GST Jamku AIComposition levy
section 10(1)
Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, [in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate] as may be prescribed, but not exceeding,—
(a) one per cent of the turnover in State or turnover in Union territory in case of a manufacturer,
(b) two and a half per cent of the turnover in State or turnover in Union territory in case of persons engaged in making supplies referred to in clause (b) of paragraph 6 of Schedule II, and
(c) half per cent of the turnover in State or turnover in Union territory in case of other suppliers,
subject to such conditions and restrictions as may be prescribed:
Provided that the Government may, by notification, increase the said limit of fifty lakh rupees to such higher amount, not exceeding [one crore and fifty lakh rupees], as may be recommended by the Council:
Provided further that a person who opts to pay tax under clause (a) or clause (b) or clause (c) may supply services (other than those referred to in clause (b) of paragraph 6 of Schedule II), of value not exceeding ten per cent of turnover in a State or Union territory in the preceding financial year or five lakh rupees, whichever is higher.
Explanation.—For the purposes of second proviso, the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount shall not be taken into account for determining the value of turnover in a State or Union territory.
In the tax world, there's something called a "Composition Levy." Let's break down what it means in simple terms.
Who Can Opt for Composition Levy?
If you are a registered person and your total sales in the previous financial year didn't go over fifty lakh rupees, you can choose to go for the Composition Levy. This option allows you to pay a fixed amount of tax instead of the regular tax under section 9(1).
How Much Tax Do You Pay?
The amount you pay depends on what kind of business you are in:
- If you are a manufacturer, it's one per cent of your turnover in the state or union territory.
- If you deal with certain supplies mentioned in Schedule II, it's two and a half per cent.
- For other suppliers, it's half a per cent.
Conditions and Restrictions:
Of course, there are some rules. The government sets conditions and restrictions that you need to follow.
Possible Increase in Limit:
Initially, the limit for opting for Composition Levy is fifty lakh rupees. But the government has the power to increase this limit, based on the recommendations of the Council. This higher limit cannot go beyond one crore and fifty lakh rupees.
Special Note for Service Providers:
If you choose this Composition Levy path, and you provide services, there's a limit. The value of these services cannot exceed ten per cent of your turnover in the state or union territory in the last financial year or five lakh rupees—whichever is higher.
Explanation on Exempt Services:
There's a clarification regarding certain services. The value of services provided, like extending deposits, loans, or advances, where the consideration is in the form of interest or discount, won't be considered when calculating the turnover.
In a nutshell, Composition Levy is a simplified way for small businesses to pay taxes at a fixed rate, making things a bit easier in the complex world of taxation.
section 10(2)
The registered person shall be eligible to opt under sub-section (1), if—
(a) save as provided in sub-section (1), he is not engaged in the supply of services;
(b) he is not engaged in making any supply of goods [or services] which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods [or services];
(d) he is not engaged in making any supply of [services] through an electronic commerce operator who is required to collect tax at source under section 52;
(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the [Council; and]
(f) he is neither a casual taxable person nor a non-resident taxable person:
Provided that where more than one registered persons are having the same Permanent Account Number [issued under the Income-tax Act, 1961 (43 of 1961)], the registered person shall not be eligible to opt for the scheme under sub-section (1) unless all such registered persons opt to pay tax under that sub-section.
Composition Levy
In the realm of taxation, there exists a provision known as the Composition Levy, detailed in Section 10(2) of the relevant legislation. This provision outlines the eligibility criteria for a registered person to opt for this scheme.
Eligibility Criteria
To be eligible under this provision, the registered person must meet the following conditions:
1. Non-Engagement in Service Supply
The person should not be involved in providing services, except as specified in sub-section (1).
2. Goods and Services Tax Leverage
The person should not engage in the supply of goods or services that are not subject to taxation under the applicable Act.
3. Limitation on Inter-State Supply
No engagement in making inter-State outward supplies of goods or services is allowed.
4. Exclusion from E-commerce Operator Transactions
The person should not supply services through an electronic commerce operator obligated to collect tax at source under Section 52.
5. Exemption for Specific Manufacturers
The individual must not be a manufacturer of goods as specified by the Government based on the recommendations of the Council.
6. Casual and Non-Resident Taxable Person Exclusion
The person should neither be a casual taxable person nor a non-resident taxable person.
Additional Provisions
A crucial point to note is that if multiple registered persons share the same Permanent Account Number issued under the Income-tax Act, 1961, they cannot individually opt for the composition levy unless all of them collectively choose to pay tax under this sub-section.
