GST Section 10: Complete Guide to Composition Levy, Eligibility, Rates & Latest Amendments (2025)

Section 10 of the CGST Act introduces the Composition Levy Scheme, a simplified tax compliance mechanism for small taxpayers with turnover up to ₹50 lakh (extendable to ₹1.5 crore). It allows eligible manufacturers, traders, and certain service providers to pay GST at a fixed, lower rate without availing input tax credit or collecting tax from customers.

The scheme includes conditions to restrict inter-State sales, e-commerce supplies, and certain notified goods and services. With recent amendments effective in 2023 and 2024, Section 10 also covers small service providers under Section 10(2A). AUBSP provides a complete, authoritative overview to help businesses understand eligibility, benefits, and compliance requirements.

GST Section 10: Composition Levy Explained in Detail

Understanding the tax structure under the Goods and Services Tax (GST) regime can be complex, especially for small businesses. To ease compliance and reduce tax burdens for small taxpayers, the Composition Scheme under Section 10 of the CGST Act, 2017 was introduced. In this detailed article, AUBSP walks you through the nuances of Section 10, including eligibility, tax rates, restrictions, and latest amendments.

What is the Composition Scheme?

The Composition Scheme under GST is designed for small taxpayers to simplify tax compliance by paying a fixed percentage of turnover instead of regular GST rates. Introduced under Section 10 of the CGST Act, this scheme allows eligible businesses to pay tax at a lower rate and file quarterly returns.

According to AUBSP, this scheme is particularly beneficial for micro and small enterprises, as it reduces paperwork, compliance burden, and tax liability.

Tax Rates under Section 10(1)

A registered person whose aggregate turnover in the preceding financial year did not exceed ₹50 lakh may opt to pay tax under the Composition Scheme. The prescribed tax rates are:

Supply of Services

Taxpayers under clauses (a), (b), or (c) can supply services (excluding restaurant services) up to 10% of turnover or ₹5 lakh, whichever is higher.

Eligibility Criteria under Section 10(2)

To opt for the scheme, the registered person must:

• Not be engaged in supply of services (except as allowed under Section 10(1)).
• Not deal in goods/services not taxable under GST.
• Not make inter-State outward supplies.
• Not supply through e-commerce operators required to collect TCS.
• Not manufacture goods notified by the Government.
• Not be a casual taxable person or non-resident taxable person.

Also, if a business has multiple GST registrations under one PAN, all must opt into the scheme.

Composition Scheme for Service Providers – Section 10(2A)

Introduced via the Finance Act, 2019, this subsection allows service providers (not eligible under Section 10(1)) with turnover up to ₹50 lakh to opt into a similar scheme.

Conditions under Section 10(2A):

• No inter-State supplies
• No supply through e-commerce with TCS
• Not engaged in exempt goods/services
• Not a manufacturer/supplier of notified goods/services
• Not a casual/non-resident taxable person

Turnover Limit and Lapse of Option – Section 10(3)

If a person’s aggregate turnover exceeds the specified limit (₹50 lakh or extended limit), the composition scheme becomes invalid from the date of crossing the threshold. From this date, normal GST provisions apply.

Restrictions on Tax Collection and ITC – Section 10(4)

Under the Composition Scheme:

• Taxpayers cannot collect tax from customers.
• Input Tax Credit (ITC) is not available on purchases.

This simplifies the system but also limits the benefits of credit for purchases.

Ineligibility and Penalties – Section 10(5)

If a taxpayer wrongly opts for the composition scheme despite being ineligible, the proper officer may:

• Recover the actual tax liability
• Impose penalties under Section 73, 74, or 74A

This ensures that only genuine small taxpayers benefit from the scheme.

Explanations for Clarity

Explanation 1: Aggregate Turnover

Includes all supplies made from 1st April of the FY until GST registration becomes mandatory. Excludes exempt interest income from deposits, loans, or advances.

Explanation 2: Turnover in State/UT

Does not include:

• Supplies before registration
• Exempt interest income from financial transactions

These clarifications ensure proper calculation and compliance under Section 10.

Conclusion: Should You Opt for the Composition Scheme?

If you are a small taxpayer looking for simplified compliance and lower tax rates, the Composition Scheme under Section 10 can be a smart choice. However, it’s important to weigh the benefits against the limitations like no ITC and restrictions on inter-State sales.

AUBSP recommends a careful analysis of your business model before opting in. You may also consult your tax advisor to ensure that you meet all eligibility criteria and avoid penalties.

For more updates and expert GST analysis, stay connected with AUBSP.com – your reliable source for professional tax insights.

