Section 10 – Composition levy
Section 10 of CGST Act, 2017 – Composition Levy
Updated on: February 2026 (as amended and applicable till date)
Prepared by: Yours Tax Consultant
1. Bare Act Text – Section 10 (Effective Provisions)
Section 10(1):
Notwithstanding anything contained in this Act,
a registered person, whose aggregate turnover in the preceding financial year
did not exceed the prescribed limit,
may opt to pay tax under the composition scheme
at such rate as may be prescribed,
subject to prescribed conditions and restrictions.
Section 10(2):
The composition scheme shall not be available to:
- Suppliers of services (other than specified services)
- Suppliers of non-taxable goods
- Persons making inter-State outward supplies
- Persons supplying goods through e-commerce operators required to collect TCS
- Manufacturers of notified goods
Section 10(2A):
A registered person engaged in supply of services
(other than restaurant services)
may opt for composition scheme
at a prescribed rate,
subject to conditions and turnover limits.
2. Objective of Section 10
Section 10 introduces a simplified tax compliance scheme for small taxpayers to:
- Reduce compliance burden
- Pay tax at a lower, fixed rate
- Avoid detailed return filing
However, this benefit is given in exchange for restrictions on ITC and outward supplies.
3. Turnover Limits (As Applicable Till Date)
Composition levy is available if aggregate turnover in the preceding financial year does not exceed:
- ₹1.5 Crore – for manufacturers and traders (₹75 lakh in special category States)
- ₹50 Lakh – for service providers under Section 10(2A)
Turnover is to be computed on an all-India PAN basis.
4. Rates of Tax under Composition Scheme
The rates are prescribed through rules and notifications. Presently, the effective rates are:
- Manufacturers – 1% (0.5% CGST + 0.5% SGST)
- Traders – 1% (0.5% CGST + 0.5% SGST)
- Restaurant services – 5% (2.5% CGST + 2.5% SGST)
- Service providers under Section 10(2A) – 6% (3% CGST + 3% SGST)
Rates are subject to change by notification on GST Council recommendations.
5. Supply of Services under Composition Scheme
A person opting for composition under Section 10(1) is permitted to supply services (other than restaurant services) up to:
- 10% of turnover in the preceding financial year, or
- ₹5 lakh
whichever is higher.
6. Restrictions under Composition Scheme
A composition taxpayer:
- Cannot collect tax from customers
- Cannot avail input tax credit (ITC)
- Cannot make inter-State outward supplies
- Cannot issue tax invoice (bill of supply only)
Violation of these conditions results in denial of composition benefits and demand of normal tax with penalty.
7. Section 10 Read with Relevant CGST Rules
Composition levy under Section 10 must be read together with the following CGST Rules:
- Rule 3 – Intimation to opt for composition levy
- Rule 4 – Effective date for composition levy
- Rule 5 – Conditions and restrictions
- Rule 6 – Validity of composition levy
- Rule 7 – Rate of tax for composition levy
- Rule 62 – Form and manner of CMP-08 return
8. Returns and Payment under Composition Scheme
A composition taxpayer is required to:
- Pay tax quarterly using Form CMP-08
- File annual return in Form GSTR-4
Regular monthly returns (GSTR-1, GSTR-3B) are not applicable.
9. Litigation & Practical Issues
Common disputes under Section 10 arise due to:
- Wrong computation of turnover
- Inter-State supplies made inadvertently
- Supply through e-commerce operators
- Exceeding service supply limits
Once composition conditions are violated, benefits are withdrawn from the date of violation.
10. Related Provisions
11. Professional Tip
Composition scheme is beneficial only if conditions are strictly complied with. Even a single inter-State supply or excess service turnover can nullify the scheme and result in heavy tax demand.
Disclaimer: This article is based on the CGST Act, CGST Rules, rate notifications and legal position applicable till date. Future amendments or judicial pronouncements may alter the interpretation.
Comments