Ch 7- Small Taxable Persons : Exemptions and Composition Scheme | GST Saral by CA Dhruv Aggarwal PDF Download

 Page 1


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 7 - Small taxable persons - Exemptions and compositi on scheme 
 
 
 
 
 
CHAPTER 7 
 
Small taxable  persons - Exemptions and composition scheme 
 
EXECUTIVE SUMMARY 
 
?   Sma l taxable persons having turnover upto Rs 20 lakhs are exempt from GST [limit Rs 10 lakhs for 
North Eastern States, Himachal Pradesh and Uttarakhand and Jammu and Kashmir] 
?   Sma l taxable persons supplying goods upto Rs 50 lakhs per annum are eligible for simplified scheme 
[composition scheme] 
?   Composition scheme is available to sma l taxable persons if a l their purchases are from registered 
persons  within  the  State.  Otherwise,  they  have  to  pay  GST  on  purchases.  This  condition  is 
practically    impossible to be complied with. 
?   The taxable person opting for composition scheme will have to pay a fixed percentage of gross 
turnover as tax. 
?   In case of payment of tax under composition scheme, the taxable person should issue 'Bill of Supply' 
instead of Tax Invoice with details specified in rule 4. 
?   They have to pay CGST as follows - (a) 1% of turnover in State or Union territory in case of a 
manufacturer (b) 2.5% of turnover in State or Union territory in case of persons engaged in making 
supplies referred to in para 6(b) of Schedule  II of CGST Act [restaurant service] (c) 0.5% of 
turnover in State or Union Territory in case of other suppliers [i.e. traders] 
?   There will be equal SGST/UTGST. Thus, total tax payable will be double the aforesaid rates. 
?   The scheme is optional. The option lapses on the day his aggregate turnover exceeds the specified 
limit - section 10(3) of CGST Act. 
?   The option has to be exercised every year by filing e-declaration before Financial year. It is not 
automatic. 
?   He has to submit details of stock with him as on 1-7-2017. 
?   If the scheme is misused, the option can be withdrawn by 'proper officer'. 
?   A l registered taxable persons having same PAN number should opt for the composition scheme. 
?   Taxable persons whose a l supplies of goods and services are within the State only will be eligible for 
the simplified scheme. 
?   Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. 
They cannot show GST in their invoice. They are not entitled to any input tax credit. [section 10(4) 
of CGST Act]. 
7.1 Relief to small taxable  persons 
 
It is normal to provide threshold limit for imposition of any tax, so that very sma l taxable persons are out of tax 
Page 2


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 7 - Small taxable persons - Exemptions and compositi on scheme 
 
 
 
 
 
CHAPTER 7 
 
Small taxable  persons - Exemptions and composition scheme 
 
EXECUTIVE SUMMARY 
 
?   Sma l taxable persons having turnover upto Rs 20 lakhs are exempt from GST [limit Rs 10 lakhs for 
North Eastern States, Himachal Pradesh and Uttarakhand and Jammu and Kashmir] 
?   Sma l taxable persons supplying goods upto Rs 50 lakhs per annum are eligible for simplified scheme 
[composition scheme] 
?   Composition scheme is available to sma l taxable persons if a l their purchases are from registered 
persons  within  the  State.  Otherwise,  they  have  to  pay  GST  on  purchases.  This  condition  is 
practically    impossible to be complied with. 
?   The taxable person opting for composition scheme will have to pay a fixed percentage of gross 
turnover as tax. 
?   In case of payment of tax under composition scheme, the taxable person should issue 'Bill of Supply' 
instead of Tax Invoice with details specified in rule 4. 
?   They have to pay CGST as follows - (a) 1% of turnover in State or Union territory in case of a 
manufacturer (b) 2.5% of turnover in State or Union territory in case of persons engaged in making 
supplies referred to in para 6(b) of Schedule  II of CGST Act [restaurant service] (c) 0.5% of 
turnover in State or Union Territory in case of other suppliers [i.e. traders] 
?   There will be equal SGST/UTGST. Thus, total tax payable will be double the aforesaid rates. 
?   The scheme is optional. The option lapses on the day his aggregate turnover exceeds the specified 
limit - section 10(3) of CGST Act. 
?   The option has to be exercised every year by filing e-declaration before Financial year. It is not 
automatic. 
?   He has to submit details of stock with him as on 1-7-2017. 
?   If the scheme is misused, the option can be withdrawn by 'proper officer'. 
?   A l registered taxable persons having same PAN number should opt for the composition scheme. 
?   Taxable persons whose a l supplies of goods and services are within the State only will be eligible for 
the simplified scheme. 
?   Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. 
They cannot show GST in their invoice. They are not entitled to any input tax credit. [section 10(4) 
of CGST Act]. 
7.1 Relief to small taxable  persons 
 
It is normal to provide threshold limit for imposition of any tax, so that very sma l taxable persons are out of tax 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
net. This is also administratively expedient as it is not possible to exercise control over large number of sma l 
taxable persons, where revenue generated is negligible compared to costs involved. 
7.1-1 Control by State  authorities in case of small taxable  persons 
 
As per press reports,  90% sma l taxable persons upto turnover of Rs 150 lakhs will be supervised  and 
contro led by State GST authorities. 
7.2 Exemption to small taxable  persons 
 
As per section 22(1) of CGST Act, every supplier shall be liable to be registered  in the State or Union 
Territory (other than special category states) from where he makes supply of goods or services or both, if his 
aggregate turnover in a financial year exceeds Rs 20 lakhs. 
In case of 'special category states', registration is required if his aggregate turnover in a financial year exceeds 
Rs 10 lakhs - proviso to section 22(1) of CGST Act. 
 
