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Composition of Composition levy

Composition of Composition levy

1. What is Composition levy?

Composition levy implies taxing at concessional rate with reduced burden of compliance for specified category of Suppliers.

GST law proposes to provide this concessional option to suppliers having annual turnover below the prescribed limit.

It may be noted that Composition scheme is inapplicable for taxes payable under reverse charge (RCM) and the supplier under composition scheme is required to pay taxes at normal rates for inward supplies subject to RCM.

Supplier cannot take input credit and cannot collect tax from the recipient.

2. Who are ineligible for composition levy?
  • Supplier having aggregate turnover above limit of Rs 50 lacs computed for entire India for the same PAN number.
  • Supplier having inter-state outward supply irrespective of turnover
  • Supplier of services including deemed services excepting provision of food or non-alcoholic drink irrespective of turnover
  • Supplier of non-taxable goods and notified goods irrespective of turnover
  • Supplier supplying through e-commerce operators irrespective of turnover.
  • Supplier who is either casual taxable person or non resident taxable persons
  • Supplier who migrates to GST from existing tax regime and is holding stocks on the transition date which have been purchased either in the course of inter-state trade or imported into India or received from a branch outside the State or from Principal or agent outside the State
3. How to determine whether Composition levy is beneficial?

An eligible Supplier can look into the following factors before deciding on the option of Composition levy:-

  • The stage in the value chain where the goods are supplied ie whether the supplier is a manufacturer, wholesaler or retailer
  • The length of the value chain before the goods reaches the consumer
  • The rate of composition levy vis-à-vis the normal rate of GST for the product
  • Cost- benefit analysis of the input credit that would be lost if the option is chosen
4. What are the rates of taxes under Composition Scheme?
  • 2% (CGST+SGST at 1% each) of the turnover for a manufacturer
  • 5% (CGST+SGST at 2.5% each) of the turnover in case of service by way of provision of food
  • 1% (CGST+SGST at 0.5% each) of the turnover for other suppliers

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