GST ACT — SECTION 10

Composition Levy — Section 10

Detailed practical guide to eligibility, turnover limits, historical threshold changes, rates, restrictions, amendments and compliance under the GST composition scheme.

₹1.50 croreCurrent general threshold
₹75 lakhSpecified-State threshold
₹50 lakhSection 10(2A) route
2017–2026Historical threshold timeline
GST Reconciliation
GST Act  ›  Chapter III – Levy and Collection of Tax  ›  Section 10

Section 10 – Composition Levy

A detailed practical guide to the CGST composition scheme, covering the main composition levy, the separate scheme for certain small suppliers under section 10(2A), turnover limits, rates, eligibility restrictions, e-commerce changes, amendments, GST Council developments and compliance implications.

1. What Section 10 does

Section 10 provides an alternative tax-payment mechanism for specified small registered taxpayers. Instead of paying CGST under the ordinary charging mechanism in section 9(1), an eligible person may opt to pay tax at the composition rates and comply with the special conditions attached to the scheme.

The composition levy is therefore not a general exemption from GST. It is a statutory alternative method of discharging tax liability for taxpayers satisfying the conditions of section 10 and the corresponding rules and notifications.

Current position: Section 10 has two important operating routes: the principal composition scheme under section 10(1) and the separate scheme under section 10(2A) for certain registered persons who are otherwise not eligible under section 10(1) and section 10(2). The current statutory text also preserves a separate treatment for limited supplies of services under the main scheme. citeturn0search0

2. Statutory framework – Section 10(1) to 10(5)

Section 10(1). A registered person whose aggregate turnover in the preceding financial year did not exceed the prescribed statutory threshold may opt to pay, in lieu of tax under section 9(1), tax at the prescribed composition rate, subject to the statutory conditions and restrictions.

Rate ceilings in section 10(1): one per cent for manufacturers; two and a half per cent for persons making supplies referred to in paragraph 6(b) of Schedule II; and half per cent for other suppliers.

First proviso. The Government may increase the basic fifty-lakh threshold to a higher amount, not exceeding one crore fifty lakh rupees, on the Council's recommendation.

Second proviso. A person under the composition scheme may supply specified services, other than the restaurant-service category in paragraph 6(b) of Schedule II, up to ten per cent of preceding-year turnover in the State/UT or five lakh rupees, whichever is higher.

Section 10(2). Sets out eligibility restrictions, including restrictions concerning non-taxable supplies, inter-State outward supplies, specified ECO supplies, notified manufacturers, casual taxable persons and non-resident taxable persons.

Section 10(2A). Provides a separate composition option for a registered person otherwise ineligible under section 10(1) and section 10(2), subject to a preceding-year aggregate-turnover limit of fifty lakh rupees and specified restrictions.

Section 10(3). The option lapses when aggregate turnover during the financial year exceeds the applicable threshold.

Section 10(4). A person under the composition scheme cannot collect tax from the recipient and cannot claim input tax credit.

Section 10(5). Where a person wrongly pays tax under the scheme despite being ineligible, the person can face additional tax liability and penalty, with the applicable demand provisions operating as prescribed by the section.

The current text also contains explanations dealing with aggregate turnover and turnover in State/UT, including the treatment of specified interest/discount income and supplies made before registration becomes compulsory. citeturn0search0

3. Composition turnover limit – complete historical timeline

The turnover limit under the composition scheme has changed several times since GST commenced. For professional work, it is not sufficient to quote today's ₹1.50 crore threshold. The applicable limit must be determined with reference to the relevant period, State/UT and the notification in force for that period.

Important distinction: Section 10 originally contained a ₹50 lakh statutory threshold with power to increase it by notification. The figures of ₹75 lakh, ₹1 crore and ₹1.50 crore were subsequently brought into operation through notifications/amendments. Therefore, the statutory amendment date and the date from which the operational threshold changed are not always the same.