Special Category States means States as specified in Article 279A(4)(g) of Constitution of India - Explanation 
( i) to section 22 of CGST Act. 
 
These  are  -States  of Arunachal Pradesh,  Assam,  Jammu and  Kashmir,  Manipur,  Meghalaya,  Mizoram, 
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand. 
Aggregate turnover  - For purpose of section 22 of CGST Act, the expression "aggregate turnover" shall 
include a l supplies made by the taxable person, whether on his own account or made on behalf of a l his 
principals - Explanation (i) to section 22 of CGST Act. 
Are they exempt from payment of GST? - The exemption from registration implies that such persons will be 
exempt from payment of GST. However, technica ly, exemption from registration and exemption from GST 
liability are independent issues. 
7.3 Composition scheme for small taxable  persons supplying goods 
 
GST requires heavy compliance cost due to detailed accounting and paper work involved. 
 
Sma l taxable persons do not have sufficient knowledge and expertise to comply with the requirements relating 
to records and accounts. 
Hence, for them, a simplified composition scheme has been provided, vide section 10 of CGST Act. 
 
The scheme is available to those whose aggregate turnover of supply of goods in a financial year does not 
exceed Rs 50 lakhs. This limit can be extended upto Rs one crore by issuing notification, on recommendation 
of GST Council. 
The scheme is not available to supplier of services. 
 
The proposed rates are as fo lows[section 10(1) of CGST Act]- 
 
(a)   1% of turnover in State or Union territory in case of a manufacturer 
(b)   2.5% of turnover in State or Union territory in case of persons engaged in making supplies referred 
to in para 6(b) of Schedule II of CGST Act [restaurant service] 
(c)   0.5% of turnover in State or Union Territory in case of other suppliers [i.e. traders] 
[There will be equal SGST. Thus, total tax payable will be double the aforesaid rates]. 
The scheme is optional. 
 
The option lapses on the day his aggregate turnover exceeds the specified limit - section 10(3) of CGST Act. 
A l registered taxable persons having same PAN number should opt for the composition scheme. 
Page 3


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 7 - Small taxable persons - Exemptions and compositi on scheme 
 
 
 
 
 
CHAPTER 7 
 
Small taxable  persons - Exemptions and composition scheme 
 
EXECUTIVE SUMMARY 
 
?   Sma l taxable persons having turnover upto Rs 20 lakhs are exempt from GST [limit Rs 10 lakhs for 
North Eastern States, Himachal Pradesh and Uttarakhand and Jammu and Kashmir] 
?   Sma l taxable persons supplying goods upto Rs 50 lakhs per annum are eligible for simplified scheme 
[composition scheme] 
?   Composition scheme is available to sma l taxable persons if a l their purchases are from registered 
persons  within  the  State.  Otherwise,  they  have  to  pay  GST  on  purchases.  This  condition  is 
practically    impossible to be complied with. 
?   The taxable person opting for composition scheme will have to pay a fixed percentage of gross 
turnover as tax. 
?   In case of payment of tax under composition scheme, the taxable person should issue 'Bill of Supply' 
instead of Tax Invoice with details specified in rule 4. 
?   They have to pay CGST as follows - (a) 1% of turnover in State or Union territory in case of a 
manufacturer (b) 2.5% of turnover in State or Union territory in case of persons engaged in making 
supplies referred to in para 6(b) of Schedule  II of CGST Act [restaurant service] (c) 0.5% of 
turnover in State or Union Territory in case of other suppliers [i.e. traders] 
?   There will be equal SGST/UTGST. Thus, total tax payable will be double the aforesaid rates. 
?   The scheme is optional. The option lapses on the day his aggregate turnover exceeds the specified 
limit - section 10(3) of CGST Act. 
?   The option has to be exercised every year by filing e-declaration before Financial year. It is not 
automatic. 
?   He has to submit details of stock with him as on 1-7-2017. 
?   If the scheme is misused, the option can be withdrawn by 'proper officer'. 
?   A l registered taxable persons having same PAN number should opt for the composition scheme. 
?   Taxable persons whose a l supplies of goods and services are within the State only will be eligible for 
the simplified scheme. 
?   Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. 
They cannot show GST in their invoice. They are not entitled to any input tax credit. [section 10(4) 
of CGST Act]. 
7.1 Relief to small taxable  persons 
 
It is normal to provide threshold limit for imposition of any tax, so that very sma l taxable persons are out of tax 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
net. This is also administratively expedient as it is not possible to exercise control over large number of sma l 
taxable persons, where revenue generated is negligible compared to costs involved. 
7.1-1 Control by State  authorities in case of small taxable  persons 
 
As per press reports,  90% sma l taxable persons upto turnover of Rs 150 lakhs will be supervised  and 
contro led by State GST authorities. 
7.2 Exemption to small taxable  persons 
 
As per section 22(1) of CGST Act, every supplier shall be liable to be registered  in the State or Union 
Territory (other than special category states) from where he makes supply of goods or services or both, if his 
aggregate turnover in a financial year exceeds Rs 20 lakhs. 
In case of 'special category states', registration is required if his aggregate turnover in a financial year exceeds 
Rs 10 lakhs - proviso to section 22(1) of CGST Act. 
 
