Composition Levy under GST: A Comprehensive Guide

Introduction: GST (Goods and Services Tax) is a comprehensive tax levied on the supply of goods and services in India. GST was introduced on July 1, 2017, as a single indirect tax replacing multiple taxes and levies charged by the Central and State Governments. One of the key provisions of GST is the Composition Levy, which provides a simplified compliance procedure for small taxpayers.

What is Composition Levy under GST?

Composition Levy a scheme under GST that provides small taxpayers an option to pay a fixed percentage of their turnover as tax in lieu of the normal GST rates. The main objective of Composition Levy is to provide relief to small taxpayers from the burden of compliance with GST and reduce the administrative burden on both taxpayers and the government. The Composition Levy is applicable only to registered taxpayers whose annual turnover does not exceed INR 1.5 crore.

Eligibility criteria for Composition Levy under GST

 To be eligible for Composition Levy, a taxpayer must meet the following criteria:

 The taxpayer must be registered under GST

 The taxpayer must not be engaged in making any taxable supply of goods that attract a GST rate higher than 1%

 The taxpayer must not be engaged in making any taxable supply of services

 The taxpayer's aggregate turnover (in the preceding financial year) must not exceed INR 1.5 crore

Advantages of Composition Levy under GST

There are several advantages of opting for Composition Levy under GST:

 Lower tax rate: Taxpayers opting for Composition Levy are required to pay a lower tax rate as compared to the normal GST rates

 Simplified compliance: Composition Levy provides a simplified compliance procedure for small taxpayers, thereby reducing the administrative burden

 No input tax credit: Taxpayers opting for Composition Levy are not eligible for input tax credit, which means that they cannot claim any credit for the GST paid on their purchases

 No need to issue tax invoices: Taxpayers opting for Composition Levy are not required to issue tax invoices

Disadvantages of Composition Levy under GST

While Composition Levy has several advantages, it also has some disadvantages, which are:

 Cannot make taxable supplies: Taxpayers opting for Composition Levy cannot make taxable supplies of goods that attract a GST rate higher than 1% or taxable supplies of services

 Cannot claim input tax credit: Taxpayers opting for Composition Levy cannot claim input tax credit, which means that they cannot claim any credit for the GST paid on their purchases

 Limited turnover: Composition Levy is applicable only to taxpayers whose aggregate turnover does not exceed INR 1.5 crore

Process for opting for Composition Levy under GST

The process for opting for Composition Levy under GST is as follows:

 Register under GST

 Apply for composition scheme on the GST portal

 Provide required information and pay the composition fee

 File quarterly returns and pay the composition tax

 Maintain records as per the GST Act

Computation of Composition Levy under GST

The Composition Levy is calculated as a percentage of the taxpayer's turnover. The percentage varies depending on the nature of the business and the goods supplied. For manufacturers, the Composition Levy is 1% of the turnover, while for traders and restaurateurs, the Composition Levy is 0.5% of the turnover.

Compliance under Composition Levy under GST

Taxpayers opting for Composition Levy must comply with the following requirements:

 File quarterly returns and pay the composition tax within the due date

 Maintain proper records as per the GST Act

 Display the GST composition levy rate on all invoices

 Notify the tax authorities in case of any changes in the nature of business or the turnover

 Opt out of the composition scheme in case the aggregate turnover exceeds INR 1.5 crore.