COMPOSITION LEVY UNDER GOODS AND SERVICE TAX
Frequently asked Questions (Based on CGST ACT and Composition Rules)

1. Which section of CGST ACT deals with Composition Levy?

The governing section of Composition levy under CGST Act is Section 10.

2. Who can opt Composition Scheme?

A registered person, whose turnover is less than Rs.50 Lakhs in the preceding year.GST Council can recommend Government to increase the limit up to a maximum of Rs. 1 Crore. (Section 10(1))

3. What will the maximum tax rate?

a) For manufacturer – 1% of turnover in State or Union Territory
b) Works contract, food, drinks or any other article for human consumption (other than alcoholic liquor for human consumption ) – 2.50% of turnover in State or Union Territory
c) Other Suppliers – half percent (Section 10(1) and Rule 5 of Composition Rules)

Note: The above rates are the CGST rate. A similar amount is also required to be collected as SGST.

4. Who is Ineligible to opt for the scheme?

The persons who
⦁ Supply of goods not covered in this Act
⦁ Interstate supply of goods
⦁ Supply of goods through electronic commerce
⦁ Manufacturer of goods notified by government
⦁ Supplier of food, drinks or any other article for human consumption engaged in supply of SERVICES (goods referred to in clause (b) of paragraph 6 of ⦁ Schedule II) (Section 10(2))

5. What if more than one registered persons in one PAN?

All registered persons should opt for the composition scheme, else they become ineligible. (Provisio to Section 10(2)).

6. What will happen when the turnover exceeds the limit specified during a financial year?

The option availed shall lapse from the day the turnover exceed the limits. (Section 10(3)).

7. Can a person opt for Composition levy collect tax?

No. Tax can’t be collected and input tax credit is also not available. (Section 10(4)).

8. How to give intimation to opt for paying taxes under section 10 of CGST Act, for persons who has been granted registration on a provisional basis?
⦁ Electronically file intimation in FORM GST CMP-01 duly signed on the portal either directly or through a facilitation centre.
⦁ Intimation needs to be filed prior to the appointed day, but not later than 30 days from that day
⦁ In case intimation is filed after appointed day, the person shall not collect tax from the appointed day, but shall issue bill for supply for supplies made on or after that day.
⦁ Furnish details of stock including the inward supply of goods received from unregistered persons held by him on the day preceding the date from which he opts to pay tax U\s.10 in FORM GST CMP-03 within 60 days
⦁ Intimation in respect of any place of business in a State or Union Territory(UT) shall be deemed to be an intimation in respect of all other place of business registered on same PAN. (Rule 1)

9. How to give intimation to opt for paying taxes under section 10 of CGST Act, for persons are applying for registrations?

While submitting the registration application PART B of FORM GST REG-01 need to be filled and the same will be treated as intimation. (Rule 1)

10. How to give intimation to opt for paying taxes under section 10 of CGST Act, for registered persons prior to commencement of financial year?

⦁ Electronically file FORM GST-02 duly signed prior to the commencement of the financial year
⦁ Furnish a statement in FORM GST ITC-3 within 60 days from the commencement of relevant financial year
⦁ Intimation in respect of any place of business in a State or Union Territory(UT) shall be deemed to be an intimation in respect of all other place of business registered on same PAN.
⦁ The registered persons paying tax under section 10 may not file intimation every year (applicable in all cases) (Rule 1)

11. What are the conditions and restrictions of Composition Levy?

a) The person exercising the option should neither be a casual taxable person or non-resident taxable person;
b) Goods held on appointed date have not been;
(i) Purchased in the course of interstate trade or commerce or imported from outside India;
(ii) Received from branch situated outside India; and
(iii) Received from agent or principal outside India
c) If stock on appointed date includes goods purchased from unregistered persons, purchase tax needs to be paid;
d) Pay tax on goods received from unregistered persons;
e) Not to involve in manufacture of goods notified by government;
f) Mention the words “Composition Taxable Person, not eligible to collect tax on supplier” on all bills; and
g) Mention the words “Composite Taxable Person” on every notice or sign board. (Rule 3)

12. What is the validity of Composition Scheme?

The scheme will remain valid so long as the registered person satisfies all the conditions. The registered persons paying tax under section 10 may not file intimation every year. (Rule 4)

13. What is the procedure when a person opts for composition levy cease to satisfy the conditions?

Such person should issue tax invoice for every taxable supply. He should file intimation in FORM GST CMP-04 within seven days of occurrence of event. (Rule 4)

14. What is the procedure to withdraw from the Composition levy scheme?

He should file electronically file an application in GST CMP-04 before the date of withdrawal. (Rule 4)

15. Can a proper officer deny the option to pay tax on Composition Scheme?
Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under section 10 or has contravened the provisions of the Act or these rules, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why option to pay tax under section 10 should not be denied.

The registered person who received the notice should reply in FORM GST CMP-06. The proper officer on receipt of reply, issue an order with 30 days of receipt of rely accepting the reply or denying the option to pay tax U/s.10. (Rule 4)

16. What is the procedure when registered person withdraws from Composition Scheme?

The person should electronically furnish at the common portal a statement in FORM ITC-01 containing details of stock of inputs and inputs contained in semi-finished or finished goods held by him on the date on which the option is denied or withdrawn.

Intimation for withdrawal or denial of option in respect of any place or union territory shall be deemed to be intimation in respect of all other places of business registered on the same PAN. (Rule 4)

 

 

 

 

 

 

 

 
Note:
1. Related Section and Rule is given in the end of the answer.
2. Disclaimer: Users are requested to verify the validity of content before taking informed decisions. This is for is for serving as an informative guide and is meant for general guidance