Composition Scheme or Levy under the GST Law (Section 10(1) of CGST Act, 2017]

Composition Scheme under the GST Law is for small taxpayers. The objective of composition scheme is to bring simplicity and give relief to small taxpayers so that they need not be burdened with the compliance provisions under the GST law. Moreover. it is an optional scheme and the eligible person can opt to pay a fixed percentage of turnover as fees every quarter instead of paying tax at normal rate.

A registered person. whose aggregate turnover in the preceding Financial year did not exceed Rs. 1.5 Crore (See Note 2 below). may opt to pay, in lieu of the normal tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding.—

(a)        0.5% of the turnover in State or turnover in Union territory in case of a manufacturer (CGST Rate).

(b)       2.5% 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, [ i.e. supply, by way of or as part of any service or in any other manner whatsoever, of goods, being food or any other article for human consumption or any drink (other than alcoholic liquor for human consumption) , where such supply or service is for cash, deferred payment or other valuable consideration)] (CGST rate), and

(c)        0.5%of the turnover of the taxable supplies of goods in Stale or turnover in Union territory in case of other suppliers (CGST Rate),

Notes—

1. Like CGST rate, there shall be an equivalent rate of SGST/UTGST payable in case of composition levy. As a result, total GST payable shall be double of the above mentioned CGST rates, Thus, the maximum total GST Rate shall be 1% or 5% or 1%, as the case may be instead of 0.5% or 2.5% or 0.5%.

2. As per section 10. it was Rs. 50.00.000. However, as per proviso to section 10(1), the Government may, by notification, increase the said limit of Rs. 50.00.000 to such higher amount, not exceeding Rs. 1 Crore , as may be recommended by the Council. The turnover limit was increased from Rs. 50 lacs to Rs. 75 lacs vide Notification No. 8/2017 CT, dated 27.6.2017. It has been further increased to Rs. 1.5 Crore.

Option to come under composition levy can be exercised on fulfillment of certain prescribed conditions and restrictions.

However, the aggregate turnover in the preceding financial year shall be Rs 75 Lacs (earlier it was Rs. 50,00,000) in the case of an eligible registered person. registered under section 25. in any following States, namely:

(i) Arunachal Pradesh.
(ii) Assam
(iii) Manipur.
(iv) Meghalaya,
(v) Mizoram,

(vi) Nagaland,
(vii) Sikkim,
(viii) Tripura,
(ix) Himachal Pradesh

1.      Meaning of “Aggregate turnover”

“Aggregate turnover” means the aggregate value of all—

(i) taxable supplies,

(ii) exempt supplies.

(iii) exports of goods or services or both, and

(iv) inter-State supplies

of persons having the same Permanent Account Number computed on all India basis

but excludes ..

(i) central tax,

(ii) State tax/Union territory tax,

(iii) integrated tax, and

(iv) cess.

Further, it will also exclude the value of inward supplies on which tax is payable by the registered person (i.e. recipient of supply) on reverse charge basis.

2.         Meaning of Registered Person

(A) Lapse of the option of Compostion Scheme [Section 10(3) of CGST Act, 2017]

The option availed of by a Registered person under section 10(1), based on the aggregate turnover of the preceeding previous year, shall lapse with effect from the day on which his aggregate turnover during a financial exceeds the limit specified under section 10(1). In other words, the option shall lapse as soon as the aggregate turnover exceeds Rs.1 crore.

Example
The aggregate turnover of RG. a registered firm during the financial year 2018-19 is Rs. 98,00,000. During the financial year 2019-20, the aggregate turnover for the firm till 18.9.2019 is Rs. 98,00,000. On 19.9.2019 it issues three invoices of Rs. 1,00,000, Rs. 75,000 and Rs. 1,10,000 each. It shall be liable to pay GST under normal scheme on all the three invoices as its turnover on 19.9.2019 exceeds Rs. 1 crore.

(B) Person who opts for Composition Scheme shall not collect any tax and shall not be eligible for Input Tax Credit [Section 10(4) of CGST Act, 2017]

A taxable person to whom the provisions of section 10(1) 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.
In other words, the person opts for the composition scheme shall not:

(i) collect any tax from the recipient on supplies made by him nor

(C) Penalty in case of wrongful availment of Composition Scheme [Section 10(5) of CGST Act, 2017]

If the proper officer has reasons to believe that a taxable person has paid tax under section 10(1) 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.