Special Category States means States as specified in Article 279A(4)(g) of Constitution of India - Explanation 
( i) to section 22 of CGST Act. 
 
These  are  -States  of Arunachal Pradesh,  Assam,  Jammu and  Kashmir,  Manipur,  Meghalaya,  Mizoram, 
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand. 
Aggregate turnover  - For purpose of section 22 of CGST Act, the expression "aggregate turnover" shall 
include a l supplies made by the taxable person, whether on his own account or made on behalf of a l his 
principals - Explanation (i) to section 22 of CGST Act. 
Are they exempt from payment of GST? - The exemption from registration implies that such persons will be 
exempt from payment of GST. However, technica ly, exemption from registration and exemption from GST 
liability are independent issues. 
7.3 Composition scheme for small taxable  persons supplying goods 
 
GST requires heavy compliance cost due to detailed accounting and paper work involved. 
 
Sma l taxable persons do not have sufficient knowledge and expertise to comply with the requirements relating 
to records and accounts. 
Hence, for them, a simplified composition scheme has been provided, vide section 10 of CGST Act. 
 
The scheme is available to those whose aggregate turnover of supply of goods in a financial year does not 
exceed Rs 50 lakhs. This limit can be extended upto Rs one crore by issuing notification, on recommendation 
of GST Council. 
The scheme is not available to supplier of services. 
 
The proposed rates are as fo lows[section 10(1) of CGST Act]- 
 
(a)   1% of turnover in State or Union territory in case of a manufacturer 
(b)   2.5% of turnover in State or Union territory in case of persons engaged in making supplies referred 
to in para 6(b) of Schedule II of CGST Act [restaurant service] 
(c)   0.5% of turnover in State or Union Territory in case of other suppliers [i.e. traders] 
[There will be equal SGST. Thus, total tax payable will be double the aforesaid rates]. 
The scheme is optional. 
 
The option lapses on the day his aggregate turnover exceeds the specified limit - section 10(3) of CGST Act. 
A l registered taxable persons having same PAN number should opt for the composition scheme. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
The taxable person opting for composition scheme will have to pay a fixed percentage of gross turnover as 
tax, 
Taxable persons whose a l supplies of goods and services are within the State only will be eligible for the 
simplified scheme. 
Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. They 
cannot show GST in their i nvoice. They are not entitled to any input tax credit. [section 10(4) of CGST Act] 
Meaning  of 'aggregate turnover' - "Aggregate turnover" means the aggregate value of a l taxable supplies 
(excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt 
supplies, exports of goods or services or both and inter-State supplies of a person having the same Income 
Tax PAN, to be computed on a l India basis and excludes taxes [CGST, SGST, UTGST and IGST - section 
2(6) of CGST Act. 
 
7.3-1 Who is 'manufacturer' 
 
"Manufacture" means processing of raw material or inputs in any manner that results in emergence of a new 
product having a distinct name, character and use and the term "manufacturer" shall be construed accordi ngly - 
section 2(72) of CGST Act. 
Thus  simple  activities  like  packing,  re-packing,  labe ling,  testing,  repairs,  mixing  etc.  will not  qualify  as 
'manufacture'. 
 
7.3-2 Taxable persons not eligible for composition scheme 
 
As per section 10(2) of CGST Act, fo lowing taxable persons will be eligible for composition scheme— 
 
(a)   he is not engaged in the supply of services other than supplies referred to in para 6(b) of Schedule II 
of CGST Act [restaurant service] [Thus, suppliers of services (other than restaurant service] are not 
eligible for this scheme] 
(b)   he is not engaged in making any supply of goods which are not leviable to tax under this Act [Then 
he is not liable to pay GST at a l] 
(c)   he is not engaged in making any inter-State outward supplies of goods [Thus he can make inter-state 
purchases but not inter-state supplies] 
(d)   he is not engaged in making any supply of goods through an electronic commerce operator who is 
required to co lect tax at source under section 52 of CGST Act and 
(e)   he is not manufacturer of such goods as may be notified on the recommendation of the Council 
[some items like pan masala may be excluded] 
All registered  persons  having  same  income  tax  PAN  must  opt  for  composition  scheme  - A l the 
registered taxable persons, having the same PAN must opt to pay tax under the provisions of this composition 
scheme - proviso to section 10(2) of CGST Act. 
The aggregate turnover will be total of a l registered persons having same income tax PAN. 
 
Thus, if taxable turnover has di fferent businesses in di fferent States, turnover of a l such units in aggregate will 
be considered for eligibility of composition scheme. 
7.3-3 Conditions and restrictions for composition levy as specified in rules 
 
The person exercising the option to pay tax under section 10 shall comply with the fo lowing conditions [rule 
3(1) of Composition Rule]. 
 
