Chapter 6

Composition Scheme Sec. 10

Ques-1 what is composition levy under GST?
Ans:- the composition levy is an alternative method of levy of tax designed for small taxpayers whose
turnover in preceding FY is up to

For manufacturer, traders & restaurant For other service providers

Rs 1.5 cr- Assam, Himachal Pradesh, Jammu & Rs 50 lakhs for all states
Kashmir, other states- 75 lakhs in case of other
special Category States

The objective of Composition scheme is to bring simplicity and to reduce the compliance cost for the
small taxpayers.
Moreover, it is optional and the eligible person opting to pay tax under this scheme can pay tax at a
prescribed percentage of his turnover every quarter instead of paying Tax at normal rate.

Ques-2 Who is the persons not eligible for composition scheme?

Ans:- Following persons are not allowed to opt for the composition scheme u/s 10:
a) A casual taxable person or a non-resident taxable person;
b) Suppliers whose aggregate turnover in the preceding financial year crossed Rs threshold limit
c) Persons supplying goods which are not taxable under GST law( alcohol & Liquor)
d) Persons making any inter-state outward supplies of goods or services
e) Suppliers making any supply of goods through an electronic commerce operator who is required to
collect tax at source under section 52; and
f) A manufacturer of following goods:-

SI. No Description

1 Ice cream and other edible ice, whether or not containing cocoa

2 Pan Masala

3 Tobacco and manufactured tobacco substitutes

4 Aerated water

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Ques-3 Whether Person supplying goods also supplying services is eligible to opt for
composition scheme?
Ans. With a view to enable such taxpayers to avail of the benefit of composition scheme, second
proviso has been added to section 10(1) which permits a registered person opting for composition
scheme to supply services [other than restaurant services] of specified value. This specified value is value
not exceeding:
(a) 10% of the turnover in a State/Union territory in the preceding financial year or
(b) Rs. 5 lakhs, whichever is higher.
Example: Ram sewak has opted for composition scheme in the financial year 2019-2020. His aggregate
turnover in FY 2018-19 is Rs. 60 lakhs. In FY 2019-2020, he can supply services [other than restaurant
services] up to a value of not exceeding:
(a) 10% of Rs. 60 lakhs, i.e. Rs. 6 lakhs
or
(b) Rs. 5 lakhs, whichever is higher.
Thus, he can supply services up to a value of Rs. 6 lakhs in FY 2019-2020.

Ques-4 what are the rates of tax applicable to a registered person under composition
scheme?
Ans:- The category of registered persons, eligible for composition levy under section10 shall pay tax at
the rate as specified in below table:-

Sr. No Categories of registered person Central rate State/UTGST Turnover

rate

1 Manufacturing other than goods 0.5% 0.5% of AT including

notified exempt turnover

2 Other suppliers (normally trader) 0.5% 0.5% of only taxable

supply of goods &
services

3 Composite supply of food or any 2.5% 2.5% of AT including

other article for human consumption exempt turnover
or drink
(other than alcoholic liquor) Ex:-
Restaurant

4 Other service providers 3% 3% Of first 50 lakhs

turnover of goods
& services including
exempt

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 Chapter 06 Composition Scheme

Ques-5 Explain the following in accordance with the provisions of GST Act pertaining to
Composition Scheme:-
1) Can a registered person, who purchases goods from a taxable person paying tax
under the composition scheme avail credit of tax paid on purchase made from the
composition dealer?
2) Can a person paying tax under the composition scheme issue a tax invoice under
GST?
3) Can a person who has opted to pay tax under the composition scheme avail input
tax credit on his inward supplies?
Ans:-
1) No, as the composition dealer cannot collect tax paid by him on outward supplies from his
customers, the registered person making purchases from a taxable person paying tax under the
composition scheme cannot avail credit.
2) No, He shall issue a bill of supply in lieu of tax invoice
3) As per sec 10(4) any taxable person opting to pay tax under the composition scheme cannot enter
the credit chain & thus cannot avail credit on his inward supplies.

