Composition Levy: formula sheet

Key formulas

Turnover limit

Aggregate turnover in preceding financial year ≤ ₹50,00,000

Section 10(1) and 10(2A). The Government may notify a higher limit, not above ₹1,50,00,000, for section 10(1). Aggregate turnover includes supplies made from 1 April up to the date you become liable for registration, but excludes exempt interest or discount on deposits, loans and advances.

Maximum rate ceilings in the Act

Manufacturer: up to 1% | Restaurant-type supplies (Sch II para 6(b)): up to 2.5% | Other suppliers: up to 0.5% | Section 10(2A): up to 3%

These are ceilings in the Act. The rate you actually pay is the one prescribed in Rule 7.

Rates prescribed by Rule 7

Manufacturers: 0.5% | Para 6(b) suppliers: 2.5% | Other eligible suppliers: 0.5% of turnover of taxable supplies | Section 10(2A) persons: 3%

Rate applies to turnover in the State or Union territory. Turnover before becoming liable for registration and exempt interest services are excluded from this turnover.

Services allowance

Services value ≤ higher of (10% of preceding-year turnover in the State/UT, ₹5,00,000)

Second proviso to section 10(1). It does not cover restaurant-type supplies under clause (b) of paragraph 6 of Schedule II.

Excluded persons (section 10(2))

No non-taxable supplies | No inter-State outward supplies | No supply through an e-commerce operator liable to collect tax under section 52 | No notified goods manufacture | Not casual taxable or non-resident taxable person

Also, save as provided, you must not be engaged in the supply of services.

Same PAN rule

All registered persons with the same PAN must opt together

Proviso to section 10(2) and 10(2A). If one of them does not opt, none is eligible.

Effect of opting

No tax collected from recipient; no input tax credit

Section 10(4).

Lapse of option

Option lapses from the day aggregate turnover in the financial year exceeds the limit

Section 10(3).

Composition tax payable

Tax = Rate × Turnover in the State or Union territory (as defined for composition)

The tax is a single amount. Do not split it into CGST and SGST unless the question asks. It is payable in lieu of tax under section 9(1).

Rule 7 Row 1: Manufacturers

0.5% of turnover in the State or Union territory

Does not apply to manufacturers of goods notified by the Government, who are not eligible under section 10(2)(e).

Rule 7 Row 2: Clause (b) of paragraph 6 of Schedule II suppliers

2.5% of turnover in the State or Union territory

Restaurant-type supplies of goods as part of a service.

Rule 7 Row 3: Any other supplier under section 10(1) and (2)

0.5% of turnover of taxable supplies of goods and services in the State or Union territory

Traders fall here. The base is taxable supplies only.

Rule 7 Row 4: Section 10(2A) suppliers

3% of turnover of supplies of goods and services in the State or Union territory

For persons not eligible under section 10(1) and (2), such as service providers or mixed suppliers. Aggregate turnover in the preceding financial year must not exceed fifty lakh rupees.

Statutory ceilings in section 10

Manufacturer 1%; clause (b) of paragraph 6 of Schedule II supplier 2.5%; other suppliers 0.5%; section 10(2A) 3%

These are maximums. Rule 7 rates are what apply. Manufacturers pay 0.5% against a 1% ceiling. For Row 4, the prescribed rate of 3% equals the ceiling.

Turnover limit for opting

Aggregate turnover in the preceding financial year ≤ ₹50 lakh (can be raised by notification up to ₹1.5 crore)

Section 10(1) proviso. Eligibility is tested on aggregate turnover of the preceding financial year; Explanation 1 to section 10 adds supplies made from 1 April up to the date the person becomes liable for registration. The tax is levied on turnover in the State or Union territory, as defined in Explanation 2.

Opting by a registered person

FORM GST CMP-02 before the start of the financial year; ITC-03 within 60 days from the start of that year

Rule 3(3). Rule 4(1): the option is effective from the beginning of the financial year.

Opting at fresh registration

Part B of FORM GST REG-01 = intimation

Rule 3(2). Considered only after registration is granted; effective from the date fixed under rule 10(2) or (3) (Rule 4(2)).

Stock details on opting (provisional registrants, rule 3(1))

FORM GST CMP-03 within 90 days from the date the option is exercised

Rule 3(4). Details of stock held on the day preceding the date of opting, including inward supplies from unregistered persons.

Ceasing to satisfy conditions

Liable under section 9(1) from the day of default; issue tax invoices; file CMP-04 within 7 days

Rule 6(2).

Voluntary withdrawal

Application in FORM GST CMP-04 before the date of withdrawal

Rule 6(3). Signed or verified by EVC, filed electronically.

Officer's denial of option

CMP-05 (show cause, reply within 15 days) → CMP-06 (reply) → CMP-07 (order within 30 days of reply)

Rule 6(4) and (5). Denial can operate from the date of option or from the date of the contravention.

Stock statement after withdrawal or denial

FORM GST ITC-01 within 30 days from the date of withdrawal or the date of the CMP-07 order

Rule 6(6). Covers inputs and inputs contained in semi-finished or finished goods held in stock.

Returns under composition

CMP-08 by the 18th of the month after each quarter; GSTR-4 annually, due 30 June for FY 2024-25 onwards

Rule 62(1). Earlier text gave 30 April; the proviso moves it to 30 June from FY 2024-25.