Complete main-scheme threshold history

Effective period General threshold Special-category State position Legal instrument / development
1 July 2017 – 12 October 2017 ₹75 lakh ₹50 lakh for Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Himachal Pradesh. Uttarakhand was ₹75 lakh. Notification No. 08/2017-Central Tax dated 27 June 2017. The notification prescribed the operational turnover limit under the proviso to section 10(1). The GST Council record confirms the initial ₹75 lakh / ₹50 lakh structure. Official GST Council notification page.
13 October 2017 – 31 January 2019 ₹1 crore ₹75 lakh for the specified States that had previously been at ₹50 lakh. Notification No. 46/2017-Central Tax dated 13 October 2017. It substituted ₹75 lakh with ₹1 crore and ₹50 lakh with ₹75 lakh in Notification 08/2017. Official notification PDF.
1 February 2019 – 31 March 2019 ₹1 crore operationally ₹75 lakh for the specified States. CGST (Amendment) Act, 2018 came into force from 1 February 2019 and increased the statutory ceiling in the proviso to section 10(1) from ₹1 crore to ₹1.50 crore. However, the operational composition notification was not changed to ₹1.50 crore until Notification 14/2019-CT, applicable from 1 April 2019. The GST Council's 32nd/33rd meeting material expressly records this sequence.
1 April 2019 – 31 March 2022 ₹1.50 crore ₹75 lakh for Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand. Notification No. 14/2019-Central Tax dated 7 March 2019. It superseded Notification 08/2017 and prescribed the ₹1.50 crore threshold, with ₹75 lakh for the specified States. Official GST Council page · Official notification PDF.
1 April 2022 – 12 July 2022 ₹1.50 crore ₹75 lakh for the specified States. The basic threshold did not change. Notification 04/2022-Central Tax dated 31 March 2022 amended Notification 14/2019 for the special composition treatment of specified brick-kiln manufacturers; it did not reduce the general ₹1.50 crore threshold. Official notification page.
13 July 2022 – present ₹1.50 crore ₹75 lakh for the specified States, subject to the continuing notification framework. Notification 16/2022-Central Tax dated 13 July 2022 amended Notification 14/2019. The amendment concerned the composition framework, including specified goods/manufacturers; it did not change the headline ₹1.50 crore / ₹75 lakh turnover thresholds. Official notification page.
State list matters: The special threshold is not “₹75 lakh for all North-Eastern States” as a shortcut. The notification must be read for the exact States covered. Under Notification 14/2019, the ₹75 lakh limit applied to Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand. Assam and Himachal Pradesh were not carried into that 2019 ₹75 lakh list.

Why the ₹1.50 crore date is often misunderstood

The history has two separate legal steps:

  1. 1 February 2019: the CGST (Amendment) Act, 2018 was brought into force through Notification No. 02/2019-Central Tax. The amendment increased the maximum amount that could be prescribed under the section 10(1) proviso from ₹1 crore to ₹1.50 crore. Official Notification 02/2019-CT page.
  2. 1 April 2019: Notification No. 14/2019-Central Tax operationally superseded the earlier threshold notification and prescribed ₹1.50 crore as the general composition eligibility limit, with ₹75 lakh for the specified States. The GST Council's 33rd-meeting material specifically explains why implementation was chosen from 1 April 2019. Official Notification 14/2019-CT page.

Quick reference – amount changes only

StageAmountChange
Original statutory ceiling / starting threshold₹50 lakhOriginal section 10 framework.
First operational increase₹75 lakhNotification 08/2017-CT.
Second operational increase₹1 croreNotification 46/2017-CT.
Statutory ceiling increased₹1.50 croreCGST (Amendment) Act, 2018, effective 1 February 2019.
Operational general threshold₹1.50 croreNotification 14/2019-CT, effective from 1 April 2019.
Current general threshold₹1.50 croreContinues under the current notification framework.
Current specified-State threshold₹75 lakhApplies to the States specified in Notification 14/2019, subject to amendments in force.

