LEVY AND COLLECTION OF TAXCentral

Section 10 of The Central Goods and Services Tax Act, 2017

(1)Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, 1[in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate] as may be prescribed, but not exceeding,--
1. (a)one per cent. of the turnover in State or turnover in Union territory in case of a manufacturer,
2. (b)two and a half per cent. of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
3. (c)half per cent. of the turnover in State or turnover in Union territory in case of other suppliers, subject to such conditions and restrictions as may be prescribed: Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding 2[one crore and fifty lakh rupees], as may be recommended by the Council: 3[Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent. of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.] 4[Explanation.--For the purposes of second proviso, the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account for determining the value of turnover in a State or Union territory.]
(2)The registered person shall be eligible to opt under sub-section (1), if:--- 5[(a) save as provided in sub-section (1), he is not engaged in the supply of services;]
1. (b)he is not engaged in making any supply of goods 6[or services] which are not leviable to tax under this Act;
2. (c)he is not engaged in making any inter-State outward supplies of goods 6[or services];
3. (d)he is not engaged in making any supply of 7*** 6[or services] through an electronic commerce operator who is required to collect tax at source under section 52; 8***
4. (e)he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the 9[Council; and] 10[(f) he is neither a casual taxable person nor a non-resident taxable person:] Provided that where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961 (43 of 1961), the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section. 10[(2A) Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding three per cent. of the turnover in State or turnover in Union territory, if he is not---
5. (a)engaged in making any supply of goods or services which are not leviable to tax under this Act;
6. (b)engaged in making any inter-State outward supplies of goods or services;
7. (c)engaged in making any supply of 7*** services through an electronic commerce operator who is required to collect tax at source under section 52;
8. (d)a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and
9. (e)a casual taxable person or a non-resident taxable person: Provided that where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961 (43 of 1961), the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this sub-section.]
(3)The option availed of by a registered person under sub-section (1) 10[or sub-section (2A), as the case may be] shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) 10[or sub-section (2A), as the case may be].
(4)A taxable person to whom the provisions of sub-section (1) 10[or, as the case may be, sub-section (2A)] apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
(5)If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) 10[or sub-section (2A), as the case may be] despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 11[or section 74A] shall, mutatis mutandis, apply for determination of tax and penalty. 12[Explanation 1.--- For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax under this section, the expression "aggregate turnover" shall include the value of supplies made by such person from the 1st day of April of a financial year up to the date when he becomes liable for registration under this Act, but shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount. Explanation 2.--- For the purposes of determining the tax payable by a person under this section, the expression "turnover in State or turnover in Union territory" shall not include the value of following supplies, namely:---
1. (i)supplies from the first day of April of a financial year up to the date when such person becomes liable for registration under this Act; and
2. (ii)exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.]

Summary

This provision allows small businesses with an annual turnover up to fifty lakh rupees to opt for a simplified composition levy scheme, paying a low flat tax rate instead of standard rates.
The flat tax rate cannot exceed one percent for manufacturers, two and a half percent for restaurants, and half a percent for other suppliers.
Businesses using this scheme cannot collect tax from their buyers on invoices, nor can they claim credit for the tax they paid on their own purchases.
The scheme is not available for businesses making inter-state sales, supplying non-taxable goods, selling through e-commerce operators, or operating as casual or non-resident taxpayers.
If a person has multiple registrations under the same tax ID, all registrations must opt into the scheme together or none can.

Practical examples

1Ramesh runs a small neighborhood grocery store in Delhi with an annual turnover of 30 lakh rupees. He opts for the composition levy under this rule, allowing him to pay a simple flat half percent tax on his sales, but he stops charging his customers tax on their receipts.

2An online seller, Neha, wants to use the composition scheme for her jewelry business which makes 20 lakh rupees a year. Because she sells her products across different states using a major e-commerce platform, the rules strictly prohibit her from opting into this simplified scheme.

3A small local restaurant with a turnover of 45 lakh rupees chooses this scheme and pays a two and a half percent flat tax on its turnover, but cannot claim input tax credit on the raw ingredients it purchases.

FAQ

1. What is the turnover limit to qualify for the composition levy under Section 10 of The Central Goods and Services Tax Act, 2017?

Section 10 of the Act sets the base aggregate turnover limit in the preceding financial year at fifty lakh rupees, though the Government may increase this limit up to one crore and fifty lakh rupees.

2. Can a business under the composition scheme in Section 10 of the CGST Act collect tax from its customers?

No, Section 10 of the Central Goods and Services Tax Act, 2017 clearly states that a taxable person applying this provision shall not collect any tax from the recipient on supplies made by him.

3. Does Section 10 of the tax law allow businesses making inter-state sales to use the composition levy?

No, under Section 10 of the Central Goods and Services Tax Act, 2017, a person is not eligible to opt for the scheme if they are engaged in making any inter-State outward supplies of goods or services.

4. How does Section 10 of The Central Goods and Services Tax Act, 2017 treat someone with multiple businesses under the same PAN?

Section 10 of the Act mandates that if more than one registered person has the same Permanent Account Number, the registered person cannot opt for the scheme unless all such registered persons opt to pay tax under this scheme.

Test yourself

Q1.Based on this provision, what is the maximum flat tax rate a manufacturer can be charged under the standard composition levy?

Q2.Which type of taxpayer is explicitly barred from using the composition scheme under this provision?

Q3.A small business opts to pay the flat composition levy under Section 10. According to the text, how does this interact with the reverse charge mechanism rules established in Section 9?

Q4.What happens to a registered person's input tax credit if they opt into the composition scheme under this section?

Q5.Under this provision, what happens automatically if a composition taxpayer's turnover exceeds the specified legal limit during the financial year?

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