Ques-6 In Accordance with the provisions of GST Act, give answers to be the following
pertaining to composition scheme:-
1) Whether the composition scheme will be optional or compulsory?
2) Will a taxable person be eligible to opt for composition scheme only for one out of 3 business
verticals?
3) Can composition scheme be availed if the taxable person effects inter-state supplies?
4) Can composition tax be collected from customers?
Ans:-
1) It is an optional scheme provided the eligibility criterion to opt the scheme is satisfied.
2) No, Composition scheme would become applicable for all the business verticals/ registrations which
are separately held by the person with the same PAN.
3) No, Composition scheme is applicable subject to the condition that the taxable person does not
affect inter-state outward supplies in current year.
4) No, The taxable person under composition scheme is restricted from collecting tax.

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Ques-7 How to compute ‘aggregate turnover’ to determine eligibility for composition

scheme?
Ans:- As per sec 2(6) of CGST Act, Aggregate Turnover shall be computed as follows:

Includes:- Value of all outward supplies Excludes

Value of taxable supplies CGST

Exempt supplies SGST

Export of goods or services or both UTGST, IGST, Cess

Interest income to be excluded while Value of inward supplies on which tax payable
computing aggregate turnover for under reverse charge
determining eligibility for composition
scheme. Interest income not to render a
person ineligible for composition scheme

Turnover of persons having the same permanent account number to be computed on all India basis.
Turnover From 1 April till the person liable to get registered included in AT computed for previous
year but excluded for computation of turnover for current year for computing tax liability.

Ques-8 ABC ltd is a manufacturing company located in Manipur. During the financial
year 20-21 total value of supplies including inward supplies taxed under reverse
charge basis are Rs 77,60,000. The breakup of supplies is as follows:-
1) Intra state supplies of goods chargeable to Nil rate of GST – Rs 25,00,000
2) Intra states supplies made under forward charge – Rs 18,00,000
3) Intra state supplies of goods exempted under section 11 of CGST act – Rs 32,00,000
4) Value of inward supplies of goods on which tax is payable under RCM – Rs 2,60,000
Explain whether XYZ is eligible to opt for composition scheme in financial year 21-22.
Ans:- As per section 10(1) of CGST Act a registered person whose aggregate turnover in the preceding
financial year does not exceed 75 lakhs in Manipur may opt for payment of tax under composition
scheme.
Computation of the aggregate turnover shall be as per section 2(6) of CGST Act which means the
aggregate value of:-
All taxable supplies (excluding the value of inward supplies on which tax is payable by a person on
reverse charge basis).
Exempt supplies
Exports of goods or services or both and

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Inter-state supplies of persons having the same permanent account number, to be computed on all
India basis
Excludes:- Central tax, State tax, Union territory tax, Integrated tax and cess
Computation of Aggregate turnover for the above case:-

SI. No Particulars Amount in Rs

1 Supplies chargeable to Nil rate of GST 25,00,000

2 Supplies made under forward charge 18,00,000

3 Supplies of goods under exempted category 32,00,000

4 Inward supplies of goods on which tax is payable under RCM Nil

(To be excluded)

Total 75,00,000

Since the aggregate turnover does not exceed Rs.75 lakhs during the financial year 20-21 hence ABC ltd
shall be entitled to composition scheme for financial year 21-22.

Ques-9 YTM ltd a manufacturing concern has affected intra state taxable supply of
Rs.23,00,000 and inter-state taxable supply of Rs.18,00,000 in financial year 20-21. The
company wants to opt for composition scheme under section 10 of CGST Act,2017. As
a GST consultant advise XYZ ltd whether it can opt for composition scheme in financial
year 21-22.
Ans:- As per section 10 of CGST Act,2017 a manufacturer can opt for composition scheme if he is not
engaged in making inter-state outward supplies of goods.
In the present case since YTM ltd affected interstate supply in financial year 20-21 if YTM ltd continues
interstate supply in 21-22 then he is not eligible to opt composition scheme.

Ques-10 Determine whether the suppliers in the following cases are eligible for
composition levy:- Minal has 2 offices in Delhi and the turnover of goods is 75
lakhs and 47 lakhs respectively.
Ans: As per section 10 of CGST a person whose aggregate turnover does not exceeds 1.5 Cr may opt to
pay an amount calculated at the prescribed rates during the current financial year, in lieu of the tax
payable by him. In the given case Minal can opt for composition scheme subject to fulfillment of
condition of prescribed aggregate turnover limit as in the above case the total turnover from both the
offices is Rs.122 Lakhs which is within the prescribed limit thus can opt for composition scheme.