(a)   he is neither a casual taxable person nor a non-resident taxable person. 
Page 4


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 7 - Small taxable persons - Exemptions and compositi on scheme 
 
 
 
 
 
CHAPTER 7 
 
Small taxable  persons - Exemptions and composition scheme 
 
EXECUTIVE SUMMARY 
 
?   Sma l taxable persons having turnover upto Rs 20 lakhs are exempt from GST [limit Rs 10 lakhs for 
North Eastern States, Himachal Pradesh and Uttarakhand and Jammu and Kashmir] 
?   Sma l taxable persons supplying goods upto Rs 50 lakhs per annum are eligible for simplified scheme 
[composition scheme] 
?   Composition scheme is available to sma l taxable persons if a l their purchases are from registered 
persons  within  the  State.  Otherwise,  they  have  to  pay  GST  on  purchases.  This  condition  is 
practically    impossible to be complied with. 
?   The taxable person opting for composition scheme will have to pay a fixed percentage of gross 
turnover as tax. 
?   In case of payment of tax under composition scheme, the taxable person should issue 'Bill of Supply' 
instead of Tax Invoice with details specified in rule 4. 
?   They have to pay CGST as follows - (a) 1% of turnover in State or Union territory in case of a 
manufacturer (b) 2.5% of turnover in State or Union territory in case of persons engaged in making 
supplies referred to in para 6(b) of Schedule  II of CGST Act [restaurant service] (c) 0.5% of 
turnover in State or Union Territory in case of other suppliers [i.e. traders] 
?   There will be equal SGST/UTGST. Thus, total tax payable will be double the aforesaid rates. 
?   The scheme is optional. The option lapses on the day his aggregate turnover exceeds the specified 
limit - section 10(3) of CGST Act. 
?   The option has to be exercised every year by filing e-declaration before Financial year. It is not 
automatic. 
?   He has to submit details of stock with him as on 1-7-2017. 
?   If the scheme is misused, the option can be withdrawn by 'proper officer'. 
?   A l registered taxable persons having same PAN number should opt for the composition scheme. 
?   Taxable persons whose a l supplies of goods and services are within the State only will be eligible for 
the simplified scheme. 
?   Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. 
They cannot show GST in their invoice. They are not entitled to any input tax credit. [section 10(4) 
of CGST Act]. 
7.1 Relief to small taxable  persons 
 
It is normal to provide threshold limit for imposition of any tax, so that very sma l taxable persons are out of tax 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
net. This is also administratively expedient as it is not possible to exercise control over large number of sma l 
taxable persons, where revenue generated is negligible compared to costs involved. 
7.1-1 Control by State  authorities in case of small taxable  persons 
 
As per press reports,  90% sma l taxable persons upto turnover of Rs 150 lakhs will be supervised  and 
contro led by State GST authorities. 
7.2 Exemption to small taxable  persons 
 
As per section 22(1) of CGST Act, every supplier shall be liable to be registered  in the State or Union 
Territory (other than special category states) from where he makes supply of goods or services or both, if his 
aggregate turnover in a financial year exceeds Rs 20 lakhs. 
In case of 'special category states', registration is required if his aggregate turnover in a financial year exceeds 
Rs 10 lakhs - proviso to section 22(1) of CGST Act. 
 
Special Category States means States as specified in Article 279A(4)(g) of Constitution of India - Explanation 
( i) to section 22 of CGST Act. 
 
These  are  -States  of Arunachal Pradesh,  Assam,  Jammu and  Kashmir,  Manipur,  Meghalaya,  Mizoram, 
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand. 
Aggregate turnover  - For purpose of section 22 of CGST Act, the expression "aggregate turnover" shall 
include a l supplies made by the taxable person, whether on his own account or made on behalf of a l his 
principals - Explanation (i) to section 22 of CGST Act. 
Are they exempt from payment of GST? - The exemption from registration implies that such persons will be 
exempt from payment of GST. However, technica ly, exemption from registration and exemption from GST 
liability are independent issues. 
7.3 Composition scheme for small taxable  persons supplying goods 
 
GST requires heavy compliance cost due to detailed accounting and paper work involved. 
 
Sma l taxable persons do not have sufficient knowledge and expertise to comply with the requirements relating 
to records and accounts. 
Hence, for them, a simplified composition scheme has been provided, vide section 10 of CGST Act. 
 
The scheme is available to those whose aggregate turnover of supply of goods in a financial year does not 
exceed Rs 50 lakhs. This limit can be extended upto Rs one crore by issuing notification, on recommendation 
of GST Council. 
The scheme is not available to supplier of services. 
 
The proposed rates are as fo lows[section 10(1) of CGST Act]- 
 
(a)   1% of turnover in State or Union territory in case of a manufacturer 
(b)   2.5% of turnover in State or Union territory in case of persons engaged in making supplies referred 
to in para 6(b) of Schedule II of CGST Act [restaurant service] 
(c)   0.5% of turnover in State or Union Territory in case of other suppliers [i.e. traders] 
[There will be equal SGST. Thus, total tax payable will be double the aforesaid rates]. 
The scheme is optional. 
 
