Composition Levy – Why, Present Regime, Applicability, Restrictions

Composition Levy— Recently Cabinet authorized GST expenses and we expect that GST is roll out from 1st July2017 In this post you may discover complete information regarding Composition Levy like– Why Composition Levy is presented in GST Regime, what is present program, applicability of Composition Levy and so on. Now check more information from below …

Small taxpayers with an aggregate turnover in the preceding fiscal year not going beyond as much as Rs 1.5 Crore are qualified for composition levy. Under the scheme, a taxpayer has to pay tax as a portion of his turnover in a state or union area during the year without the benefit of Input Tax Credit (ITC). The rate of tax for CGST and SGST under Composition levy plan is as under:

  • Manufacturer = 2% (1% CGST and 1% SGST)
  • Trader/Supplier/Vendor of Goods = 1% (0.5% CGST and 0.5% SGST)
  • Restaurant Service just = 5% (2.5% CGST and 2.5% SGST)

A Manufacturer, Trader/Supplier/Vendor of Goods who has actually opted for structure levy can not gather any tax from the recipient and can not release a Taxable Invoice. Instead of Invoice, such Taxpayer has to raise a Bill of Supply. A little taxpayer might not go with structure levy even if his aggregate turnover in a fiscal year is within Rs 1.5 Crore. No service other than Restaurant Services is qualified for composition levy.

Composition Levy– Why

Indian Business Canvas— Unorganized Sector– Small/ Not So Educated Entrepreneurs (Fundamental Right to do business as ensured under the Constitution of India (Article 14-19))

Tax Payer Point of View— Legacy of Cash Transactions– Not capable of keeping elaborate records– Easy Compliance

Tax Collector Point of View— Cost of collection/ Administration, Expanding Tax Base

Solution Composition Scheme, the registered individual has the alternative to pay tax at a defined % of the turnover, without getting in the credit chain (appropriate just for individuals with turnover approximately a specific threshold limit)

Composition Levy– Present Regime

  • No arrangements for structure scheme in Excise Duty Law
  • No composition scheme in Service Tax Law at present i.e. after unfavorable list (Before 01.072012– Optional Scheme for Works Contract Service– Work Contract (Composition Scheme for Payment of Service Tax) Rules, 2007 Notification 32/2007 w.e.f. 01-06-2007
  • Sales Tax— provisions are present in VAT Laws of major states.
    • State Subject– Vary from one state to another
    • Turnover limitation and the tax rate (1% to 4%)– Not even in some state
    • Typical Business– Small Retailers, Restaurants, Hotels, Caterers, Bakery, Canteens, Clubs
    • Existing Scheme– Main Restrictions
    • Can’t gather tax from clients– Continued in GST
    • Can’t claim input tax deduction on purchases– Continued in GST
    • Can’t do interstate procurement of goods– Relaxed in GST
  • Optional Scheme for registered taxable individual
  • Permission from the appropriate officer of the Central or State Government
  • Pay a quantity in lieu of tax; minimum rate to be;.
    • 2.5% of the turnover in case of producers;-LRB- .
    • 1% of the turnover in other cases of the turnover in a State during the year
  • No tax to be gathered (to be borne by the individual out of the sales profits)
  • No input Tax Credit offered


Applicable to a registered Taxable Person Eligible even if signed up voluntary
Having Aggregate Turnover < Rs. 1.5 crore (Across all Business Verticals and across the country for each PAN number) Aggregate Turnover = Value of all supplies (taxable non-taxable exempt exports)– Value of (RCM Supplies Inward Supplies)– taxes under GST.

RCM products– Value of products on which tax is levied on reverse charge basis

Needs to make an application (Getting a consent) Even in Composition under the Current Vat Regime, suggested to make application
Would need to pay taxes at normal rates on RCM, if appropriate Reverse Charge Mechanism would apply even in such persons

Restrictions/ Limitations

No Composition Option in the following specific cases

  • Services Supplied
    • Any/ all services (consists of items treated as supply of services by Schedule II)
  • Goods Supplied
    • Non Taxable Goods
    • Inter-state outside products
    • Through e-commerce operators( Section 56)
    • Notified items made by the supplier

All signed up taxable individuals, having the exact same PAN as held by the stated taxable person, needs to decide to pay amount in lie of tax under the scheme

If consent given to a signed up taxable person stands withdrawn from the day on which his aggregate turnover during a financial year exceeds 50 lacs

Easy of working

Quarterly Returns( GSTR-4)– within18 days after end of each quarter– Section 34( 2 ) As against 3 to 4 returns monthly
Lower rate of Tax Specified at not less than 1% (2.5% in case of maker)- Expected to be in series of 1% to 3%
In location of a Tax Invoice, the document required is a Bill of Supply– Section 28( 3 )( b) Convenient given that details needed are not as much

Recommended Articles

  • Returns Under GST
  • GST Scope
  • GST Applicability
  • What is IGST
  • GST Rates
  • GST Forms
  • GST Registration
  • Input Tax Credit
  • GST India
  • HSN Code List

Leave a Reply