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Ques-11 What is the option for service providers (other than restaurant) under
composition scheme ?
Ans-12 Option to pay concessional tax @ 3%
With effect from 01.04.2019, Notification No. 2/2019 CT (R) dated 07.03.20198 has provided an option
to a registered person whose aggregate turnover in the preceding financial year is upto `50 lakhs and
who is not eligible to pay tax under composition scheme, to pay tax @ 3% on first supplies of goods
and/or services up to an aggregate turnover of ` 50 lakhs made on/after 1st April in any FY, subject to
specified conditions. The scheme has been elucidated as under:
Who are the persons not eligible for composition scheme, but eligible for
Notification No. 2/2019 CT (R)?
A registered person whose aggregate turnover in the preceding financial year does not exceed ` 50 lakhs
and who is exclusively engaged in supplying services other than restaurant services, or
who is engaged in supply of services [other than restaurant services] along with supply of goods and/ or
restaurant services of value exceeding `5 lakhs in current FY.
The registered person opting to pay CGST@ 3% under this notification shall be liable to pay:
“CGST @ 3% on all outward supplies - first supplies of goods or services or both upto an aggregate
turnover of `50 lakhs made on or after the 1st April in any FY – regardless of any exemption from tax
available to such supplies or any notification issued under section 9(1).”

Ques-12 Aniket ltd has 3 registered business outlets in Mumbai. His aggregate turnover
from all of them is Rs.120 lakhs. He wishes to pay tax under composition scheme for
one of the outlet whereas for the others under normal levy. Advise whether Aniket can
do so?
Ans: A registered person with an aggregate turnover in the preceding financial year up to Rs. 1.5 Cr is
eligible for composition levy in Mumbai. Since the aggregate turnover of Aniket ltd does not exceed
Rs.1.5 cr, it is eligible for composition levy in the current year.
However all registered persons having the same Permanent Account Number have to opt composition
scheme. If one of such registered person opts for normal scheme, others become ineligible for
composition scheme. Thus, Aniket ltd either has to opt for composition levy or normal levy for all of the
outlets

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Ques-13 Mr. Ashok a retailer who keeps no inventories, presents the following
expected information for the year-
Purchases of goods Rs.50 lakhs (GST @ 5%)
Sales (at fixed selling price inclusive of all taxes) : Rs.60 lakhs (GST on sales @5%)
Discuss whether he should opt for composition scheme if composition tax is 1% of
turnover
Expenses of keeping detailed statutory records required under the GST laws will be
Rs.1,20,000 p.a., which shall get reduced to Rs.50,000 if composition scheme is opted
for. Other expenses are Rs.3,00,000 p.a.
Ans: The cost to the customer under two schemes is as under:

Particulars Normal GST Composition

Scheme scheme

Cost of goods sold (no credit under composition scheme 50,00,000 52,50,000
hence cost will be higher)

Add: Cost of maintaining records 1,20,000 50,000

Add: normal expenses 3,00,000 3,00,000

Total costs 54,20,000 56,00,000

Sales(inclusive of taxes) 60,00,000 60,00,000

Less: tax (GST=60 lakhs*5/105); (composite tax= 60lakh*1%) 2,85,714 60,000

Sales (net of taxes) 57,14,286 59,40,000

Profit (sales – cost) 2,94,286 3,40,000

Since the profit of the dealer is higher in case of composition scheme, hence the same shall be opted.

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Ques-14 Abhimanyu is a trading company engaged in supply of ice cream during the
financial year 2020-21 her total value of supplies was Rs 1,01,35,000 of which value of
inward supplies of goods chargeable under RCM was Rs 9,35,000. Whether Abhimanyu
is eligible to apply for composition scheme for 21-22 ?
Ans:- As per section 10(2) of CGST Act a manufacturer of goods notified by the government shall not be
eligible to opt for composition & pertaining to it as per notification 8/2017 Central tax dated
27/06/2017 as manufacturer of ice cream is one amongst the notified category by the government. But
in the given case as Abhimanyu is engaged in trading of ice cream and not in manufacturing, hence he
can avail the benefit of composite levy.
Computation of Aggregate turnover
Particulars Rs
Total value of supplies 1,01,35,000
Less:- value of inward supplies of goods chargeable under RCM 9,35,000
Aggregate turnover 92,00,000

