GST Basics #9: Section 10, the Composition Scheme

A small business can step outside the ordinary GST machinery, pay a flat percentage of turnover and file far less. Section 10 sets out who may do it, at what rate, and what they give up in exchange.

Basics #7 and #8 dealt with Section 9 — the charging section, and reverse charge. Section 10 is the alternative to the whole of it. Instead of charging GST on every invoice, claiming credit on every purchase and filing monthly, a small business can opt to pay a flat percentage of turnover and be largely done.

Who can opt in. The scheme is open to a registered person whose aggregate turnover in the preceding financial year did not exceed Rs. 1.5 crore, a limit set by Notification No. 14/2019-Central Tax dated 7 March 2019 with effect from 1 April 2019. A lower limit of Rs. 75 lakh applies in eight named States; Tamil Nadu is not one of them, so a Chennai business works to the full Rs. 1.5 crore. Aggregate turnover carries the Section 2(6) meaning covered in Basics #6 — PAN-level, all-India, exempt supplies included.

The rates are in Rule 7 of the CGST Rules, expressed as central tax with an equal State tax alongside. Manufacturers pay half a per cent of turnover in the State, so 1 per cent in all. Restaurant supply is two and a half per cent, so 5 per cent. Other eligible suppliers — traders — pay half a per cent, but only on the turnover of taxable supplies, so exempt sales stay out of the base. A separate scheme under Notification No. 2/2019-Central Tax (Rate) covers service providers who cannot use Section 10(1) at all: 6 per cent in total, 3 per cent central and 3 per cent State, on first supplies up to Rs. 50 lakh, where the previous year's turnover was Rs. 50 lakh or less.

Who is shut out. A composition taxpayer cannot make inter-State outward supplies, cannot supply through an e-commerce operator, and cannot be a casual or non-resident taxable person. Manufacturers of ice cream, pan masala and tobacco are excluded by name. Section 10(1) does permit a dealer in goods to supply some services as well, subject to a cap in the proviso — confirm the current figure before relying on it.

What you give up. Two things, and they are the whole bargain. You cannot collect tax from your customer: you issue a bill of supply, not a tax invoice, and Rule 5 requires the words "composition taxable person, not eligible to collect tax on supplies" at its top, and a board saying "composition taxable person" at your principal place of business. And you get no input tax credit, so the tax you pay is a cost. Your customer gets no credit either, which is why the scheme suits businesses selling to consumers and rarely suits those selling to other registered businesses.

The reward is compliance. Tax is paid quarterly through the statement in Form CMP-08, with a single annual return in Form GSTR-4, in place of monthly GSTR-1 and GSTR-3B. Check the current due dates at https://www.gst.gov.in

Notification No. 14/2019-Central Tax: https://gstcouncil.gov.in/sites/default/files/2024-05/notfctn-14-central-tax-english-2019.pdf

Topics:section 10 CGST Actcomposition scheme GSTcomposition rate rule 71.5 crore limitCMP-08GSTR-4notification 14/2019bill of supplyGST basics ChennaiTamil Nadu composition dealer

Back to all GST updates