Section 10 of CGST Act - Composition Levy

Section 10 of the Central Goods and Services Tax Act, 2017 provides an optional composition levy for eligible small registered taxpayers. The scheme substitutes a simplified turnover-based tax for the normal tax payable under section 9(1), subject to statutory limits, prescribed rates and conditions.

Updated: 15 September 2026

Section 10 at a glance

General turnover ceilingRs. 1.5 crore in the preceding financial year, where the enhanced limit notified under section 10(1) applies.

Specified StatesRs. 75 lakh for the States covered by the lower notified threshold.

Service composition under section 10(2A)Available to eligible registered persons with preceding-year aggregate turnover up to Rs. 50 lakh.

Input tax creditA composition taxpayer cannot claim input tax credit and cannot collect tax from the recipient.

Meaning and purpose of composition levy

The composition scheme is a voluntary compliance option intended for small taxpayers. Instead of paying GST under the normal scheme and claiming input tax credit, an eligible registered person pays tax at the composition rate and follows the special conditions prescribed under the CGST Act and the CGST Rules.

The expression aggregate turnover is defined in section 2 of the CGST Act. Eligibility is tested with reference to aggregate turnover on an all-India PAN basis, while the tax rate is applied in the manner prescribed by the Rules.

Section 10(1): Composition scheme for eligible suppliers

Core rule. A registered person within the prescribed turnover limit may opt to pay composition tax instead of tax under section 9(1), subject to section 9(3) and section 9(4), section 10 and the CGST Rules.

The Act permits the Government, on the recommendation of the GST Council, to enhance the basic statutory threshold. Notification No. 14/2019-Central Tax increased the general threshold for section 10 composition levy to Rs. 1.5 crore from 1 April 2019. A lower Rs. 75 lakh threshold applies in the specified States covered by that notification.

Limited supply of services by section 10(1) composition taxpayers

A person opting under section 10(1) may also supply services other than restaurant services up to 10% of turnover in the State or Union territory in the preceding financial year or Rs. 5 lakh, whichever is higher. This relaxation allows an otherwise eligible composition taxpayer to make a limited amount of service supplies without losing the option.

Composition tax rates

Category	CGST rate under Rule 7	Indicative combined CGST + SGST/UTGST
Eligible manufacturers	0.5% of turnover in the State/UT	1%
Restaurant suppliers covered by paragraph 6(b) of Schedule II	2.5% of turnover in the State/UT	5%
Other eligible suppliers under section 10(1) and 10(2)	0.5% of turnover of taxable supplies of goods and services in the State/UT	1%
Eligible persons under section 10(2A)	3% of turnover of supplies of goods and services in the State/UT	6%

The table states the central tax rate prescribed under Rule 7 and shows the usual combined rate after the corresponding State/UT composition levy. Applicable notifications and State/UT provisions should be checked for the relevant tax period.

Section 10(2): Main eligibility conditions

A registered person opting under section 10(1) must satisfy the statutory conditions. In practical terms, the taxpayer should check the following before opting:

service supplies must remain within the relaxation permitted by section 10(1), except restaurant services specifically covered by the provision;
the person must not make supplies of goods or services that are not leviable to tax under the CGST Act;
the person must not make inter-State outward supplies of goods or services;
the restriction relating to supplies through an electronic commerce operator required to collect tax under section 52 now applies to services; the earlier restriction on supply of goods through such operators was removed by the 2023 amendment;
the person must not manufacture goods notified as ineligible for the composition scheme; and
the person must not be a casual taxable person or a non-resident taxable person.

Where more than one GST registration is held under the same PAN, the composition option is subject to the PAN-level condition in section 10. The scheme cannot ordinarily be selectively applied to only one registration while other registrations under the same PAN remain outside the corresponding composition option.

Section 10(2A): Composition option for certain service suppliers

Section 10(2A) provides a separate composition option for a registered person who is not eligible under section 10(1) and 10(2), provided the aggregate turnover in the preceding financial year does not exceed Rs. 50 lakh and the other statutory conditions are satisfied. The prescribed central tax rate is 3%, generally producing a combined GST rate of 6% with the corresponding State/UT tax.

The person must not make non-leviable supplies or inter-State outward supplies, must comply with the applicable e-commerce restriction for services, must not fall within a notified excluded class, and must not be a casual taxable person or non-resident taxable person.

Section 10(3): When the composition option lapses

The composition option ceases from the day on which the taxpayer's aggregate turnover during the financial year exceeds the applicable limit under section 10(1) or section 10(2A), as the case may be. From that point, the taxpayer must comply with the normal levy provisions and the applicable transition requirements under the Rules.

Section 10(4): No tax collection and no input tax credit

Important consequence. A composition taxpayer cannot collect GST from the recipient and is not entitled to input tax credit. The taxpayer therefore issues a bill of supply rather than a normal tax invoice for supplies covered by the composition scheme.

Section 10(5): Ineligible use of composition levy

If the proper officer has reason to believe that a person paid tax under section 10(1) or section 10(2A) despite being ineligible, the person may become liable for tax and penalty under the Act. The current provision links determination, as applicable to the relevant period, with sections 73, 74 or 74A. Section 74A contains the unified demand framework for the periods to which that provision applies.

CGST Rules and important forms

Form / Rule	Purpose
FORM GST CMP-02	Intimation by an eligible registered person opting for composition for a financial year, subject to the applicable Rule 3 procedure.
FORM GST CMP-08	Statement-cum-challan for payment of self-assessed tax by composition taxpayers.
FORM GSTR-4	Annual return for composition taxpayers, subject to the return provisions applicable to the relevant period.
FORM GST CMP-04	Intimation for withdrawal from the composition scheme or on ceasing to satisfy the conditions.
Rules 3 to 7	Operational provisions dealing with option, effective date, conditions, validity and composition tax rates.

Practical checklist before opting

Confirm preceding-year aggregate turnover on a PAN basis.
Check whether the Rs. 1.5 crore, Rs. 75 lakh or Rs. 50 lakh limit applies.
Review inter-State outward supplies and non-leviable supplies.
Check the nature and value of service supplies.
Review supplies made through electronic commerce operators, especially service supplies.
Confirm that no excluded goods or services are manufactured or supplied.
Ensure all registrations under the PAN satisfy the applicable composition conditions.
Remember that input tax credit is unavailable and GST cannot be separately collected from customers.

Legal note: Section 10 must be read with the definitions in section 2, the levy provisions in section 9, the CGST Rules, relevant Central Tax notifications and corresponding State/UT GST provisions. Thresholds, notified exclusions, forms and procedures should be verified for the tax period concerned.

Related CGST Act provisions