(Under the Central Goods and Services Tax Act, 2017) Statutory Framework Section 148 empowers the…
Section 10 – Composition Levy
Section 10 of the CGST Act provides a simplified composition levy for small taxpayers dealing in goods, non-alcoholic restaurant services, and eligible notified services. Instead of paying normal GST rates, the taxpayer pays tax at a fixed percentage of turnover and is barred from collecting GST or claiming input tax credit under Section 10(4). The purpose is to reduce compliance load through simpler billing, fewer returns, and minimal record maintenance. This scheme suits B2C-oriented and low-input businesses that prefer stable compliance.
Eligibility Conditions (as per Section 10, Rules 3–7 & Notifications)
| Category | Eligibility Conditions | Reference |
|---|---|---|
| Manufacturers (except restricted goods) | Turnover ≤ ₹1.5 crore; Not manufacturing ice cream, pan masala, tobacco; Only intra-State supply of goods permitted. | Sec. 10(1), Sec. 10(2)(e) |
| Traders / Dealers | Turnover ≤ ₹1.5 crore; Supplies restricted to intra-State; May supply exempt goods; Purchase from unregistered persons allowed. | Sec. 10(1) |
| Restaurants (Non-Alcoholic) | Supplying food/drinks without alcohol; Turnover ≤ ₹1.5 crore; Permitted only for intra-State outward supply. | Notif. 8/2017 |
| Service Providers – Composition Scheme (6%) | Aggregate turnover ≤ ₹50 lakh; Allowed to supply eligible goods/services; Scheme applicable PAN-wide. | Notif. 2/2019, Notif. 14/2019 |
Common Eligibility Requirements
- All GSTINs under the same PAN must opt together for the composition scheme.
- Not applicable to casual taxable persons or NRTPs under Sec. 10(2)(a).
- Not permitted if supplying non-taxable goods such as petroleum products under Sec. 10(2)(b).
- Not available if supplying through E-commerce operators liable for TCS under Sec. 10(2)(d).Reverse-charge supplies must be paid at normal GST rates as per Sec. 9(3)/(4).
Persons Not Eligible (as per Section 10(2))
- Supplier making inter-State outward supply of goods, including stock transfers.
- Supplier of non-taxable goods such as petrol, diesel, or alcohol.
- Supplier making outward supply via E-commerce operators required to collect TCS.
- Manufacturer of ice cream, pan masala, or tobacco, specifically restricted.
- Casual taxable person or non-resident taxable person conducting temporary business.
Composition Tax Rates
| Category | Rate (CGST + SGST) | Reference |
|---|---|---|
| Manufacturers | 1% (0.5% + 0.5%) | Sec. 10(1) |
| Traders / Dealers | 1% (0.5% + 0.5%) | Sec. 10(1) |
| Restaurants | 5% (2.5% + 2.5%) | Notif. 8/2017 |
| Service Providers | 6% (3% + 3%) | Notif. 2/2019 & 14/2019 |
Conditions After Opting for Composition (Rules 5 & 7)
- Must issue Bill of Supply instead of Tax Invoice for all outward supplies.
- Must display “Composition Taxable Person” at each business location and on bills.
- Cannot collect GST from customers, as restricted under Sec. 10(4).
- Cannot claim ITC on inward supplies under Section 16.
- Must file CMP-08 quarterly by the 18th of the next month.
- Must file GSTR-4 annually by 30th April with consolidated details.
- Must maintain basic records such as outward supply list and stock details.
- Must pay reverse-charge tax at applicable GST rates on notified supplies.
Practical Insights for Business Users
- Best suited for retailers, restaurants, traders, and small manufacturers with B2C focus.
- Not suitable for businesses whose customers require input tax credit, causing pricing gaps.
- Turnover limit is PAN-based, but tax is computed State/UT-wise for each registration.
- Service composition scheme benefits small service providers such as tutors, salons, and mechanics.
- Tax is paid from business margin, so pricing decisions must be aligned with cost.
- Ensures lower compliance burden, making it ideal for new or low-volume businesses.