Do not confuse the main scheme with Section 10(2A)

The above ₹1.50 crore / ₹75 lakh history relates to the main composition scheme under section 10(1). Section 10(2A) is a different residual composition route. Its statutory preceding-year aggregate-turnover ceiling is ₹50 lakh and its tax ceiling is 3% of turnover in State/UT. The 2019–2020 development of this separate scheme should not be presented as another increase in the main ₹1.50 crore threshold. citeturn0search6

Official source trail for the turnover history

SourceWhat it establishesOfficial reference
Notification 08/2017-CT, 27 June 2017Initial operational composition turnover limit.GST Council – Notification 08/2017-CT
Notification 46/2017-CT, 13 October 2017₹75 lakh → ₹1 crore; ₹50 lakh → ₹75 lakh.Official PDF
Notification 02/2019-CT, 29 January 2019Brought the CGST (Amendment) Act, 2018 into force from 1 February 2019.GST Council – Notification 02/2019-CT
Notification 14/2019-CT, 7 March 2019₹1.50 crore general limit and ₹75 lakh specified-State limit.Official PDF
Notification 43/2019-CT, 30 September 2019Amended Notification 14/2019 to exclude manufacturers of aerated waters from the composition scheme.GST Council – Notification 43/2019-CT
Notification 04/2022-CT, 31 March 2022Amended Notification 14/2019 for specified brick-kiln composition treatment.GST Council – Notification 04/2022-CT
Notification 16/2022-CT, 13 July 2022Further amendment to Notification 14/2019; headline turnover limits remained ₹1.50 crore / ₹75 lakh.GST Council – Notification 16/2022-CT
Professional conclusion: If a historical GST file asks whether a taxpayer was eligible for composition, first identify the financial year and the date on which the option was exercised or the threshold was crossed. Then apply the threshold and State list applicable on that date. The present ₹1.50 crore limit should never be applied retrospectively without checking the historical notification.

4. Composition tax rates

Section 10 itself sets the maximum composition percentages. The operational rates are prescribed through the CGST Rules.

CategorySection 10 ceiling / frameworkPractical rule rate
ManufacturerNot exceeding 1% of turnover in State/UT.Generally 0.5% CGST under the composition rules, with the corresponding State/UT component separately governed.
Restaurant service covered by paragraph 6(b) of Schedule IINot exceeding 2.5% of turnover in State/UT.Generally 2.5% CGST under the prescribed composition rate.
Other eligible suppliers under the main schemeNot exceeding 0.5% of turnover in State/UT.Generally 0.5% CGST under the prescribed rate.
Section 10(2A) eligible supplierNot exceeding 3% of turnover in State/UT.3% of taxable supplies of goods and services in the State/UT under the prescribed rule framework. citeturn0search7

The 42nd GST Council meeting material records the prescribed rates for section 10(2A), including 3% of taxable supplies for persons eligible under that sub-section. citeturn0search7

Important: The section's wording establishes ceilings; the actual composition rate is prescribed through the Rules. For a filing or tax computation, use the current Rule 7 rate table applicable to the taxpayer category.

5. Limited supply of services under the main composition scheme

The original composition scheme was primarily designed for small suppliers of goods and specified restaurant suppliers. A major change allowed a composition taxpayer to provide a limited amount of services without automatically losing the scheme.

The second proviso to section 10(1) currently permits services, other than the paragraph 6(b) restaurant category, up to 10% of the preceding financial year's turnover in the State/UT or ₹5 lakh, whichever is higher. citeturn0search0

Why this matters

  • A trader can have incidental service income without necessarily becoming ineligible solely because a service is supplied.
  • The permitted amount is measured using the statutory formula, not simply “10% of current-year sales”.
  • The ₹5 lakh floor can become important for a small taxpayer whose preceding-year turnover is low.
  • The restaurant-service category covered by paragraph 6(b) of Schedule II is separately dealt with in section 10(1)(b).
Example: If preceding-year turnover in the State is ₹30 lakh, 10% is ₹3 lakh. Because the proviso compares this with ₹5 lakh and uses the higher amount, the permitted non-restaurant service value can be up to ₹5 lakh, subject to the other statutory and rule conditions.

6. Section 10(2) – principal eligibility conditions

Choosing composition is not based only on turnover. The taxpayer must pass each statutory eligibility test.

ConditionPractical meaning
No disqualifying non-taxable suppliesThe taxpayer must not be engaged in supplies of goods/services that are not leviable to tax under the CGST Act, subject to the exact statutory wording and exceptions.
No inter-State outward suppliesOutward inter-State supplies of goods or services are a major restriction under the principal composition scheme.
ECO conditionThe section's original restriction relating to supplies through an ECO has been modified over time. The 2023 amendment removed the words “goods or” from section 10(2)(d), meaning the statutory restriction was narrowed in respect of goods supplied through specified ECOs. citeturn0search28
Not a notified manufacturerManufacturers of goods notified by the Government on the Council's recommendation are excluded.
Not casual / non-resident taxable personSection 10(2)(f) expressly excludes casual taxable persons and non-resident taxable persons. citeturn0search0
PAN-wide conditionWhere multiple registered persons have the same PAN, the composition option is subject to the statutory requirement that all such registered persons opt for the scheme.

