Section 10 of CGST Act, 2017 : Section 10: Composition Levy

Explanation using Example

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.