FAQs on Section 10 of the CGST Act – Composition Levy

What is Section 10 of the CGST Act, 2017?
Section 10 deals with the Composition Levy, which allows small taxpayers to pay GST at a fixed rate of turnover instead of regular GST rates.

Who can opt for the GST Composition Scheme under Section 10?
Small businesses with aggregate turnover up to ₹50 lakh (extendable to ₹1.5 crore) in the preceding financial year can opt for the scheme, subject to conditions.

What is the tax rate under the Composition Scheme?
It is 1% for manufacturers, 2.5% for food service providers, and 0.5% for other suppliers. For eligible service providers under Section 10(2A), the rate is up to 3%.

Can service providers opt for the Composition Scheme?
Yes, but only under specific conditions. Under Section 10(2A), service providers with turnover up to ₹50 lakh may opt to pay tax at a maximum rate of 3%.

Can I collect GST from customers under the Composition Scheme?
No, a person under the Composition Scheme cannot collect tax from customers.

Is Input Tax Credit (ITC) allowed under the Composition Scheme?
No, ITC is not available to composition taxpayers.

Can a person make inter-State supplies under the Composition Scheme?
No, inter-State outward supplies are not permitted under the scheme.

Can I sell goods through e-commerce platforms if I’m under the Composition Scheme?
No, suppliers under the Composition Scheme cannot sell through e-commerce operators liable to collect TCS under Section 52.

Is there a separate scheme for small service providers?
Yes, Section 10(2A) provides a composition-like scheme for service providers not eligible under Section 10(1).

Can I opt for the Composition Scheme if I have multiple GST registrations under one PAN?
Only if all GST-registered entities under the same PAN opt into the Composition Scheme simultaneously.

What happens if my turnover exceeds ₹50 lakh or the notified limit during the year?
The option to pay under the scheme lapses from the date on which turnover exceeds the prescribed limit.

Are there any penalties for wrongly availing the Composition Scheme?
Yes, if found ineligible, the person is liable to pay tax along with penalty under Section 73, 74, or 74A, as applicable.

Which supplies are excluded from the calculation of turnover in a State or Union Territory?
Turnover excludes supplies made before GST registration and exempt interest income from deposits, loans, or advances.

Are casual taxable persons or non-resident taxable persons eligible for the scheme?
No, they are explicitly barred from opting into the scheme.

What is the meaning of ‘aggregate turnover’ for Section 10 purposes?
It includes all taxable supplies, exempt supplies, exports, and inter-State supplies (excluding inward supplies on which tax is paid under RCM) from the 1st April up to the date of registration.

Are restaurant service providers eligible under the Composition Scheme?
Yes, restaurant service providers (as per Schedule II, para 6(b)) can opt into the scheme at a higher rate of 5% (2.5% CGST + 2.5% SGST).

What are the benefits of opting into the Composition Scheme?
Benefits include simplified compliance, lower tax rates, minimal record-keeping, and ease of filing returns.

Can a manufacturer of notified goods opt for the Composition Scheme?
No, if the goods manufactured are notified by the government as ineligible, the manufacturer cannot opt into the scheme.

Can I provide both goods and services under the scheme?
Yes, but only up to 10% of turnover or ₹5 lakh (whichever is higher), and only if not dealing in services listed under Schedule II clause (b).

What is the maximum turnover limit for eligibility under the scheme?
The base limit is ₹50 lakh, but it may be increased up to ₹1.5 crore through a government notification on Council recommendation.

How is the turnover calculated for determining eligibility?
It is based on aggregate turnover in the preceding financial year, excluding exempt interest income and pre-registration supplies.

When did Section 10 of the CGST Act come into effect?
It came into effect on 22nd June 2017, via Notification No. 1/2017 – Central Tax dated 19.06.2017.

Are there any recent amendments to Section 10?
Yes, notable amendments were made effective from 1st January 2020, 1st October 2023, and 1st November 2024.

What is the procedure to opt for the Composition Scheme?
Eligible taxpayers can opt by filing Form GST CMP-02 on the GST portal, usually before the beginning of the financial year.

What return forms are required under the Composition Scheme?
Taxpayers must file GSTR-4 (quarterly) and CMP-08 (payment form).

Can composition dealers issue tax invoices?
No, they must issue a bill of supply instead of a tax invoice, as they cannot charge GST.

Is there any annual return requirement for composition taxpayers?
Yes, they must file GSTR-9A annually.

Can the scheme be withdrawn voluntarily?
Yes, a taxpayer may opt out of the scheme by filing GST CMP-04, and start following the regular GST regime.

What happens after opting out or lapse of scheme eligibility?
The taxpayer becomes a regular taxpayer and must comply with all provisions, including tax collection, ITC, and monthly returns.