The Central Goods and Services Tax Act, 2017
CHAPTER III: LEVY AND COLLECTION OF TAX
Section 10: Composition Levy
Bare Act
(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 per cent. 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 per cent. 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 which are not leviable to tax under this Act;
- (c) he is not engaged in making any inter-State outward supplies of goods;
- (d) he is not engaged in making any supply of goods 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 (43 of 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:
Provided that where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961 (43 of 1961), the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this sub-section.
(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 up to 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 up to 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.
Simplified Act
(1) Even if other parts of this law say something different, a business that registered for GST and made less than 50 lakh rupees in the year before can choose to pay a fixed rate of tax instead of the normal GST rates. This rate will be set by the government and won't be more than:
- (a) 1% for manufacturers,
- (b) 2.5% for certain service providers, and
- (c) 0.5% for other suppliers.
The government can raise this 50 lakh rupee limit to up to 1.5 crore rupees if the GST Council agrees.
Businesses using these special rates can also provide services (not including some specific services) up to 10% of their turnover or 5 lakh rupees, whichever is more.
Explanation: When calculating this 10%, don't count services like loans or deposits where you only make money through interest or discounts.
(2) To choose this special tax rate, a business must not:
- (a) mainly provide services,
- (b) sell goods that aren't taxed,
- (c) sell goods to other states,
- (d) sell through online platforms that collect GST,
- (e) make goods that the government says can't use this scheme, or
- (f) be a temporary or foreign business.
If a business shares a tax ID with others, all must choose this special rate together.
(2A) Businesses that c… Read the complete text with KanoonGPT Pro.
Explanation using examples
Imagine a small manufacturer, Mr. A, who runs a furniture business in his home state. In the preceding financial year, his aggregate turnover was ₹40 lakh, which is below the ₹50 lakh threshold. Mr. A does not engage in inter-state sales, does not supply goods through e-commerce operators, and does not deal in non-taxable goods under the GST Act. He is eligible to opt for the composition scheme under Section 10(1) of the Central Goods and Services Tax Act, 2017.
By opting into this scheme, instead of paying tax at the normal rates applicable under sub-section 1 of section 9, Mr. A can pay tax at a prescribed rate of 1% on his turnover in the state, simplifying his tax compliance and reducing his tax liability.
However, Mr. A must be cautious that if his turnover exceeds ₹50 lakh during the financial year, he will have to opt out of the composition scheme and pay tax as per the normal GST rates. Additionally, he cannot claim any input tax credit for taxes paid on his purchases and cannot charge GST on his sales to customers.