The option lapses on the day his aggregate turnover exceeds the specified limit - section 10(3) of CGST Act. 
A l registered taxable persons having same PAN number should opt for the composition scheme. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
The taxable person opting for composition scheme will have to pay a fixed percentage of gross turnover as 
tax, 
Taxable persons whose a l supplies of goods and services are within the State only will be eligible for the 
simplified scheme. 
Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. They 
cannot show GST in their i nvoice. They are not entitled to any input tax credit. [section 10(4) of CGST Act] 
Meaning  of 'aggregate turnover' - "Aggregate turnover" means the aggregate value of a l taxable supplies 
(excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt 
supplies, exports of goods or services or both and inter-State supplies of a person having the same Income 
Tax PAN, to be computed on a l India basis and excludes taxes [CGST, SGST, UTGST and IGST - section 
2(6) of CGST Act. 
 
7.3-1 Who is 'manufacturer' 
 
"Manufacture" means processing of raw material or inputs in any manner that results in emergence of a new 
product having a distinct name, character and use and the term "manufacturer" shall be construed accordi ngly - 
section 2(72) of CGST Act. 
Thus  simple  activities  like  packing,  re-packing,  labe ling,  testing,  repairs,  mixing  etc.  will not  qualify  as 
'manufacture'. 
 
7.3-2 Taxable persons not eligible for composition scheme 
 
As per section 10(2) of CGST Act, fo lowing taxable persons will be eligible for composition scheme— 
 
(a)   he is not engaged in the supply of services other than supplies referred to in para 6(b) of Schedule II 
of CGST Act [restaurant service] [Thus, suppliers of services (other than restaurant service] are not 
eligible for this scheme] 
(b)   he is not engaged in making any supply of goods which are not leviable to tax under this Act [Then 
he is not liable to pay GST at a l] 
(c)   he is not engaged in making any inter-State outward supplies of goods [Thus he can make inter-state 
purchases but not inter-state supplies] 
(d)   he is not engaged in making any supply of goods through an electronic commerce operator who is 
required to co lect tax at source under section 52 of CGST Act and 
(e)   he is not manufacturer of such goods as may be notified on the recommendation of the Council 
[some items like pan masala may be excluded] 
All registered  persons  having  same  income  tax  PAN  must  opt  for  composition  scheme  - A l the 
registered taxable persons, having the same PAN must opt to pay tax under the provisions of this composition 
scheme - proviso to section 10(2) of CGST Act. 
The aggregate turnover will be total of a l registered persons having same income tax PAN. 
 
Thus, if taxable turnover has di fferent businesses in di fferent States, turnover of a l such units in aggregate will 
be considered for eligibility of composition scheme. 
7.3-3 Conditions and restrictions for composition levy as specified in rules 
 
The person exercising the option to pay tax under section 10 shall comply with the fo lowing conditions [rule 
3(1) of Composition Rule]. 
 
(a)   he is neither a casual taxable person nor a non-resident taxable person. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
(b)   the goods held in stock by him on the appointed day have not been purchased in the course of inter- 
State trade or commerce or imported from a place outside India or received from his branch situated 
outside the State or from his agent or principal outside the State, where the option is exercised under 
rule 1(1); 
(c)   the goods held in stock by him have not been purchased from an unregistered person and where 
purchased, he pays the tax under section 9(4). 
(d)   he shall pay tax under section 9(3) or section 9(4) on inward supply of goods or services or both 
received from un-registered persons; 
(e)   he was not engaged in the manufacture of goods as notified under section 10(2)(c) of CGST Act, 
during the preceding financial year; 
(f)  he shall mention the words "composition taxable person, not eligible to co lect tax on supplies" at the 
top of the Bill of supply issued by him; and 
(g)   he shall mention the words "composition taxable person" on every notice or signboard displayed at a 
prominent place at his principal place of business and at every additional place or places of business. 
Fresh  declaration every year - The registered  person paying tax under section 10 may not f ile a fresh 
intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act 
and these rules - rule 3(2) of Composition Rules. 
7.4 Bill of Supply to be issued and not tax invoice 
 
A registered person supplying exempted goods or services or both or paying tax under the provisions of 
section 10 shall issue, instead of a tax invoice, a Bill of supply containing such particulars and in such manner as 
may be prescribed - section 31(3)(c) of CGST Act. 
Thus, taxable person paying GST under composition scheme should issue Bill of Supply and not tax invoice. 
 
