levy under section 10 of cgst act (i.e normally supplies of Goods &
traders) Services in the State

15. Section 10:-

I. It is applicable to “REG Person”.

• Whose “ATO” in PFY is
• Not exceeding 1.5cr (RS 75 Lakh in special categories of states
except J&K, H.P. and Assam)
II. It is an optional Scheme
III. Fundamentally, the composition scheme can be availed in respect of
• Goods and
• Only one service namely, Restaurant service.
• However, there are cases where a manufacturer/trader is also
engaged in supply of services other than restaurant service
though percentage of such supply of services is very small as
compared to the supplies of goods.
• There may also be cases where a restaurant service provider is
also engaged in supplying a small percentage of other services.
• But now as per second proviso to section 10(1) he can provide
marginal supply of service [other than restaurant services] for a
specified value along with the supply of goods and/or restaurant
service, as the case may be.
• This specified value is value not exceeding:
a) 10% of the turnover in state/UT in the PFY
OR
b) RS 5 lakh

• Example:- i) where the T/O of a reg. person opting for

composition scheme rs 50 lakh in the PFY, then he can
supply services [other than restaurant services] upto a maximum
value of rs 5 lakh in the current FYR.
ii) where the T/O of a reg. person opting for
composition scheme rs 50 lakh rs 1.5 cr in
the PFY, then he can supply services [other than restaurant
services] in the current FYR upto a maximum value of 10% of the
in the PFY.
• NOTE:- It has been clarified that the
of supply of
By way of extending deposits, loans or advances
In so far as
The consideration is represented by of interest or
discount,
Shall not be taken into account
 For determining the eligibility in computing the ATO in order

For composition scheme under second to determine eligibility for

Proviso to section 10(1). Composition scheme.

i.e in simple words for calculating the

value of marginal supply of service

[other than restaurant services]

Interest on loans/deposit/advances

Will not be taken into account

IV. AUTHOR NOTE:-

a) While calculating ATO for eligibility of composition scheme of
PFY or ATO of 1.5 CR of CFY------- interest on loan/advances to be
excluded.
b) As per second proviso to section 10(1) supply of service is
allowed in PFY ( also allowed in CFY) with in permissible limit of

10% of t/o in state in PFY

OR
RS 5 lakh
Whichever is HIGHER
So in this limit interest amount should be excluded
c) While calculating 1% or 5% tax for manufacturer or Restaurant
interest on loan ETC to be added in T/O in state ( as it is exempt
supply) but in case of Trader as we calculate Gst 1% of taxable
supply of Goods and services in a state hence interest should not
be considered as it is a exempt supply.
16. Option availed by “Registered person” U/S 10 Shall lapse w.e.f the day on
which his “ATO” during a Financial year (i.e. in Current FYR) Exceeds the limit
specified (1.5 CR or 75 Lakh).

17. Composition Scheme to be applied uniformly by ALL the Registered persons

having the Same PAN.

• Example:- REG person Operating in

Maharashtra Gujrat

Composition scheme:- yes no

Not allowed

• All the registered persons having the same PAN have to opt for
composition scheme.
• If one such registered person opts for normal scheme, others
becomes INELIGIBLE for composition scheme.

18. He shall pay tax U/S 9(3)/9(4) [RCM] on inward supply i.e. No composition
scheme on payment of taxes on RCM basis.

19. Instead of TAX INVOICE--- “Bill of Supply” will be issued under composition
scheme.

20. Return: - only one Return GSTR-4 on Quarterly Basis.

21. Return is to be filed annually by a composition supplier.

22. composition scheme Normal scheme

i. Tax on - No ITC - ITC ------yes

Input - Become part of cost - Not part of cost
ii. Bill of - Invoice price without - TAX Invoice—Invoice price
Supply GST with GST

23. 5 conditions for composition Scheme:-

C1:- He is Not engaged in supply of Service other than Schedule II Para 6(b) [i.e.
catering & Restaurant services] but there is exception of this condition i.e.
exception is:- A registered person opting for composition scheme is allowed to
supply services(other than restaurant services) along with supply of goods or
supply of restaurant services of value not exceeding 10% of T/O in state in the
preceding financial year or RS 5 lakh, Whichever is higher.