7. The 2023 e-commerce amendment – an important change

One of the most important recent changes to section 10 concerns electronic commerce operators.

The Finance Act, 2023 amended section 10(2)(d) and section 10(2A)(c) by omitting the words “goods or”. The GST Council's explanatory material records the policy objective: to remove the restriction that prevented composition taxpayers from making supplies of goods through an ECO required to collect tax at source under section 52. citeturn0search28

The amendment was brought into force from 1 October 2023. The source text records the corresponding omission and effective date. fileciteturn43file1L59-L66

Result: The law should not be described today as simply “composition taxpayers cannot sell through e-commerce operators.” The 2023 amendment materially changed that position for goods, subject to the applicable conditions and the separate treatment of services.

Do not confuse sections 9(5) and 10(2)(d)

Section 9(5) determines when the ECO itself pays GST on specified services. Section 10(2)(d) deals with whether a composition taxpayer is eligible to opt for the composition scheme in relation to supplies through an ECO that collects TCS under section 52. These are different statutory questions.

8. Section 10(2A) – composition for certain small service / mixed suppliers

Section 10(2A) was inserted by section 93 of the Finance (No. 2) Act, 2019 and brought into force from 1 January 2020. The statutory mechanism addresses a registered person who is not eligible under section 10(1) and section 10(2), but whose preceding-year aggregate turnover does not exceed ₹50 lakh and who satisfies the separate conditions.

The GST Council material expressly records that section 10(2A) was inserted through section 93 of the Finance (No. 2) Act, 2019 and that the amendment was brought into force by Notification No. 01/2020-Central Tax dated 1 January 2020. citeturn0search29

Section 10(1) schemeSection 10(2A) scheme
Threshold can operate up to ₹1.50 crore under the notified framework.Preceding-year aggregate turnover must not exceed ₹50 lakh.
Originally focused on manufacturers, restaurants and other eligible suppliers, with limited services permitted by the second proviso.Designed for eligible persons who are outside the main composition scheme but meet the separate small-turnover conditions.
Rate ceilings are 1%, 2.5% and 0.5% depending on category.Statutory ceiling is 3% of turnover in State/UT; Rule 7 prescribes the applicable rate framework.
Subject to section 10(2) restrictions.Has its own restrictions in section 10(2A)(a)–(e).

The 42nd GST Council meeting subsequently approved Rule 7 rates for persons eligible under section 10(2A), including 3% of taxable supplies of goods and services in the State/UT. citeturn0search7

