Composition Scheme – Section 10 of CGST

The Composition Scheme under Section 10 of the CGST Act provides a simplified tax compliance mechanism for small businesses. This scheme allows eligible taxpayers to pay tax at a fixed rate on their turnover, reducing compliance burdens and paperwork.

Eligibility Criteria for Composition Scheme

A registered person can opt for the Composition Levy if:

• The aggregate turnover in the preceding financial year does not exceed ₹1.5 crore as per government notifications.

• The taxpayer is not engaged in interstate supply of goods or services.

• The taxpayer does not supply goods or services through an e-commerce platform that collects tax at source.

• The taxpayer is not a manufacturer of notified goods, a casual taxable person, or a non-resident taxable person.

Tax Rates Under Composition Scheme

The tax rates for different categories of taxpayers under the Composition Scheme are:

• Manufacturers: 2% of turnover in the state or union territory (1% CGST and 1% SGST).

• Restaurants and food services (excluding alcohol-serving units): 5% of turnover (2.5% CGST and 2.5% SGST).

• Other suppliers: 1% of turnover (0.5% CGST and 0.5% SGST).

Key Conditions & Restrictions

• Taxpayers under this scheme cannot collect GST from customers.

• No input tax credit (ITC) is allowed on purchases.

• If the aggregate turnover crosses the specified limit during the financial year, the scheme ceases to apply from that day.

• A taxpayer found ineligible for the scheme may face penalties under Section 73 or 74.

Benefits of the Composition Scheme

• Lower tax rates: Beneficial for small businesses with limited profit margins.

• Reduced compliance burden: Simplified return filing process with quarterly CMP 8 returns.

• Better working capital management: No need to block funds in ITC claims.

Limitations of the Composition Scheme

• Restricted business operations: Not suitable for businesses engaged in interstate trade or online marketplaces.

• No ITC claims: Increases the cost of procurement for businesses.

• Mandatory compliance with turnover limit: Any deviation results in additional tax liability and penalties.

Conclusion

The GST Composition Scheme under Section 10 is an excellent option for small businesses looking for simplified tax compliance. However, businesses must carefully evaluate their eligibility and restrictions before opting in. If your business requires ITC benefits or engages in interstate trade, the regular GST scheme might be a better option.

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