Only taxable persons whose ‘aggregate turnover’ does not exceed Rs. 50 lacs in a financial year will be eligible to opt for payment of tax under the composition scheme.As per Section 16, Goods and/or services on which composition tax has been paid under Section 8 is not eligible for input tax credit.

1. Composition Levy In GST
CA Amit Bhutada ALL ABOUT COMPOSITION LEVYA N Bhutada & CO. Chartered Accountant
19 September 2016

2. Under GST for tax payer, a scheme called Composition Scheme is offered to taxpayer,
by which the taxpayers are given the option to pay an amount calculated on some
parameter in lieu of tax calculated based on complex calculations expected by that law.
In the proposed GST law also the composition schemes will be offered to certain set of
taxpayers. The same is contained in Section 8 of Model GST law.
The taxable persons having Aggregate annual turnover of Rs. 50 lakhs are proposed to
be made eligible for Composition levy.
Composition Levy Under GST
ALL ABOUT COMPOSITION LEVYPage No.1 A N Bhutada & CO. Chartered Accountant

3. COMPOSITIONS Levy UNDER GST
Index
1. Definition Of Composition Levy
2. Eligibility For Composition Levy
3. Process To Opt Composition Levy
4. Input Tax Credit Under Composition Levy
5. Returns Under Composition Levy
6. Cancellation Of Permission To Opt Composition Levy
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4. Notwithstanding anything to the contrary contained in the Act but subject to sub section(3) of section
7, on the recommendation of the Council, the proper officer of the Central or a State government may,
subject to such conditions and restrictions as may be prescribed, permit a registered taxable person,
whose aggregate turnover in a financial year does not exceed fifty lakh of rupees, to pay, in lieu of the
tax payable by him, an amount calculated at such rate as may be prescribed, but not less than one
percent of the turnover during the year. Provided that no such permission shall be granted to a taxable
person who effects any inter-State supplies of goods and / or services. Provided further that no such
permission shall be granted to a taxable person unless all the registered taxable persons, having the
same PAN as held by the said taxable person, also opt to pay tax under the provisions of this sub-
section.
Composition Levy (Sec-8)
Thresholds limit of aggregate Turnover Rs.50 Lakhs.
Scheme to be opted for all Units under same PAN
Tax would be paid not less than 1%
Tax would not be charged and collected from Customer
Not entitled to take input tax credit.
SECTION 8 DEFINATION OF COMPOSITION LEVY
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5. EXAMPLE OF COMPOSITION LEVY
 Composition scheme is an scheme where supplier has option to pay in lieu of the tax payable by him ,
an amount calculated at such rate as may be prescribed not less than 1% of turnover during the year.
Mr. X Mr. Y ( Sells goods to Mr.Z) Mr. Z
Customer
• Tax would be paid not less than 1%
• Tax would not be charged and collected from Customer
• Mr. Y shall not be entitled to claim any input tax credit.
SELLER
Mr. X Sells Material to
Mr. Y by applying taxes
Paid Tax on such Material
purchased by Mr. Y from Mr. X
of say Rs. 100,000/- and sell
final product at 200,000/-
( under Composition Levy )
S.N
o
Particulars Amount
1 GST Payable at 1% * 200,000/- 2000/-
2 Less : Already Paid 0
3 GST to be Paid 2000/-
ALL ABOUT COMPOSITION LEVYPage No.4 A N Bhutada & CO. Chartered Accountant

