CGST Section 10: Composition Levy

Provisions under Section 10 of the CGST Act, 2017 relating to “Composition Levy”:

Bare text of Section 10

Composition Levy [*1]

(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, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate, [*2(a)] as may be prescribed, but not exceeding,-

(a) one percent of the turnover in State or turnover in Union territory in case of a manufacturer,

(b) two and a half percent 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

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 and fifty lakh rupees, [*2(b)] as may be recommended by the Council.

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 percent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher. [*2(c)]

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. [*3(a)]

(2) The registered person shall be eligible to opt under sub-section (1), if, –

(a) save as provided in sub-section (1), he is not engaged in the supply of services; [*2(d)]

(b) he is not engaged in making any supply of goods or services [*4] which are not leviable to tax under this Act;

(d) he is not engaged in making any supply of services [*4&5] through an electronic commerce operator who is required to collect tax at source under section 52; [*3(b)]

(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the Council; and [*3(c)]

(f) he is neither a casual taxable person nor a non-resident taxable person: [*3(d)]

Provided that 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 sub-section (1) unless all such registered persons opt to pay tax under that sub-section.

(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 percent of the turnover in State or turnover in Union territory, if he is not- [*3(e)]

(a) engaged in making any supply of goods or services which are not leviable to tax under this Act;

(b) engaged in making any inter-State outward supplies of goods or services;

(c) engaged in making any supply of [*5] services through an electronic commerce operator who is required to collect tax at source under section 52;

(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

(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, 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) or sub-section (2A), as the case may be [*3(f)] shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) or sub-section (2A), as the case may be. [*3(f)]

(4) A taxable person to whom the provisions of sub-section (1) or, as the case may be, sub-section (2A) [*3(g)] 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) or sub-section (2A), as the case may be [*3(h)] 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 or section 74A [*6] shall, mutatis mutandis, apply for determination of tax and penalty.

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. [*3(i)]

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: – [*3(i)]

(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

(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.

Bare Text Amendments History

1. CGST Section 10 introduced vide GOI Notification dated 12/04/2017, followed with CBEC Notification 1/2017 on commencement date of 22/06/2017.

2. Amendments vide Section 5 of the CGST (Amendment) Act, 2018, followed with Notification 2/2019 on commencement date of 01/02/2019:

(a) in sub-section (1), the text ‘in lieu of the tax payable by him, an amount calculated at such rate’ substituted with the text ‘in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate’.

(b) in the proviso to sub-section (1), the words ‘one crore and fifty lakh rupees’ substituted for the words ‘one crore rupees’.

(d) clause (a) of sub-section (2) substituted. Please refer GOI Notification dated 12/04/2017 for text thereof before substitution.

3. Amendments vide Section 93 of the Finance Act, 2019, followed with Notification 1/2020 on commencement date of 01/01/2020:

(a) Explanation inserted after second proviso to sub-section (1).

(b) in clause (d) of sub-section (2), the word ‘‘and’’ omitted.

(d) Clause (f) inserted in sub-section (2).

(e) Sub-section (2A) inserted.

(f) in sub-section (3), the text “or sub-section (2A), as the case may be,” inserted at both the places where they occur.

(g) in sub-section (4) the text “or, as the case may be, sub-section (2A)” inserted.

(h) in sub-section (5) the text “or sub-section (2A), as the case may be,” inserted.

(i) Explanation 1 and 2 inserted after sub-section (5).

4. The text “or services” inserted in clauses (b), (c) and (d) of sub-section (2) vide Section 119 of the Finance Act 2020, followed with Notification 92/2020 on commencement date of 01/01/2021.

5. The text “goods or” omitted from clause (d) of sub-section (2) and clause (c) of sub-section (2A), vide section 137 of the Finance Act, 2023, followed with Notification 28/2023 on commencement date of 01/10/2023.

6. In sub-section (5), the text “or section 74A” inserted after the text “section 73 or section 74” vide Section 115 of the Finance Act (No. 2) 2024, followed with Notification 17/2024 on commencement date of 01/11/2024.

Composition Threshold Increased to Rs 1 Cr (13/10/2017)

Composition Threshold Prescribed (Rs 75 Lac) (27/06/2017)

Commentary on Section 10 of CGST Act 2017

Section 10 provides a simplified tax payment scheme for small taxpayers, commonly referred to as the Composition Scheme. It allows eligible registered persons to pay tax at a concessional rate on turnover, in lieu of normal GST under Section 9(1), subject to strict conditions. The trade-off is lower compliance and tax certainty in exchange for denial of input tax credit and restricted outward supplies.

