Conditions and Restrictions for Composition Levy Under GST – Rule 5

The Goods and Services Tax (GST) framework in India offers a Composition Scheme under Section 10 of the CGST Act, 2017, which simplifies tax compliance for small businesses. Rule 5 of the CGST Rules lays down specific conditions and restrictions that taxpayers must adhere to when opting for this scheme. Understanding these rules is crucial for businesses aiming to benefit from the Composition Levy while ensuring compliance.

Eligibility Criteria for Composition Levy

A registered person opting for the Composition Scheme must comply with the following conditions:

1. Exclusion of Certain Taxpayers

The taxpayer should not be a casual taxable person or a non-resident taxable person.

2. Stock Restrictions

• The goods held in stock on the appointed day must not be purchased through inter-State trade, imported, or received from a branch, agent, or principal outside the State.

• The stock must not include goods purchased from an unregistered supplier, unless the tax has been paid under Section 9(4) of the CGST Act.

3. Tax Obligations

• The taxpayer must pay tax under Section 9(3) or Section 9(4) for inward supply of goods or services.

• The business must not be engaged in the manufacture of notified goods under Section 10(2)(e) during the previous financial year.

4. Compliance Requirements

• The phrase “Composition Taxable Person, Not Eligible to Collect Tax on Supplies” must be displayed prominently at the top of the bill of supply issued by the taxpayer.

• The words “Composition Taxable Person” must be displayed on notice boards and signboards at the principal place of business and all additional business locations.

Continuity of Composition Scheme

Once a taxpayer has opted for the Composition Scheme, they do not need to file a fresh intimation every year. They can continue under this scheme as long as they comply with the provisions of the CGST Act and relevant rules.

Conclusion

The Composition Levy offers small businesses a simplified tax structure with reduced compliance burdens. However, taxpayers must strictly adhere to the conditions laid out under Rule 5 to remain eligible. Non-compliance with these conditions can result in penalties and loss of benefits under the Composition Scheme. Businesses should assess their eligibility carefully and ensure full compliance to make the most of this tax scheme.

For expert GST compliance services and tax advisory, consult a professional Chartered Accountant to navigate the complexities of the Composition Scheme efficiently.