In order to protect the interest of the small taxpayers and small scale industries, the feature of Composition Scheme is provided under GST. Where the registered person can opt to pay tax at a lower percentage, without entering in the GST credit chain and thus be relieved from the detailed compliance of the provisions of law. Such registered persons can neither collect tax from there customers nor they can claim any input tax credit on its purchases.
Threshold limit for composition levy-
Threshold Limit means the turnover limit of a taxpayer for being eligible to be a composition dealer. Therefore, if the turnover of the taxpayer crossed above this limit then he cannot opt for the composition scheme.
According to section 10(1) Small taxpayers with an aggregate turnover in a preceding financial year up to Rs. 1.5 crore shall be eligible for composition levy. In the case of certain specified category states*, the threshold limit to opt for the scheme is Rs 75 lakh(w.e.f. 01.02.2019).
Who cannot opt for composition scheme-
Section 10(2) of the CGST Act,2017, the following persons cannot opt for composition scheme:
- Person engaged in the supply of services (other than Restaurant services)
- Manufacturer of ice cream, pan masala, tobacco, aerated water
- Person engaged in the supply of non-taxable goods
- A person making inter-state outward supplies
- A casual taxable person or a non-resident taxable person
- Businesses which supply goods through an e-commerce operator
Conditions & Restrictions for GST Composition Levy-
As per Rule 5 of Chapter II of the CGST Act, the person exercising the option to pay tax under section 10 shall comply with the following conditions, namely:
- he is neither a casual taxable person nor a non resident taxable person
- 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 by a dealer migrating to GST scheme starting from appointed day.
- The goods held in stock by him have not been purchased from an unregistered supplier.
- He shall pay tax under sub-section (3) or sub-section (4) of section 9 on inward supply of goods or services or both.
- He was not engaged in the manufacture of goods as notified under clause € of sub-section (1) of section 10, during the preceding financial year.
- 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
- 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 evry additional place of business.
Composition Rate of Tax-
| Sr.No | Category of Registered Persons | Rate of CGST | Rate of SGST | Total |
| (a) | Manufacturers other than manufacturers of such goods as may be notified by the Government. | 0.5% | 0.5% | 1.0% |
| (b) | Restaurant services and Outdoor catering services (not serving alcohol) | 2.5% | 2.5% | 5.0% |
| (c) | Any other supplier eligible for composition levy (section 10) | 0.5% | 0.5% | 1.0% |
Rate of tax has been prescribed under Rule 7 of the CGST Rules [Notification No.05/2029-Central Tax New Delhi, the 29th January, 2019], which is 0.5% on goods and 2.5% on services for restaurants. If the services are supplied within the limits allowed in section 10, such services shall attract a tax rate of 0.5%.
Tax of 1% (in case of manufacturer) and 5% (in case of restaurants ) is payable even on exempted goods also– The tax is payable on ‘turnover in a state or union territory’. Thus,tax is payable even on goods which are otherwise exempt from GST. In case of traders, tax @0.5% is payable even on ‘turnover of taxable supplies’ w.e.f 01.01.2018.