Ques-15 In accordance with provisions of GST Act, Give answers to the following
pertaining to composition scheme:-
1) Can a person making application for fresh registration under GST opt for
composition levy at the time of making application for registration?
2) Can the option to pay tax under composition levy be exercised at any time of the
year?
3) Can a person who has already obtained registration opt for payment under
composition levy? If, so how?
4) In case a person has registration in multiples states? Can he opt for payment of tax
under composition levy only in one state and not in other state?
Ans:-
1) Yes, A person can avail the option to pay tax under the composition scheme by filling details in Part
B of FORM GST REG-01 This will be considered as information to pay tax under the composition
scheme.
2) No, The option is required to be given electronically FORM GST CMP-02, prior to the
commencement of the relevant financial year.
3) Yes, A person needs to give intimation electronically in FORM GST CMP-02 but it shall be availed
from beginning of the financial year only.
4) Composition scheme once opted it would be applicable for all branches having separate registration
within the state & all other registration outside the state which are held by the person with same
PAN. NO, he cannot opt the payment of tax under composition in one state & normal tax in
another state for same PAN.

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Ques-16 A person availing composition scheme in Gurgaon during a financial year

crosses the turnover of Rs 1.5 Cr during the course of the year i.e. he crosses the
turnover of Rs 1.5 Cr December? Will he be allowed to pay tax under composition
scheme for the remainder of the year i.e. till 31st march?
Ans:- No, The option to pay tax under composition scheme lapses from the day on which the aggregate
turnover of the person availing composition scheme during the financial year exceeds the specified limit
(Rs 1.5 Cr).He has to pay tax under regular scheme after exceeding threshold limit in current year.
He is required to file intimation for withdrawal from the scheme in prescribed form within 7 days from
the day on which the threshold limit has been crossed.

Ques-17 Can person paying taxes under composition levy withdraw voluntarily from
the scheme? If so, how?
Ans:- The registered person who intends to withdraw from the composition scheme can file a duly
signed or verified application in FORM GST CMP-04 within 7 days from occurrence of such event.
Every person who has filed an application for withdrawal from the composition scheme may
electronically furnish a statement in FORM GST ITC-01 containing details of the stocks of inputs and
inputs contained in semi-finished or finished goods held in stock by him on the date of withdrawal,
within a period of thirty days of withdrawal.

Ques. 18 Shubhlaxmi Foods is engaged in supplying restaurant service in Maharashtra.

In the preceding financial year, it has a turnover of • 140 lakhs from the restaurant
service. You are required to advise Shubhlaxmi Foods whether it is eligible for
composition scheme under sub-sections (1) and (2) of section 10 in the current year
assuming that in the current financial year, his turnover is expected to be • 130 lakhs
from supply of restaurant services and • 10 lakhs from the supply of farm labour in said
State. Further, it also expects to earn bank interest of •20 lakhs from the fixed deposits.
Also compute the estimated tax payable by Shubhlaxmi Foods in the current FY.
Ans.
As per section 10(1) of the CGST Act, 2017 read with Notification No. 14/2019 CT dated 7.03.2019,
a registered person, whose aggregate turnover in the preceding financial year did not exceed ₹ 1.5
crore, may opt to pay, in lieu of the tax payable by him, an amount calculated at the specified rates
if, inter alia, he is not engaged in the supply of services other than restaurant services.
However, the scheme permits supply of other marginal services for a specified value along with the
supply of goods and restaurant service, as the case may be. Such marginal services can be supplied
for a value up to 10% of the turnover in the preceding year or ₹ 5 lakhs, whichever is higher
[Second proviso to section 10(1)].
It is important to note that the exempt services are included in the definition of aggregate turnover
[Section 2(6) of the CGST Act, 2017]. However, explanation to section 10(1) clarifies that for the

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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.
Thus exempt services shall also be considered for determining the eligibility for composition scheme
under second proviso to section 10(1) and in computing aggregate turnover in order to determine
eligibility for composition scheme. The only exception is interest received from deposits, loans etc.
In the given case, the aggregate turnover of Shubhlaxmi Foods from restaurant services in the
preceding FY is ₹ 140 lakhs. Therefore, it is eligible to opt for composition scheme under subsections
(1) and (2) of section 10 in the current FY.
Further, apart from restaurant services, it can provide services upto ₹ 14 lakhs [i.e. 10% of ₹ 140
lakhs or ₹ 5 lakhs, whichever is higher], in the current FY. As already seen, bank interest of ₹ 20
lakhs from fixed deposits will not be considered while determining this limit.
Further, Shubhlaxmi Foods is expected to provide the exempt services of supply of farm labour
worth ₹ 10 lakhs in current financial year. Thus, turnover of supply of farm labour [₹ 10 lakhs]
alongwith the turnover of restaurant services [₹ 130 lakhs] will be eligible for composition scheme
under sub-sections (1) and (2) of section 10, in the current financial year.
Tax rate applicable for restaurant services under composition scheme is 5% [2.5% CGST and 2.5%
SGST]. Estimated tax payable by Shubhlaxmi Foods is as under: = Rs. 140 lakhs [Rs. 130 lakhs + Rs.
10 lakhs] × 5% = Rs. 7 lakhs [CGST = Rs. 3.5 lakhs and SGST = Rs. 3.5 lakhs

