Section 10 of CGST Act 2017: Composition Levy

Provisions under Section 10 of the Central Goods and Services Tax (CGST) Act, 2017 relating to “Composition Levy”, are as under:

Section 10 of CGST Act 2017: Composition Levy (CHAPTER III – LEVY AND COLLECTION OF TAX)

(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, 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 rupees, as may be recommended by the Council.

(2) The registered person shall be eligible to opt under sub-section (1), if:—

(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II;

(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; and

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.

Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 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.

(3) The option availed of by a registered person under sub-section (1), shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1).

(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.

Amendments History:

1. Amendments made in Section 10 of the CGST Act, 2017, vide Section 5 of the CGST (Amendment) Act, 2018: GOI Notification dt. 30 Aug. 2018, effective from a date to be notified later in the Official Gazette:

a) in Section 10(1), the words ‘in lieu of the tax payable by him, an amount calculated at such rate’ substituted with the words ‘in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate’;

b) in the proviso to Section 10(1), the words ‘one crore and fifty lakh rupees’ substituted for the words ‘one crore rupees’; 

c) Second Proviso to sub-section (1) inserted, as under:

“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.”

d) clause (a) of sub-section (2) substituted, as under:

“save as provided in sub-section (1), he is not engaged in the supply of services;”

2. Amendments made in Section 10 of the CGST Act, 2017, vide Section 93 of the Finance (No. 2) Act, 2019: GOI Notification dt. 1 August 2019, effective from a date to be notified later in the Official Gazette:

a) Explanation inserted after second proviso to sub-section (1), as under:

“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.”

b) in clause (d) of sub-section (2), the word ‘‘and’’ occurring at the end shall be omitted;

c) in clause (e) of sub-section 92), for the word ‘‘Council:’’, the words ‘‘Council; and’’ shall be substituted;

d) Clause (f) inserted in sub-section (2), as under:

“he is neither a casual taxable person nor a non-resident taxable person:”

e) Sub-section (2A) inserted, as under:

“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, 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.”

f) in sub-section (3), the text “or sub-section (2A), as the case may be,” inserted after the text “under sub-section (1)” at both the places where they occur;

g) the text “or, as the case may be, sub-section (2A) inserted after the text “of sub-section (1)”; 

h) the text “or sub-section (2A), as the case may be,” inserted after the text “under sub-section (1)”, and

i) Explanation 1 and 2 inserted after Section 10(5), as under:

“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.”

3. The text “or services” inserted after the text “of goods” in clauses (b), (c) and (d) of section 10(2) vide Section 119 of the Finance Act 2020 (No. 12 of 2020): GOI Notification dt. 27 March 2020, effective from a date to be notified later in the Official Gazette.

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Govt. has notified the Central Goods and Services Tax (CGST) Act, 2017 on 12 April, 2017 followed with various CBIC Notifications on commencement date for various Sections/ Provisions thereof from time to time. Govt. has further notified the Central Goods and Services Tax (CGST) (Amendment) Act, 2018 on 30 Aug. 2018 followed with CBIC Notification on commencement date of various Sections/ Provisions thereof from 1 Feb. 2019 vide Notification No. 2/2019 Central Tax dt. 29 Jan. 2019 except for amendments where the date of commencement is different from 1 Feb. 2019 and has specifically been mentioned in the CGST Amendment Act, 2018 itself.

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    • Esha Agrawal
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