C2:- NOT engaged in Non Taxable supplies of goods (e.g. liquor for human
consumption)

C3:- NOT engaged in making any Inter-State outward supplies of Goods

Note: - Inter-State Inward supplies allowed under composition levy.

Restriction only on Inter-State outward supply.

C4:- He is not engaged in making any supply of “Goods” through an ECO who is
required to collect tax at source (TCS) U/S 52.

C5:- He is not “Manufacture” of Following 3 Goods

1) Ice cream & other edible ice, whether or not containing cocoa
2) Pan masala
3) Tobacco & manufactured Tobacco Substitutes

NOTE: - This Restriction only apply to manufacture of Notified Goods. I.e.

we can say distributor, wholesaler, retailer of such notified goods are
eligible for composition scheme

24. Further conditions for Eligibility:-

 • He is neither a casual taxable person (CTP) nor a non-resident taxable
person (NRTP).
• 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.
• Shall mention the words “composition taxable person” at a prominent
place at his place of business.

25. i) composition scheme supplier can not collect tax.

ii) composition scheme supplier can not claim ITC.

26. Withdrawal from composition scheme:-

Case 1:- voluntary withdrawal of composition scheme

Case 2:- when ATO Exceeds 1.5cr or 75 lakh during the financial year

Case 3:- If he Ceases to satisfy any of the condition required to opt for
composition scheme.

27. Question: - what will be the rate of tax under composition scheme for
“Bakery Items” supplied where eating place is attached. Will it qualify as
manufacturer for the purpose of composition levey?

Answer:- Any service by way of serving of food or drinks including by a backery

will be covered under the schedule II Para 6(b) [i.e. restaurant and catering
services] and hence Gst rate of composition levy for the same would be 5%.

28. Recovery & penalty: -

If P.O (Proper officer) has

reason to belive that a + upon receipt of reply
taxable person has paid to such SCN
tax U/S 10 despite not PO shall issue an
being eligible then such order with in 30
person + issue Show cause days
In addition to notice (SCN) i) Either accept
 Normal tax liability
Be liable to pay
penalty
& pay tax
Provision of
section 73& 74
shall apply
29. Procedural Part: -
A) Intimation of opting composition levy: -
Intimation by person
Applying for REG.
A person who is not registered &
applies for registration
Part B of Form GST REG-01
----can select option to pay GST
under composition scheme. The
same shall be considered as
intimation.
Option to pay tax under
composition levy shall be
effective from the date from
which REG. is effective.
the reply or
ii) Deny the
option to
under
composition
levy
Intimation by Registered person
• Electronically file an intimation
in Form CMP-02 on the common
portal prior to commencement
of FYR for which said option is
exercised
• Also furnish the details of ITC
relating to Inputs laying in stock,
inputs contained in Semi FG, FG
with in 60 days from the
commencement of the relevant
FYR
• Any intimation i.r.o any place of
business(POB) in a state/UT
“shall be Deemed to be an
intimation i.r.o all other POB
registered on the Same PAN
• Option to pay tax under
composition levy shall be
effective from the beginning of
 the FYR

Author note: -

A person applying for registration can opt for composition at any time of
the financial year and composition levy shall be effective from which
registration is effective.
A registered person can opt for composition scheme from the beginning
of any FYR and composition levy shall be effective from the beginning of
said FYR.

B) Validity of composition levy: -

Voluntary withdrawal of Withdrawal from the Denial of option to pay

composition scheme composition scheme by a tax under the
taxpayer who ceases to composition scheme by
satisfy any of the tax authorities
prescribed conditions
(e.g. ATO>1.5CR)
The registered He is required to P.O shall issue
person who file an intimation show cause notice
intends to for withdrawal (SCN) to such
withdraw from the from the scheme in person.
composition prescribed form Upon receipt of
scheme shall, With in 7 days of reply to SCN, P.O
Before the date of the occurrence of shall pass an order
such withdrawal, the event. Either accepting
File an application Effective date of the reply, or
in prescribed form. such withdrawal Denying the option
Effective date of shall be the date To pay tax under
such withdrawal indicated by him in composition
shall be the date his intimation. scheme
indicated by him in From the date of
his application option or from the
But such date may date of event
not be prior to the concerning such
 commencement of contravention, as
the financial year the case may be.
in which such Effective date of
application for such denial shall
withdrawal is be
being filed. From a date,
Including any
retrospective date,
As may be
E.g. application is determined by the
filed on tax authorities.
23/04/2018 (FY But such effective
2018-2019). The date shall not prior
date to be to the date of
indicated in the contravention of
application for the the provisions of
withdrawal, CGST Act/Rules.
cannot be before
01/04/2018.