Ques. 19 Bansal and Chandiok started a partnership firm of Chartered Accountants in

Jaipur (Rajasthan) on 1.04.20XX. The firm specializes in providing audit services to
banks, in Rajasthan.
It provided the following details of its turnover

Quarter Amount
(in Rs.)

Apr-Jun 10 lakhs

July-Sep 20 lakhs

It crossed the threshold limit of • 20 lakhs on 1.08.20XX. Bansal and Chandiok wishes
to opt to pay tax at concessional rate under section 10(2A) of the CGST Act, 2017.
Examine whether the firm is eligible for this scheme? If yes, then determine the tax
payable by it in quarters (i) Apr-Jun & (ii) July-Sep?

Ans.

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Section 10(2A) of the CGST Act, 2017 provides an option to a registered person whose aggregate
turnover in the preceding financial year is upto ₹ 50 lakhs and who is not eligible to pay tax under
composition scheme, to pay tax @ 6% [CGST @ 3% and SGST @ 3%] of the turnover in State or
turnover in Union territory .
The option to pay tax under section 10(2A) shall lapse with effect from the day on which his
aggregate turnover during a financial year exceeds ₹ 50 lakhs.
For the purposes of determining the tax payable by a person, the expression “turnover in State or
turnover in Union territory” shall, inter alia, not include the value of supplies from the first day of
April of a financial year upto the date when such person becomes liable for registration under this
Act.
In the given case, Bansal and Chandiok Firm is eligible to opt for the scheme to pay tax at
concessional rate since his turnover in the preceding financial year was nil and he is not eligible to
opt for composition scheme since he is dealing exclusively in services other than restaurant services.
Tax payable by the firm is as follows:
i. Apr-Jun quarter: Tax payable by the firm in first quarter is nil since the firm’s turnover [Rs. 10 lakhs]
has not yet exceeded the threshold limit of Rs. 50 lakhs.
ii. July-Sep quarter: While computing the tax payable by the firm in second quarter, the turnover from
01.04.20XX to the date from which he becomes liable for registration under the Act is to be
excluded.
Tax payable will be computed as under

Total Turnover Rs. 30,00,000

Less : Threshold limit for registration 20,00,000

Taxable Turnover 10,00,000

Tax @ 6% Rs. 60,000

* CGST = Rs. 30,000 and SGST = Rs. 30,000

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Ques-20 M/s Heeralal and Some registered in Karnataka has opted to a mail the
benefit of compostiong scheme under sut›-sections (1) und (2) o1 section 10. It has
furnished the following details for the tax period on 30.06.20XX

Items Rs.

1. Taxable turnover of goods within the State 15,00,000

2. Exempted of goods within the State 17,00,000

Total Turnover 32,00,000

Using the above inforamtion, calculate tax to be paid by the firm for the tax
period ended on 30.06.20XX in following independent situations:
1. M/s Heeralal and Sons is a manufacturer
2. M/s Heeralal and Sons is a trader
Ans.
1. If M/s Heeralal and Sons is a manufacturer :
Tax is to Mr paid B : In (CGST+ SGST) or the turnover in the State as under:
1 % of Rs, 32,00,000 [ Rs. 15,00,000 + 17,00,000)
= Rs. 32,000 [CGST = Rs. 16,000 and SGST = Rs. 16,000]
2. If has Heeralal and Sons is a trader :
Tax is to be paid @ 1% (CGST+ SGOT) of the turnover of taxable supplies of goods and services
in the State as under :
= 1% of Rs. 15,00,000 = Rs, 15,000 [CGST = Rs. 7,500 and SGST = Rs. 7,500]

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