Central Goods and Services Tax (CGST) Act, 2017
Section 10: Composition Levy:
Summary:
Section 10 allows small businesses to pay taxes at a lower, fixed rate instead of the regular GST rates. This simplified tax scheme is called the “Composition Levy.”
Key Points:
Eligibility:
- Businesses with a turnover up to 50 lakh rupees in the previous financial year can opt for this scheme.
- The government can increase this limit up to 1.5 crore rupees.
Tax Rates:
- Manufacturers: 1% of turnover.
- Special Suppliers: 2.5% of turnover for certain supplies.
- Other Suppliers: 0.5% of turnover.
Conditions:
- Businesses must follow specific conditions and restrictions to qualify.
- They can also provide some services, but the value should not exceed 10% of their turnover or 5 lakh rupees, whichever is higher.
- Income from interest on deposits, loans, or advances is excluded from turnover calculation.
Restrictions:
- Businesses opting for this scheme cannot supply services (except certain allowed ones).
- They cannot make inter-state supplies of goods or services.
- They cannot supply goods or services through e-commerce operators who collect tax at source.
- They cannot be manufacturers of certain notified goods.
- They cannot be casual or non-resident taxable persons.
Additional Points:
- If more than one business is registered under the same PAN, all must opt for the scheme.
- If turnover exceeds the limit during the year, the scheme is no longer applicable.
- Businesses using this scheme cannot collect tax from customers or claim input tax credit.
Penalties:
- If a business is found ineligible but still uses the scheme, they must pay the appropriate taxes and penalties.
Forms and Procedures:
- Various forms are used to apply for, manage, and withdraw from the Composition Levy scheme.
- Specific forms are also used for filing returns and declarations.
Explanation:
- Who can use it? Small businesses making up to 50 lakh rupees last year.
- What does it do? Offers a simpler way to pay taxes by charging a fixed rate on sales.
- How are the rates? Different rates for manufacturers (1%), certain suppliers (2.5%), and others (0.5%).
- What are the limits? Businesses can provide some services but within specific limits, and certain types of income (like interest) are excluded.
- Restrictions to follow: No inter-state sales, no sales through e-commerce operators, and some businesses are entirely excluded.
- Additional rules: If businesses under the same PAN opt for the scheme, all must opt for it. If a business exceeds the turnover limit, it must leave the scheme.
- Penalties: Ineligible businesses using the scheme will face penalties.
This section helps small businesses by simplifying tax payments, reducing the burden of compliance, and making tax calculations straightforward.