7.5 Procedure for exercising option to avail composition scheme 
 
Any person who has been granted registration on a provisional basis under rule 16(1) of Registration Rules 
and who opts to pay tax under section 10, shall electronica ly f ile an intimation in form GST CMP-01, duly 
signed, on the Common Portal, either directly or through a Facilitation Centre, before 30-7-2017, or such 
further period as may be extended by the Commissioner. 
Where the intimation in form GST CMP-01 is f iled after 1-7-2017, the registered person shall not co lect any 
tax from 1-7-2017 but shall issue Bill of supply for supplies made after the said day - rule 1(1) of 
Composition Rules. 
7.5-1 Submission of stock statement on date  of option 
 
Any person who f iles an intimation under rule 1(1) to pay tax under section 10 shall furnish the details of stock, 
including the inward supply of goods received from unregistered persons, held by him on the day preceding the 
date from which he opts to pay tax under the said section, electronica ly, in form GST CMP-03, on the 
Common Portal, either directly or through a Facilitation Centre notified by the Commissioner, within sixty days 
of the date from which the option for composition levy is exercised or within such further period as may be 
extended by the Commissioner in this behalf.- rule 1(4) of Composition Rules. 
7.5-2 Intimation while applying for registration is sufficient from fresh registrations 
 
Any person who applies for registration under rule Registration may give an option to pay tax under section 10 
in Part B of form GST REG-01, which shall be considered as an intimation to pay tax under the said section. 
Then further intimation is not required - rule 1(2) of Composition Rules. 
Page 5


CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
 
 
 
 
 
 
 
 
 
 
CHAPTER 7 - Small taxable persons - Exemptions and compositi on scheme 
 
 
 
 
 
CHAPTER 7 
 
Small taxable  persons - Exemptions and composition scheme 
 
EXECUTIVE SUMMARY 
 
?   Sma l taxable persons having turnover upto Rs 20 lakhs are exempt from GST [limit Rs 10 lakhs for 
North Eastern States, Himachal Pradesh and Uttarakhand and Jammu and Kashmir] 
?   Sma l taxable persons supplying goods upto Rs 50 lakhs per annum are eligible for simplified scheme 
[composition scheme] 
?   Composition scheme is available to sma l taxable persons if a l their purchases are from registered 
persons  within  the  State.  Otherwise,  they  have  to  pay  GST  on  purchases.  This  condition  is 
practically    impossible to be complied with. 
?   The taxable person opting for composition scheme will have to pay a fixed percentage of gross 
turnover as tax. 
?   In case of payment of tax under composition scheme, the taxable person should issue 'Bill of Supply' 
instead of Tax Invoice with details specified in rule 4. 
?   They have to pay CGST as follows - (a) 1% of turnover in State or Union territory in case of a 
manufacturer (b) 2.5% of turnover in State or Union territory in case of persons engaged in making 
supplies referred to in para 6(b) of Schedule  II of CGST Act [restaurant service] (c) 0.5% of 
turnover in State or Union Territory in case of other suppliers [i.e. traders] 
?   There will be equal SGST/UTGST. Thus, total tax payable will be double the aforesaid rates. 
?   The scheme is optional. The option lapses on the day his aggregate turnover exceeds the specified 
limit - section 10(3) of CGST Act. 
?   The option has to be exercised every year by filing e-declaration before Financial year. It is not 
automatic. 
?   He has to submit details of stock with him as on 1-7-2017. 
?   If the scheme is misused, the option can be withdrawn by 'proper officer'. 
?   A l registered taxable persons having same PAN number should opt for the composition scheme. 
?   Taxable persons whose a l supplies of goods and services are within the State only will be eligible for 
the simplified scheme. 
?   Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. 
They cannot show GST in their invoice. They are not entitled to any input tax credit. [section 10(4) 
of CGST Act]. 
7.1 Relief to small taxable  persons 
 
It is normal to provide threshold limit for imposition of any tax, so that very sma l taxable persons are out of tax 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
net. This is also administratively expedient as it is not possible to exercise control over large number of sma l 
taxable persons, where revenue generated is negligible compared to costs involved. 
7.1-1 Control by State  authorities in case of small taxable  persons 
 
As per press reports,  90% sma l taxable persons upto turnover of Rs 150 lakhs will be supervised  and 
contro led by State GST authorities. 
7.2 Exemption to small taxable  persons 
 
As per section 22(1) of CGST Act, every supplier shall be liable to be registered  in the State or Union 
Territory (other than special category states) from where he makes supply of goods or services or both, if his 
aggregate turnover in a financial year exceeds Rs 20 lakhs. 
In case of 'special category states', registration is required if his aggregate turnover in a financial year exceeds 
Rs 10 lakhs - proviso to section 22(1) of CGST Act. 
 
Special Category States means States as specified in Article 279A(4)(g) of Constitution of India - Explanation 
( i) to section 22 of CGST Act. 
 
These  are  -States  of Arunachal Pradesh,  Assam,  Jammu and  Kashmir,  Manipur,  Meghalaya,  Mizoram, 
Nagaland, Sikkim, Tripura, Himachal Pradesh and Uttarakhand. 
Aggregate turnover  - For purpose of section 22 of CGST Act, the expression "aggregate turnover" shall 
include a l supplies made by the taxable person, whether on his own account or made on behalf of a l his 
principals - Explanation (i) to section 22 of CGST Act. 
Are they exempt from payment of GST? - The exemption from registration implies that such persons will be 
exempt from payment of GST. However, technica ly, exemption from registration and exemption from GST 
liability are independent issues. 
7.3 Composition scheme for small taxable  persons supplying goods 
 
GST requires heavy compliance cost due to detailed accounting and paper work involved. 
 
Sma l taxable persons do not have sufficient knowledge and expertise to comply with the requirements relating 
to records and accounts. 
Hence, for them, a simplified composition scheme has been provided, vide section 10 of CGST Act. 
 