6. ELIGIBILITY FOR COMPOSITION LEVY
Following persons are eligible to opt composition scheme under GST:
 Taxable person whose “aggregate turnover” does not exceed Rs. 50 Lakhs in financial year.
“Aggregate Turnover” = Value of all taxable + non-taxable + exempt supplies + exports - (Taxes + Value of
inward supplies + Value of supplies taxable under reverse charge)
Sec 2(104)
 Aggregate turnover does not include value of supplies taxable under Reverse Charge Mechanism.
 Applicable to goods as well as services.
CONDITIONS FOR OPTING COMPOSITION LEVY
1. Restriction from effecting inter-state supplies:
Composition scheme is not applicable to person who undertake inter-state supplies i.e. export goods
to other state and/or imports from other states
2. Collection of taxes:
Person opting for composition scheme cannot collect taxes from recipient of service or goods.
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7. CONDITIONS FOR OPTING COMPOSITION LEVY
3. Applicable to all the transaction under same PAN: ( ONE PAN BASED )
If taxable person has multiple business and has opted for different registration for each
business, composition scheme would be applicable to all business, it can’t be applied for
selected businesses only.
Mr. X has businesses namely:
i. Sale of Cloths (goods)
ii. Sale of electrical appliances (goods)
iii. Giving services (service)
So in this case, Whether Mr. X has to opt composition scheme for all the business including
services.
4. Not eligible to input tax credit:
 To pay tax under composition scheme, the assessee cannot utilize the input tax credit.
ALL ABOUT COMPOSITION LEVY
5. Additional conditions: There may be other conditions or restrictions which may be prescribed under
the Rules. Fulfilling those conditions, if any, would also be necessary to opt for payment of taxes under the
Composition Scheme.
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One PAN Based

8. PROCESS TO OPT COMPOSITION LEVY
 Assessee has to opt the composition scheme from the 1ST day of Financial year i.e. from 1st
April onwards.
 Application for opting such composition scheme have to given to the Department by the
assessee.
 Such application must be filled with the Department on or before 31st March of Previous year.
 The law allows the assessee to shift from the composition scheme to normal scheme voluntarily
even during the year.
 If the turnover of assessee opting composition scheme exceeds Rs.50 Lakhs during the year, he will
be shifted to normal Scheme automatically.
E.g.: If Mr. X has to opt for composition scheme from 1st April, 2018, he has to fill the application on
or before 31st March, 2018.
If during the year, Mr. X’s turnover exceeds 50 lakhs at any point of time, his opted composition
scheme will lapse and he will be shifted to the Normal scheme automatically.
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Page No.8 A N Bhutada & CO. Chartered Accountant

9. INPUT TAX CREDIT UNDER COMPOSITION LEVY
1. Switches from normal scheme to composition scheme
• He would have to pay an amount equivalent to input tax credit utilize Out of input
tax credit of stock or semi-finished goods/finished products held in stock On the day
immediately preceding date of switch over from normal scheme to composition
scheme.
• The balance Input-tax credit of goods lying in stock will lapse.
2. Switches from composition scheme to normal scheme or when he become
ineligible to opt composition scheme,
 Person will be eligible to book credit of input lying in stock & semi-
finished/finished goods held in stock, on the day immediately preceding the date from
which he become liable to pay tax under regular scheme.
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Page No.8 A N Bhutada & CO. Chartered Accountant

10. 5
RETURNS UNDER COMPOSITION LEVY
• A registered taxable person paying tax under the provisions of section 8 of this Act shall
furnish a return for each quarter or part thereof, electronically, in such form and in
such manner as may be prescribed, within eighteen days after the end of such quarter.
• GSTR-4 has been prescribed by the government under draft business processes an
return to be filed by an compounding dealer.
• Compounding dealer shall furnish the first return for the period starting from the date on
which he becomes a registered taxable person till the end of the quarter in which the
registration has been granted.
ALL ABOUT COMPOSITION LEVYPage No.9 A N Bhutada & CO. Chartered Accountant

11. 6
CANCELLATION OF PERMISSION TO OPT COMPOSITION LEVY
If proper officer believes that person opting composition scheme is not eligible for the same OR
permission granted to opt composition scheme was granted incorrectly,
He may cancel the permission to opt composition scheme and demand the following amount:
Differential tax i.e. tax payable under normal
scheme if the person would not opt the
composition scheme.
Penalty equivalent to the tax or any higher
amount as may be prescribed by the Govt
from time to time.
ALL ABOUT COMPOSITION LEVY
Sections 66, 67 and 68
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A N Bhutada & CO. Chartered Accountant

12. Contact Details
CA Amit Bhutada
Cell 80555 66789
Email :amitbhutada@outlook.com
Website : www.anbca.com
ALL ABOUT COMPOSITION LEVY
THANK YOU
A N Bhutada & CO. Chartered Accountant