Tax payable under composition

Tax = Turnover of taxable supplies in the State/UT × Rule 7 rate

Rates are total rates, split equally between CGST and SGST/UTGST: 1% for traders (0.5% + 0.5%), 2% for manufacturers (1% + 1%), 5% for restaurants not serving alcohol (2.5% + 2.5%), and 6% for service providers under Section 10(2A) (3% + 3%). The base is turnover of taxable supplies in the State/UT, not profit.

ITC position

ITC on inputs = Nil; tax collected from customers = Nil

Both are barred while you are in the scheme. Tax on purchases is a cost.

Document to issue

Bill of supply (not tax invoice)

It must carry the words "composition taxable person, not eligible to collect tax on supplies".

Returns and due dates

CMP-08: 18th of the month after each quarter. GSTR-4: 30 April after the financial year

CMP-08 is the quarterly statement-cum-challan. GSTR-4 is the annual return. Late payment attracts interest, and late GSTR-4 attracts late fee.

Reverse charge

Reverse charge tax on inward supplies at the normal rate, paid in cash, no ITC

Composition does not remove your liability under reverse charge.

Ceasing to be eligible

Intimation in FORM GST CMP-04 within 7 days of the date of contravention; claim ITC on stock in FORM GST ITC-01 within 30 days of the date you become liable to regular tax

You are a regular taxpayer from the date of the contravention, for example when turnover crosses the limit. For capital goods, ITC is allowed after reducing tax by 5 percentage points per quarter or part thereof from the invoice date.

Quick revision

• Composition is an optional scheme under section 10; the person pays tax on turnover at a flat rate.
• Under rule 5, a casual taxable person or a non-resident taxable person cannot opt.
• Under rule 5, the composition person pays tax under section 9(3) or 9(4) on inward supplies (reverse charge).
• Goods in stock bought from an unregistered supplier are allowed only if the person pays tax under section 9(4).
• A composition person issues a bill of supply, not a tax invoice, marked "composition taxable person, not eligible to collect tax on supplies".
• The words "composition taxable person" must be on every notice or signboard at the principal and every additional place of business.
• Rule 7 rates: manufacturers 0.5%; supplies under clause (b) of paragraph 6 of Schedule II 2.5%; other suppliers 0.5% of turnover of taxable supplies; section 10(2A) persons 3%.
• Option under rule 3(3) is effective from the beginning of the financial year; under rule 3(1) from the appointed day.
• No fresh intimation is needed every year; the option continues subject to the Act and Rules.
• On ceasing to meet a condition, tax is payable under section 9(1) from that day, and CMP-04 is due within seven days.
• Show-cause notice CMP-05 gives fifteen days; the officer's order CMP-07 comes within thirty days of the reply.
• ITC-01 stock statement is due within thirty days of withdrawal or of the CMP-07 order; withdrawal or denial for one place applies to all places on the same PAN.

Common mistakes

• Testing the current year's turnover for eligibility to opt. Fix: Eligibility to opt uses the preceding financial year. The current year matters only for lapse under section 10(3), when turnover exceeds the limit.
• Allowing a composition person to make inter-State outward supplies. Fix: Section 10(2)(c) bars inter-State outward supplies of goods or services. One such supply means the person is not eligible.
• Using 1% for manufacturers because section 10 says one per cent. Fix: Rule 7 is the operative rate for the question. Use 0.5% for manufacturers. Remember: section 10 is the ceiling, Rule 7 is the rate.
• Applying 2.5% to all service-related businesses. Fix: 2.5% applies to supplies of goods as part of a service under clause (b) of paragraph 6 of Schedule II. A general service provider under section 10(2A) pays 3%.
• Saying the option is effective from the date the CMP-02 is filed. Fix: Rule 4(1): for a CMP-02 intimation under rule 3(3), the option is effective from the beginning of the financial year.
• Mixing up CMP-02 and CMP-04. Fix: CMP-02 is for opting in; CMP-04 is for withdrawal or intimation of ceasing to be eligible.
• Claiming ITC on purchases because the supplier charged GST. Fix: ITC is barred for the composition taxpayer himself. The tax paid on purchases is simply part of cost.
• Showing GST separately on the customer bill. Fix: A composition taxpayer pays from his own pocket at a flat rate. He issues a bill of supply with no tax shown.

Exam tips

• In case studies, write the answer as a short checklist: turnover limit, exclusion list, services, PAN, Rule 5 conditions. Give one line of reasoning for each so you earn step marks.
• For MCQs, scan first for the red flags: inter-State supply, e-commerce operator under section 52, non-taxable supplies, casual or non-resident person. These usually decide the answer.
• Keep the limit and rates straight: ₹50 lakh preceding-year limit, ceilings in section 10, actual rates in Rule 7, and 3% for section 10(2A). Do not mix them up.
• Quote section 10(3) and 10(4) in your conclusion: the option lapses when turnover crosses the limit, and there is no tax collection or ITC.
• When a question gives a notified higher limit, use it for section 10(1), but never above ₹1.5 crore.
• In MCQs, the trap is nearly always the rate. Memorise the four Rule 7 rows: 0.5%, 2.5%, 0.5%, 3%.
• In written answers, name the row and the source, for example 'Rule 7 of the CGST Rules, 2017, Row 3', then show the multiplication. This earns step marks even if the figures slip.
• Read the facts for exclusions: pre-registration supplies and exempt interest. Examiners hide these in a line of the question.