9. Amendment and development timeline

22 June 2017 – statutory commencement: Section 10 formed part of the provisions brought into force at the beginning of the GST regime. The practical composition threshold was then operationalised through Notification 08/2017-CT for the GST launch.
1 July 2017 – first operational threshold: Notification 08/2017-CT prescribed ₹75 lakh generally, with ₹50 lakh for the specified special-category States and ₹75 lakh for Uttarakhand. The GST Council's 17th-meeting minutes record the State-wise recommendation. Official notification page.
13 October 2017 – ₹1 crore: Notification 46/2017-CT replaced ₹75 lakh with ₹1 crore and ₹50 lakh with ₹75 lakh in the earlier threshold notification. Official notification PDF.
1 February 2019 – statutory ceiling becomes ₹1.50 crore: Notification 02/2019-CT brought the CGST (Amendment) Act, 2018 into force. The amendment changed the section 10(1) proviso so the Government could prescribe an amount up to ₹1.50 crore. Official notification page.
1 April 2019 – operational threshold becomes ₹1.50 crore: Notification 14/2019-CT superseded Notification 08/2017 and prescribed ₹1.50 crore generally and ₹75 lakh for the specified States. The GST Council's 33rd-meeting material explains the decision to apply the increase from 1 April 2019 rather than 1 February 2019. Official notification page.
1 April 2019 – separate ₹50 lakh service/mixed-supplier scheme: Notification 02/2019-Central Tax (Rate) introduced a separate composition-rate framework for certain suppliers with turnover up to ₹50 lakh; this later became aligned with section 10(2A), which was inserted into the Act and brought into force from 1 January 2020.
30 September 2019 – aerated-water restriction: Notification 43/2019-CT amended Notification 14/2019 to exclude manufacturers of aerated waters from the main composition scheme. Official notification page.
1 January 2020 – section 10(2A): Finance (No. 2) Act, 2019 inserted the separate residual composition mechanism for certain small suppliers otherwise ineligible under section 10(1)/(2). The statutory turnover ceiling is ₹50 lakh.
1 April 2020 – prescribed section 10(2A) rate framework: The Rules were amended following GST Council consideration to prescribe the rate for the residual composition scheme. The Council's 40th-meeting material records the 3% ceiling and the Rule 7 rate development.
31 March 2022 / 1 April 2022: Notification 04/2022-CT amended Notification 14/2019 for specified brick-kiln composition treatment. It did not change the headline ₹1.50 crore / ₹75 lakh turnover thresholds. Official notification page.
13 July 2022: Notification 16/2022-CT further amended Notification 14/2019. The amendment was not a reduction or increase of the headline turnover threshold. Official notification page.
1 October 2023 – ECO goods restriction changed: Finance Act, 2023 omitted “goods or” from section 10(2)(d) and section 10(2A)(c), materially changing the earlier restriction concerning goods supplied through specified ECOs.
2026 – current position: The main composition threshold remains ₹1.50 crore generally and ₹75 lakh for the States specified in the operative notification, while section 10(2A) remains a separate ₹50 lakh route. Eligibility must still be checked against all current conditions and exclusions.

10. GST Council background

The development of section 10 shows a continuing policy objective: reduce compliance complexity for genuinely small businesses while maintaining safeguards against misuse.

  • 15th GST Council: the original composition levy was considered as a mechanism to reduce compliance cost for small taxpayers. citeturn0search10
  • 23rd and 24th GST Council discussions: the Council examined higher turnover thresholds, rates and the treatment of exempt turnover. citeturn0search4turn0search8
  • 32nd GST Council: the Council recommended introducing a composition option for service suppliers / mixed suppliers, leading to the later section 10 amendments. citeturn0search1
  • 35th GST Council: the agenda records the proposed amendments needed to operationalise the service/mixed-supplier composition framework. citeturn0search1
  • 40th/42nd Council framework: the section 10(2A) rate structure was operationalised through the Rules. citeturn0search9turn0search7
  • 2023 reform: the ECO restriction for goods was narrowed so that composition taxpayers could participate in specified electronic-commerce channels, subject to the revised law. citeturn0search28

11. Practical examples

Example 1 – small trader

A trader has preceding-year aggregate turnover of ₹80 lakh, makes only eligible intra-State outward supplies, is not otherwise disqualified and satisfies the applicable composition conditions. Subject to the current State/UT and notification framework, the trader may consider the main section 10(1) composition scheme.

Example 2 – turnover exceeds the threshold during the year

A composition taxpayer crosses the applicable aggregate-turnover limit during the financial year. Under section 10(3), the composition option lapses from the day on which the turnover exceeds the relevant limit. The taxpayer must then move to the normal GST framework from the applicable point and complete the consequential compliance.

Example 3 – limited service income

A composition trader has preceding-year turnover of ₹40 lakh and earns ₹4 lakh of qualifying non-restaurant service income. Ten per cent is ₹4 lakh, but the statutory comparison is with ₹5 lakh; therefore the ₹5 lakh figure becomes the relevant ceiling under the second proviso, subject to the other conditions.

Example 4 – inter-State outward supply

A composition dealer begins making taxable outward supplies to customers in another State. Inter-State outward supplies are a statutory restriction under section 10(2). The business should immediately review whether the composition option continues to be available.

Example 5 – online marketplace

A small trader sells goods through an ECO that is required to collect TCS under section 52. After the 2023 amendment, the old blanket statement that goods cannot be supplied through such an ECO is no longer accurate. The taxpayer must apply the amended section 10(2)(d), the Rules and the applicable ECO compliance framework.