The scheme is available to those whose aggregate turnover of supply of goods in a financial year does not 
exceed Rs 50 lakhs. This limit can be extended upto Rs one crore by issuing notification, on recommendation 
of GST Council. 
The scheme is not available to supplier of services. 
 
The proposed rates are as fo lows[section 10(1) of CGST Act]- 
 
(a)   1% of turnover in State or Union territory in case of a manufacturer 
(b)   2.5% of turnover in State or Union territory in case of persons engaged in making supplies referred 
to in para 6(b) of Schedule II of CGST Act [restaurant service] 
(c)   0.5% of turnover in State or Union Territory in case of other suppliers [i.e. traders] 
[There will be equal SGST. Thus, total tax payable will be double the aforesaid rates]. 
The scheme is optional. 
 
The option lapses on the day his aggregate turnover exceeds the specified limit - section 10(3) of CGST Act. 
A l registered taxable persons having same PAN number should opt for the composition scheme. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
The taxable person opting for composition scheme will have to pay a fixed percentage of gross turnover as 
tax, 
Taxable persons whose a l supplies of goods and services are within the State only will be eligible for the 
simplified scheme. 
Taxable persons who opt for composition scheme will not be a lowed to charge GST in their invoice. They 
cannot show GST in their i nvoice. They are not entitled to any input tax credit. [section 10(4) of CGST Act] 
Meaning  of 'aggregate turnover' - "Aggregate turnover" means the aggregate value of a l taxable supplies 
(excluding the value of inward supplies on which tax is payable by a person on reverse charge basis), exempt 
supplies, exports of goods or services or both and inter-State supplies of a person having the same Income 
Tax PAN, to be computed on a l India basis and excludes taxes [CGST, SGST, UTGST and IGST - section 
2(6) of CGST Act. 
 
7.3-1 Who is 'manufacturer' 
 
"Manufacture" means processing of raw material or inputs in any manner that results in emergence of a new 
product having a distinct name, character and use and the term "manufacturer" shall be construed accordi ngly - 
section 2(72) of CGST Act. 
Thus  simple  activities  like  packing,  re-packing,  labe ling,  testing,  repairs,  mixing  etc.  will not  qualify  as 
'manufacture'. 
 
7.3-2 Taxable persons not eligible for composition scheme 
 
As per section 10(2) of CGST Act, fo lowing taxable persons will be eligible for composition scheme— 
 
(a)   he is not engaged in the supply of services other than supplies referred to in para 6(b) of Schedule II 
of CGST Act [restaurant service] [Thus, suppliers of services (other than restaurant service] are not 
eligible for this scheme] 
(b)   he is not engaged in making any supply of goods which are not leviable to tax under this Act [Then 
he is not liable to pay GST at a l] 
(c)   he is not engaged in making any inter-State outward supplies of goods [Thus he can make inter-state 
purchases but not inter-state supplies] 
(d)   he is not engaged in making any supply of goods through an electronic commerce operator who is 
required to co lect tax at source under section 52 of CGST Act and 
(e)   he is not manufacturer of such goods as may be notified on the recommendation of the Council 
[some items like pan masala may be excluded] 
All registered  persons  having  same  income  tax  PAN  must  opt  for  composition  scheme  - A l the 
registered taxable persons, having the same PAN must opt to pay tax under the provisions of this composition 
scheme - proviso to section 10(2) of CGST Act. 
The aggregate turnover will be total of a l registered persons having same income tax PAN. 
 
Thus, if taxable turnover has di fferent businesses in di fferent States, turnover of a l such units in aggregate will 
be considered for eligibility of composition scheme. 
7.3-3 Conditions and restrictions for composition levy as specified in rules 
 
The person exercising the option to pay tax under section 10 shall comply with the fo lowing conditions [rule 
3(1) of Composition Rule]. 
 
(a)   he is neither a casual taxable person nor a non-resident taxable person. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
(b)   the goods held in stock by him on the appointed day have not been purchased in the course of inter- 
State trade or commerce or imported from a place outside India or received from his branch situated 
outside the State or from his agent or principal outside the State, where the option is exercised under 
rule 1(1); 
(c)   the goods held in stock by him have not been purchased from an unregistered person and where 
purchased, he pays the tax under section 9(4). 
(d)   he shall pay tax under section 9(3) or section 9(4) on inward supply of goods or services or both 
received from un-registered persons; 
(e)   he was not engaged in the manufacture of goods as notified under section 10(2)(c) of CGST Act, 
during the preceding financial year; 
(f)  he shall mention the words "composition taxable person, not eligible to co lect tax on supplies" at the 
top of the Bill of supply issued by him; and 
(g)   he shall mention the words "composition taxable person" on every notice or signboard displayed at a 
prominent place at his principal place of business and at every additional place or places of business. 
Fresh  declaration every year - The registered  person paying tax under section 10 may not f ile a fresh 
intimation every year and he may continue to pay tax under the said section subject to the provisions of the Act 
and these rules - rule 3(2) of Composition Rules. 
7.4 Bill of Supply to be issued and not tax invoice 
 
A registered person supplying exempted goods or services or both or paying tax under the provisions of 
section 10 shall issue, instead of a tax invoice, a Bill of supply containing such particulars and in such manner as 
may be prescribed - section 31(3)(c) of CGST Act. 
Thus, taxable person paying GST under composition scheme should issue Bill of Supply and not tax invoice. 
 
