GST Composition Levy Scheme

Composition levy scheme

After the introduction of GST in India, dealers who were registered under earlier indirect tax laws are required to register under the new GST regime. However, along with normal registration process, a composition levy scheme was also introduced for small taxpayers.

What is Composition Levy Scheme?

The objective of composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. Section 10 of the CGST Act lays down statutory provisions with regard to Composition Levy.

The term Small Taxpayers refers to registered dealers with turnover not exceeding Rs. 1 crore. Thus, an eligible registered dealer with turnover not exceeding Rs. 1 crore can opt for composition scheme.

Notification No. 46/2017 CT dated 13.10.2017 raised the limit from Rs. 75 lakh to Rs. 1 crore.

Further, the turnover limit for composition levy shall be Rs.75 lakh in respect of 9 out of the 11 Special Category States namely Arunachal Pradesh, Mizoram, Assam, Nagaland, Manipur, Sikkim, Meghalaya, Tripura and Himachal Pradesh.

In case of Uttarakhand and Jammu and Kashmir, the turnover limit will be Rs. 75 lakh.

Who can opt for the composition levy scheme?

A registered dealer, whose turnover does not exceed Rs. 1 crore in the preceding FY, can opt for this scheme. However, if a person is registered in the above mentioned Special Category States, the limit of Rs. 1 crore shall be replaced by Rs. 75 lakh.

Persons registered under composition scheme will pay tax at the following prescribed rates.

What are the conditions and restrictions to opt for composition levy scheme?

The person exercising the option to pay tax under section 10 shall comply with the following conditions, namely:-

  1. he is neither a casual taxable person nor a non-resident taxable person;
  2. the goods held in stock by him on the appointed day have not been purchased in the course of inter-State trade or commerce or imported from a place outside India or received from his branch situated outside the State or from his agent or principal outside the State, where the option is exercised under sub-rule (1) of rule 3;
  3. the goods held in stock by him have not been purchased from an unregistered supplier and where purchased, he pays the tax under sub-section (4) of section 9;
  4. he shall pay tax under section 9(3) and 9(4) on the inward supply of goods or services or both;
  5. he was not engaged in the manufacture of goods as notified  section 10 (2) (e), during the preceding financial year;
  6. he shall mention the words ―composition taxable person, not eligible to collect tax on supplies‖ at the top of the bill of supply issued by him; and
  7. he shall mention the words ―composition taxable person‖ on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business.

Cancellation of registration under composition levy.

  1. Validity of Registration: As long as he satisfies all the conditions mentioned for a registered person under composition levy scheme;
  2. Pay Tax u/s 9(1): From the day he fails to comply with any of the prescribed conditions.
  3. Turnover Exceeds Rs1 crore: The option to pay tax under composition scheme lapses from the day on which his aggregate turnover during the FY exceeds the specified limit (Rs. 1 crore/ Rs.75 lakh).
  4. Voluntary Opts Out: When the registered person voluntary withdraws from the composition scheme and files an application in FORM GST CMP-04.

Further, he is required to file an intimation for withdrawal from the scheme in the prescribed form within 7 days of the occurrence of such event.

However, such person shall be allowed to avail the input tax credit in respect of

  • the stock of inputs,
  • on the inputs contained in semi-finished or finished goods held in stock by him, and
  • on capital goods held by him.

Some Important Points:

A registered person who opts for composition levy scheme must be aware of the following things:

  1. Cannot Collect Tax: Taxable person opting for the composition scheme shall not collect tax from the recipient on supplies made by him. It implies that a composition scheme supplier cannot issue a tax invoice.
  2. Cannot Claim Input Tax Credit: Taxable person opting for the composition scheme is not entitled to any credit of input tax.
  3. Penalty: Irregular availment of the composition scheme attracts penalty under section 73 or 74 of the CGST Act.

Important Forms related to composition levy scheme:

  1. FORM GST CMP-01: A person who opts for composition scheme shall file electronically an intimation of grant registration on a provisional basis under rule 24(1)(b).
  2. FORM GST CMP-02: Intimation prior to the commencement of the financial year for which the option to pay tax under the aforesaid section is exercised.
  3. FORM GST ITC-03: 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 under the said section.
  4. FORM GST CMP-04: The registered person who intends to withdraw from the composition scheme shall, before the date of such withdrawal, file an application electronically in the FORM GST CMP-04.
  5. FORM GST CMP-05: Show cause notice by the proper officer to the registered person when he has reason to believe that he has failed to comply with any of the conditions stated above.
  6. FORM GST CMP-06: Form to reply to the show cause notice issued by the proper officer.
  7. FORM GST CMP-07: Order of the proper officer accepting the reply, or denying the option to pay tax under section 10.



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