In each of the above case, such person may furnish a statement in prescribed
form containing

Details of the stock of inputs &

Inputs contained in the semi-finished or finished goods held in stock
By him on the date on which 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.
Composition scheme for supply of services [N/N 02/2019]
1. We have already seen that primarily, the composition scheme is
available in respect of goods and only one service namely, restaurant
service.
2. Further, marginal supply of other services is permitted along with the
supply of goods and/or restaurant service.
3. However, a person engaged exclusively in supply of services other than
restaurant service is not eligible for the composition scheme.
4. In order to provide benefit to such suppliers, a scheme to pay tax at
the concessional rate for small service providers under the notification
no. 2/2019.
5. N/N 2/2019 is an option to pay concessional tax at concessional rate.
i.e. it is an optional notification
6. An option
• For the small service providers with aggregate turnover UPTO RS
50 lakh in preceding FY
• And Who are not eligible for 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 rs 50 lakh made on/after 1st april in any FY.
7. Who are the persons not eligible for composition scheme, but eligible
for N/N 2/2019.
A registered person
• Whose aggregate turnover in the preceding financial year does
not exceed RS 50 lakh and
• Who is exclusively engaged in supplying services other than
restaurant services.
8. “first supplies of goods or services or both” shall,
• Include the supplies from the first day of april of a financial year
to the date from which he becomes liable for registration under
the said act
 • But for the purpose of determination of tax payable under this
notification shall not include the the supplies from the first day
of april a financial year to the date from which he becomes liable
for registration under the act.
PFY: - Current Financial year
ATO is 5 lakh ATO upto 20 ATO upto 50
i.e. does not lakh lakh
exceeds RS 50 Reg not req Reg Req
lakh

ATO=30lakh

Cgst Sgst

3% on 3% on

30 lakh 30 lakh

=90000 =90000

9. In computing ATO in order for determining eligibility for this scheme,

interest on loans/deposit/advance will not be taken into account.
10. Conditions for the scheme:-
a) Supplies are made by a registered person
b) Whose aggregate turnover in the PFY was 50 lakh or below
c) Who is not eligible to pay tax under composition scheme
under section 10(1)
d) Who is not engaged in making any supply which is not
leviable to tax under the said act(i.e. not taxable supply).
Under composition scheme restriction is only on supply of
goods not leviable to tax.
e) Who is not engaged in making any inter-state outward
supply. In composition scheme restriction is only on
making inter-state outward supply of godos and not on
inter-state outward supply of services.
 f) Who is neither a CTP nor a NRTP.
g) Who is not engaged in making any supply through ECO
who is required to collect tax at source under section 52. In
composition scheme restriction is only on supply of Goods
h) Who is not engaged in making supplies of notified goods,
namely,
• Ice cream and other edible ice, whether or not
containing cocoa
• Pan masala
• Tobacco and manufactured tobacco substistues.

Under composition scheme, condition is that the supplier

should not be engaged in manufacture of notified goods.

11. Other points: -

1) Bill of supply shall be issued instead of tax invoice. Such bill of
supply will have the following words at its top- ‘taxable person
paying tax in terms of notification no. 2/2019, not eligible to
collect tax on supplies’.
2) Tax shall not be collected from recipient of supply.
3) ITC shall not be availed.
4) All registered persons having same PAN shall pay tax at the
concessional rate under this notification
5) Tax on inward supplies under section 9(3)/9(4) shall be paid at
the applicable rates, by the registered person opting for
concessional rate.
 12. Removal of ITC :- Where any registered person who has availed of input
tax credit opts to pay tax under this notification,
he shall pay an amount, by way of debit in the electronic credit ledger or electronic
cash ledger,
equivalent to the credit of input tax in respect of
inputs held in stock and
inputs contained in semi-finished
or finished goods held in stock
and on capital goods
as if the supply made under this notification attracts the
provisions of section 18(4) of the said Act and the rules made there-under
and
after payment of such amount, the balance of input tax credit, if any, lying in his
electronic credit ledger shall lapse.”;