Conclusion
The Composition Levy, as outlined in Section 10(2), provides a simplified taxation scheme for eligible registered persons, easing their compliance burden based on specified criteria and conditions.
section 10(2A)
Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him under sub-section (1) of section 9, an amount of tax calculated at such rate as may be prescribed, but not exceeding three per cent of the turnover in State or turnover in Union territory, if he is not—
(a) engaged in making any supply of goods or services which are not leviable to tax under this Act;
(b) engaged in making any inter-State outward supplies of goods or services;
(c) engaged in making any supply of services through an electronic commerce operator who is required to collect tax at source under section 52;
(d) a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; and
(e) a casual taxable person or a non-resident taxable person:
Provided that where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961 (43 of 1961), the registered person shall not be eligible to opt for the scheme under this sub-section unless all such registered persons opt to pay tax under this sub-section.
In this section, we'll break down the complex language of Section 10(2A) to make it easier to understand.
Overview: Despite what is mentioned in this law, a registered person (someone officially recognized for tax purposes), who can't choose to pay tax under certain subsections, has the option to pay a specific amount instead. This is as long as their total business earnings in the previous financial year were less than fifty lakh rupees.
Conditions for Eligibility: To be eligible for this option, the person must not be involved in:
(a) Selling goods or services that are not taxable under this law.
(b) Making sales of goods or services to other states.
(c) Providing services through an online platform that has to collect tax separately.
(d) Manufacturing specific goods or offering specific services decided by the government.
(e) Being a temporary or non-resident business.
Important Points: It's crucial to note that if multiple registered persons share the same Permanent Account Number issued under the Income-tax Act, they all must choose this payment option for it to be applicable to any of them.
section 10(3)
The option availed of by a registered person under sub-section (1) [or sub-section (2A), as the case may be,] shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit specified under sub-section (1) [or sub-section (2A), as the case may be].
section 10(4)
(4) A taxable person to whom the provisions of sub-section (1) [or, as the case may be, sub-section (2A)] apply shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
Section 10(3): Lapse of Option
A registered person who has chosen the option under sub-section (1) [or sub-section (2A), as applicable] will lose this option if, at any point during a financial year, their total turnover exceeds the limit specified under sub-section (1) [or sub-section (2A), as applicable].
Section 10(4): Restrictions on Taxable Person
(4) If the provisions of sub-section (1) [or, as applicable, sub-section (2A)] are applicable to a taxable person, they are prohibited from collecting any tax from the recipient on the supplies they make. Additionally, they are not entitled to any credit of input tax.
Impact of Turnover Limit on Section 10(3) Option
The option chosen by a registered person under Section 10(3) will automatically cease to be valid if, at any point during a financial year, their total turnover exceeds the specified limit. This provision applies to both sub-section (1) and sub-section (2A), depending on the circumstances.
Restrictions on Taxable Persons under Section 10(4)
Taxable persons falling under the purview of Section 10(4), governed by either sub-section (1) or, where applicable, sub-section (2A), face limitations. They are not allowed to collect tax from the recipient for the supplies they provide. Furthermore, they do not have the privilege of claiming any credit for input tax.
In summary, these sections introduce measures that automatically revoke certain options for registered individuals based on their annual turnover and impose restrictions on taxable persons, limiting their ability to collect tax and claim input tax credit.
section 10(5)
If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) [or sub-section (2A), as the case may be,] despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of this Act, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.
Explanation 1. For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax under this section, the expression "aggregate turnover" shall include the value of supplies made by such person from the 1st day of April of a financial year upto the date when he becomes liable for registration under this Act, but shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Explanation 2. For the purposes of determining the tax payable by a person under this section, the expression "turnover in State or turnover in Union territory" shall not include the value of following supplies, namely:—
(i) supplies from the first day of April of a financial year upto the date when such person becomes liable for registration under this Act; and
(ii) exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
Tax and Penalty for Improper Payment
If the officer in charge believes that a person who is supposed to pay tax under subsection (1) [or subsection (2A), as applicable] has paid it incorrectly, that person will not only owe any additional tax required under other sections of this Act but will also be subject to a penalty. The determination of tax and penalty will follow the procedures outlined in section 73 or section 74, as applicable.
Calculation of Aggregate Turnover
To decide if a person is eligible to pay tax under this section, their aggregate turnover must be considered. "Aggregate turnover" includes the value of supplies made by the person from the 1st day of April of a financial year up to the date they become liable for registration under this Act. However, it excludes the value of exempt supply of services related to extending deposits, loans, or advances, as long as the consideration is in the form of interest or discount.
Exclusions from "Turnover in State or Turnover in Union Territory"
For determining the tax payable under this section, the "turnover in State or turnover in Union territory" does not encompass the value of certain supplies:
- Supplies made from the first day of April of a financial year until the date when the person becomes liable for registration under this Act.
- Exempt supply of services related to extending deposits, loans, or advances, where the consideration is represented by interest or discount.