For the benefit of the taxpayers, the Government of India has established various methods of levy of tax. One of such is the Composition Levy, which has been designed in such a way that it becomes an easy alternative for small taxpayers in India. Through Composition Levy, small taxpayers have a benefit of getting rid of tedious GST formalities and pay GST at a fixed rate of turnover. The main objective of the Composition scheme is to bring simplicity and to reduce the compliance cost for the small taxpayers. For calculating the turnover for the levy of Composition scheme, turnover of all businesses with the same PAN has to be added up.

A taxpayer registered under the Composition Levy scheme has to pay an amount equal to certain fixed percentage of his annual turnover as tax to the government. This tax has to be paid on quarterly basis. Such taxpayer does not have to maintain elaborate accounts and records. Instead of monthly statement(s) / return(s), which a normal taxpayer has to file under GST, the taxpayer has to file a simple quarterly return in FORM GSTR-04 under the Composition scheme.

Section 10 of CGST Act, 2017 provides for the Composition Levy to the registered person. Under this provision, a registered person whose aggregate turnover in the preceding financial year did not exceed the prescribed limit (for the revised prescribed limit please refer to the Notification No. 14/2019 – Central Tax New Delhi, March 07, 2019, the turnover limit for specified states may differ), may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed. The effective rates under the Composition Levy are as under:

1.            For manufacturers / other suppliers – GST 1% (CGST and SGST) of the turnover in State or turnover in Union territory (for manufacturers CGST rate under the CGST Act, 2017 has been prescribed @ 1%, however vide Notification No. 05/2019– Central Tax New Delhi, January 29, 2019, CGST has been reduced to 0.5%) ; and

2.            For supplies referred in clause (b) of paragraph 6 of Schedule II (restaurants not serving alcohol) – GST 5% (CGST and SGST) of the turnover in State or turnover in Union territory.

AMENDMENT UNDER SECTION 10 VIDE FINANCE ACT, 2019 (EFFECTIVE FROM JANUARY 01, 2020) – COMPOSITION SCHEME FOR SERVICE PROVIDERS

The Finance Act, 2019 has inserted sub-section 2A under Section 10 which provides that a registered person being a service provider [not eligible to opt Composition Levy in terms of Section 10 (1) and 10(2)], whose aggregate turnover in the preceding financial year did not exceed the prescribed threshold limit, may opt to pay, in lieu of normal tax payable by him, an amount calculated @ GST 6% (CGST and SGST) of the turnover in State or Union Territory.

PERSONS NOT ELIGIBLE FOR THE COMPOSITION LEVY SCHEME:

1.            Casual taxable person;

2.            A non-resident taxable person;

3.            A person engaged in providing inter-state supply of goods or services;

4.            A person engaged in supply of non-taxable goods or services, which are not taxable under GST;

5.            A person engaged in supply of goods or services through an e-commerce operator;

NOTE:  A person opting to pay tax under the Composition Levy [as per Section 10(1)] may also supply services [other than those referred to in clause (b) paragraph 6 of Schedule II] to an extent of 10% of turnover, in a State or Union Territory, in the preceding financial year, or INR 5 lakh, whichever is higher.