7.5 Procedure for exercising option to avail composition scheme 
 
Any person who has been granted registration on a provisional basis under rule 16(1) of Registration Rules 
and who opts to pay tax under section 10, shall electronica ly f ile an intimation in form GST CMP-01, duly 
signed, on the Common Portal, either directly or through a Facilitation Centre, before 30-7-2017, or such 
further period as may be extended by the Commissioner. 
Where the intimation in form GST CMP-01 is f iled after 1-7-2017, the registered person shall not co lect any 
tax from 1-7-2017 but shall issue Bill of supply for supplies made after the said day - rule 1(1) of 
Composition Rules. 
7.5-1 Submission of stock statement on date  of option 
 
Any person who f iles an intimation under rule 1(1) to pay tax under section 10 shall furnish the details of stock, 
including the inward supply of goods received from unregistered persons, held by him on the day preceding the 
date from which he opts to pay tax under the said section, electronica ly, in form GST CMP-03, on the 
Common Portal, either directly or through a Facilitation Centre notified by the Commissioner, within sixty days 
of the date from which the option for composition levy is exercised or within such further period as may be 
extended by the Commissioner in this behalf.- rule 1(4) of Composition Rules. 
7.5-2 Intimation while applying for registration is sufficient from fresh registrations 
 
Any person who applies for registration under rule Registration may give an option to pay tax under section 10 
in Part B of form GST REG-01, which shall be considered as an intimation to pay tax under the said section. 
Then further intimation is not required - rule 1(2) of Composition Rules. 
CA DHRUV AGRAWAL – National Chairman Taxation Committee-All India Confederation of Small & Micro Industries Association  
 
 
7.5-3 Further intimation every year prior to commencement of financial year 
 
Any registered person who opts to pay tax under section 10 shall electronica ly f ile an intimation in form GST 
CMP-02, duly signed, on the Common Portal, either directly or through a Facilitation Centre, prior to the 
commencement of the financial year for which the option to pay tax under the aforesaid section is exercised. 
He shall furnish the statement in form GST ITC-3 in accordance with the provisions of rule ITC 9(4) within 
sixty days from the commencement of the relevant financial year - rule 1(3) of Composition Rules. 
Any intimation under rule 1(1) or rule 1(3) in respect of any place of business in any State or Union territory 
shall be deemed to be an intimation in respect of a l other places of business registered on the same PAN. 
7.6 Effective  date  for composition levy 
 
The option to pay tax under section 10 shall be effective from the beginning of the financial year, where the 
intimation is f iled under rule 1(3) of and the appointed date (i.e. 1-7-2017) where intimation is f iled under rule 
1(1) of the said rule. 
 
The intimation under sub-rule 1(2) shall be considered only after grant of registration to the applicant and his 
option to pay tax under section 10 shall be effective from the date fixed under sub-rule 3(2) or 3(3) of 
Registration Rules - rule 2 of Composition Rules. 
7.7 Validity of composition levy opted by registered person 
 
The option exercised by a registered person to pay tax under section 10 shall remain valid so long as he 
satisfies a l the conditions mentioned in the said section and these rules - rule 4(1) of Composition Rules - rule 
4(1) of Composition Rules. 
 
The person referred to in rule 4(1) shall be liable to pay tax under section 9(1) from the day he ceases to 
satisfy any of the conditions mentioned in section 10 or these rules and shall issue tax invoice for every taxable 
supply made thereafter and he shall also f ile an intimation for withdrawal from the scheme in form GST CMP- 
04 within seven days of occurrence of such event - rule 4(2) of Composition Rules. 
 
7.8 Withdrawal from scheme of composition levy 
 
The registered person who intends to withdraw from the composition scheme sha l, before the date of such 
withdrawal, f ile an application in form GST CMP-04, duly signed, electronica ly on the Common Portal - rule 
4(3) of Composition Rules. 
 
7.8-1 Proper Officer can cancel option to registered person 
 
Where the proper officer has reasons to believe that the registered person was not eligible to pay tax under 
section 10 or has contravened the provisions of the Act or these rules, he may issue a notice to such person in 
form GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why option to pay tax 
under section 10 should not be denied - rule 4(4) of Composition Rules. 
Upon receipt of reply to the show cause notice issued under rule 4(4) from the registered person in form GST 
CMP-06, the proper officer shall issue an order in form GST CMP-07 within thirty days of receipt of such 
reply, either accepting the reply, or denying the option to pay tax under section 10 from the date of option or 
from the date of the event concerning such contravention, as the case may be. 
7.9 Procedure to switch to normal scheme of payment of tax 
 
Every person who has furnished an intimation under rule 4(2) or f iled an application for withdrawal under rule 
4(3) or a person in respect of whom an order of withdrawal of option has been passed in form GST CMP-07 
under rule 4(5), may electronica ly furnish at the Common Portal, either directly or through a Facilitation 
Centre, a statement in form GST ITC-01 containing details of the stock of inputs and inputs contained in semi-