COMPOSITION LEVY

COMPOSITION LEVY [SECTION 10]
• Alternative method of levy
• Designed for small taxpayers
• Objective: to bring simplicity and to reduce the compliance cost for the small taxpayers
• Optional
• Person opting: can pay tax at a prescribed percentage of his turnover every quarter, instead of normal rates
• Mandatory conditions: limit of annual turnover
[Section 10(1)]- Eligibility for composition scheme
• 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,
• in lieu of the tax payable by him, an amount calculated at such rate as may be prescribed, but not exceeding
• Manufacturer: 1% of the turnover in State
• Restaurant Services: 2.5%:of the turnover in State and
• Other suppliers: ½% of the turnover in State
• 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 one crore rupees, as may be recommended by the Council.
[Section 10(2)]- Conditions to be fulfilled for opting composition scheme
The registered person shall be eligible to opt under Section 10(1), if:—
 he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II; (i.e. supplier of restaurant service)
 he is not engaged in making any supply of goods which are not leviable to tax under this Act;
 he is not engaged in making any inter-State outward supplies of goods;
 he is not engaged in making any supply of goods through an electronic commerce operator who is required to collect tax at source under section 52; and
 He is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council.
Note: – Government has notified manufactures of Ice Creams, Pan Masala, tobacco and tobacco substitutes. [Notification No. 8/2017-CT dated 19-06-2017 w.e.f 22-06-2017]
Where more than one registered persons are having the same Permanent Account Number (issued under the Income-tax Act, 1961), the registered person shall not be eligible to opt for the scheme under Section 10(1) unless all such registered persons opt to pay tax under that sub-section.
Composition Scheme option to lapse if aggregate turnover exceeds limit specified under Section 10(1) [Section 10(3)]
The option availed of by a registered person under Section 10(1) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under Section 10(1).
[Section 10(4)]- Person opting composition scheme cannot collect tax and not entitled to claim ITC
A taxable person to whom the provisions of Section 10(1) 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.
[Section 10(5)] – Penal provisions
If the proper officer has reasons to believe that a taxable person has paid tax under Section 10(1) 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 shall, mutatis mutandis, apply for determination of tax and penalty
WRITTEN By
RAGHAV JAGGA

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