Sub-section (1): Basic Composition Scheme

This sub-section enables a registered person whose aggregate turnover in the preceding financial year does not exceed ₹50 lakh to opt for composition levy, subject to Sections 9(3) and 9(4).

Rates (Upper Ceiling)

Manufacturer: up to 1% of turnover in State/ UT
Specified service providers (Schedule II, para 6(b) – restaurant services): up to 2.5%
Other suppliers (mainly traders): up to 0.5%

Actual rates are prescribed by rules and notifications within these limits.

Key Features

Tax is paid in lieu of CGST under Section 9(1)
Applies on turnover in State/ UT, not aggregate turnover
Subject to prescribed conditions and restrictions

First Proviso – Enhanced Threshold

The Government may enhance the ₹50 lakh limit up to ₹1.5 crore, based on recommendation of the Goods and Services Tax Council. This power has been exercised through notifications.

Second Proviso – Limited Service Component

A person opting for composition may supply services (other than restaurant services) up to:

10% of turnover in State / UT, or
₹5 lakh, whichever is higher.

This relaxation addressed the practical difficulty faced by small traders providing incidental services.

Explanation

Interest or discount earned on deposits, loans, or advances is excluded while computing service value for the above limit.

Sub-section (2): Eligibility Conditions

A registered person is eligible only if all conditions are satisfied.

Clause-wise conditions

(a) Not engaged in supply of services, except as permitted under sub-section (1)
(b) Not supplying goods or services not leviable to GST
(c) Not making inter-State outward supplies
(d) Not supplying services through an e-commerce operator liable to collect TCS under Section 52
(e) Not a manufacturer of notified goods
(f) Not a casual taxable person or non-resident taxable person

PAN-based Restriction (Proviso)

If multiple registrations exist under the same PAN, composition can be opted only if all such registrations opt together. Partial adoption is not permitted.

Sub-section (2A): Composition Scheme for Small Service Providers

Inserted to extend simplified taxation to service providers and mixed suppliers not eligible under sub-sections (1) and (2).

Key Conditions

Aggregate turnover in preceding financial year ≤ ₹50 lakh
Tax payable at a rate not exceeding 3% of turnover in State / UT
Must not:
- supply non-taxable goods or services
- make inter-State outward supplies
- supply services through TCS-enabled e-commerce operators
- be a notified manufacturer or service provider
- be a casual or non-resident taxable person

The PAN-based restriction also applies here.

This sub-section is particularly relevant for small professionals, consultants, and service-oriented businesses.

Sub-section (3): Lapse of Option

The composition option automatically lapses from the day:

aggregate turnover during a financial year exceeds the prescribed limit.

From that date:

normal GST provisions apply, and
tax must be paid under Section 9(1).

No separate cancellation order is required for lapse.

Sub-section (4): Consequences of Opting for Composition

A composition taxpayer:

cannot collect GST from recipients, and
cannot avail input tax credit (ITC).

This restriction is absolute and applies throughout the period of composition.

Sub-section (5): Wrong Availment and Consequences

If the proper officer has reason to believe that a person wrongly paid tax under composition, the person is liable to:

pay tax under normal provisions, and
penalty determination under Section 73, Section 74, or Section 74A, as applicable.

The proceedings apply mutatis mutandis, ensuring full recovery and penal consequences.

Explanation 1: Aggregate Turnover for Eligibility

For determining eligibility:

aggregate turnover includes supplies made from 1 April of the financial year till registration liability date
excludes interest or discount income on loans, deposits, or advances

This avoids distortion of eligibility due to passive financial income.

Explanation 2: Turnover in State/ UT for Tax Payment

For computing tax payable:

exclude supplies made before registration liability, and
exclude exempt interest/discount income

This ensures composition tax is levied only on relevant taxable turnover.

Practical and Advisory Significance

Section 10 is critical for:

small manufacturers, traders, and service providers
cash-flow planning and compliance cost reduction
advisory on threshold monitoring and mid-year transitions

Incorrect opt-in or delayed exit can trigger significant tax and penalty exposure.

Section 10 strikes a balance between ease of compliance and revenue protection. It offers simplicity for small taxpayers but operates within a tightly regulated framework. Proper understanding of eligibility conditions, turnover computation, and exit triggers is essential for sustainable use of the Composition Scheme.

You can also visit CGST Act, 2017 (last updated 30/09/2025) or GST Updates for more updates from time to time.