Example 6 – service/mixed supplier under section 10(2A)

A small registered business is not eligible for the principal composition scheme because its activity falls outside section 10(1)/10(2), but its preceding-year aggregate turnover is within ₹50 lakh and it satisfies section 10(2A). It may examine the separate composition route under section 10(2A).

12. Professional eligibility checklist

  1. Determine the taxpayer's PAN-wide aggregate turnover for the preceding financial year.
  2. Identify every GST registration under the same PAN and apply the statutory all-registration condition.
  3. Determine the applicable State/UT threshold and verify the notification in force.
  4. Classify the business: manufacturer, restaurant category, trader/other supplier, or potential section 10(2A) supplier.
  5. Check for inter-State outward supplies.
  6. Check supplies that are not leviable to tax under the CGST Act.
  7. Check notified manufacturer exclusions.
  8. Check casual/non-resident status.
  9. Check ECO transactions using the current post-2023 wording.
  10. Calculate permitted non-restaurant services under the 10% / ₹5 lakh formula where relevant.
  11. Check the composition rates prescribed under Rule 7.
  12. Confirm that tax will not be separately collected from customers and that ITC will not be availed as a composition taxpayer.
  13. Review the applicable registration, return, invoice/bill-of-supply and payment procedures under the Rules.

13. Compliance consequences of composition

AreaComposition implication
Tax collectionThe composition taxpayer cannot collect tax from the recipient on supplies made under the scheme. citeturn0search0
Input tax creditThe composition taxpayer is not entitled to input tax credit under section 10(4). citeturn0search0
Outward suppliesSupplies are generally documented through the prescribed composition/bill-of-supply framework rather than a normal tax invoice charging CGST/SGST.
Tax rateComposition tax is calculated using the prescribed composition rates and relevant turnover base.
Crossing thresholdThe composition option lapses when aggregate turnover crosses the applicable threshold during the financial year. citeturn0search0
Wrong eligibilityIf tax is paid under composition despite ineligibility, section 10(5) permits recovery of the applicable tax and penalty through the statutory determination mechanism. citeturn0search0

14. Common mistakes

  • Looking only at the current year's turnover instead of first determining the preceding-year aggregate turnover.
  • Assuming ₹1.50 crore is a universal rule without checking the applicable State/UT and notification conditions.
  • Confusing section 10(1) and section 10(2A).
  • Ignoring the PAN-wide requirement where multiple registrations exist.
  • Assuming every service receipt makes a trader ineligible despite the limited-service proviso.
  • Continuing composition after the applicable turnover threshold is crossed.
  • Claiming ITC or collecting GST separately from customers while operating under composition.
  • Using pre-October-2023 guidance on ECOs without considering the amendment to section 10(2)(d) and section 10(2A)(c).
  • Applying the statutory percentage ceilings without checking the actual prescribed Rule 7 rate.
  • Failing to review the latest composition notifications and Rules before filing.

16. Key takeaways

  1. Section 10 is an alternative tax-payment mechanism for eligible small registered taxpayers; it is not a general GST exemption.
  2. The main scheme can operate up to the ₹1.50 crore notified threshold, subject to State/UT conditions.
  3. The separate section 10(2A) scheme has a ₹50 lakh preceding-year aggregate-turnover ceiling.
  4. The statutory rate ceilings and the actual Rule 7 rates should not be confused.
  5. Limited non-restaurant services are permitted under the 10% / ₹5 lakh formula under the main scheme.
  6. Inter-State outward supplies, specified non-taxable supplies, notified manufacturers and certain taxpayer categories can disqualify a person.
  7. The 2023 amendment materially changed the ECO restriction for goods; older articles stating that all ECO goods supplies are prohibited are outdated.
  8. A composition taxpayer cannot collect tax from the recipient and cannot claim ITC under section 10(4).
  9. Crossing the threshold causes the composition option to lapse under section 10(3).
  10. Eligibility should be reviewed continuously, not only when the composition option is first selected.
Research position as at September 2026: The page has been prepared using the statutory text and amendment notes in the GST Bare Law source supplied for research, together with current India Code and official GST Council material. The source material supports the statutory wording and amendment chronology; current operational compliance should still be checked against the latest CGST Rules and notifications before a filing or tax position is taken.