Section 10 lets small businesses pay a flat percentage of turnover instead of tax on each supply, without the credit chain. It has two schemes: the original one for manufacturers, traders and restaurants (sub-section (1)), and a smaller one, from 2019, for suppliers of services (sub-section (2A)).
Key points
- Under section 10(1) of the CGST Act, 2017 a registered person whose aggregate turnover in the preceding year did not exceed the notified limit — Rs. 1.5 crore (Rs. 75 lakh in specified special category States) — may pay tax at a prescribed rate instead of the normal tax.
- The statute caps the CGST composition rate at 1% for manufacturers, 2.5% for restaurants and 0.5% for other suppliers; State tax is levied at the same rate.
- A composition taxpayer under section 10(1) may also supply services up to 10% of the previous year's turnover or Rs. 5 lakh, whichever is higher.
- Under section 10(2A), from 01.01.2020, suppliers of services (and others not eligible under section 10(1)) with turnover up to Rs. 50 lakh may opt for a composition rate.
- A composition taxpayer may not collect tax from customers or take input tax credit (section 10(4)), and may not make inter-State supplies; since 01.10.2023 it may supply goods through an e-commerce operator.
Editor's note: Section 137 of the Finance Act, 2023 (8 of 2023), in force from 1 October 2023, omitted the words "goods or" from clause (d) of sub-section (2) and from clause (c) of sub-section (2A). Clause (d) of sub-section (2) therefore now bars only a supply of services through an electronic commerce operator required to collect tax at source under section 52. The CBIC text reproduced above places that omission against clause (b) of sub-section (2) (note 12), which the amendment did not touch, and still prints "goods" in clause (d). Its note also names the amending Act as the "Finance (No. 8) Act, 2023". Sub-section (2A)(c) is shown correctly.
The provisions
10(1)Composition for goods suppliers and restaurants
Statutory text
(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, 1[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 percent of the turnover in State or turnover in Union territory in case of a manufacturer,
(b) two and a half percent 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 percent 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 2[one crore and fifty lakh rupees], as may be recommended by the Council:
3[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].
4[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].
*Enforced w.e.f. 22nd June 2017.
1. Substituted for "in lieu of the tax payable by him, an amount calculated at such rate", by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
2. Substituted for "one crore rupees" by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
3. Inserted by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
4. Inserted by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T., dated 01st January, 2020.
- Notification 14/2019-Central Tax — Rs. 1.5 crore limit
- Rule 7, CGST Rules — rates
10(2)Who cannot opt
Statutory text
(2) The registered person shall be eligible to opt under sub-section (1), if :-
5[(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 12[****] 6[services] which are not leviable to tax under this Act;
(c) he is not engaged in making any inter-State outward supplies of goods 7[or services];
(d) he is not engaged in making any supply of goods 8[or services] through an electronic commerce operator who is required to collect tax at source under section 52; 9[****]
(e) he is not a manufacturer of such goods as may be notified by the Government on the recommendations of the 10[Council ;and]
11[(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.
5. Substituted for "(a) he is not engaged in the supply of services other than supplies referred to in clause (b) of paragraph 6 of Schedule II save as provided in sub-section (1), he is not engaged in the supply of services." by s. 5 of The Central Goods and Services Tax (Amendment) Act, 2018 (No. 31 of 2018) - Brought into force w.e.f. 01st February, 2019.
12. Omitted "goods or" by s. 137 of The Finance (No. 8) Act, 2023 (No. 08 of 2023) - Brought into force w.e.f. 01st October, 2023 vide Notification No. 28/2023-C.T., dated 31st July, 2023.
6. Inserted by s. 119 of The Finance Act, 2020 (No. 12 of 2020) - Brought into force w.e.f. 01st January, 2021 vide Notification No. 92/2020-C.T. dated 22nd December, 2020.
7. Inserted by s. 119 of The Finance Act, 2020 (No. 12 of 2020) - Brought into force w.e.f. 01st January, 2021 vide Notification No. 92/2020-C.T. dated 22nd December, 2020.
8. Inserted by s. 119 of The Finance Act, 2020 (No. 12 of 2020) - Brought into force w.e.f. 01st January, 2021 vide Notification No. 92/2020-C.T. dated 22nd December, 2020.
9. Omitted "and" by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T., dated 01st January, 2020.
10. Substituted for - "Council" by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T., dated 01st January, 2020.
11. Inserted by s. 93 of The Finance (No. 2) Act, 2019 (No. 23 of 2019) - Brought into force w.e.f. 01st January, 2020 vide Notification No. 1/2020-C.T., dated 01st January, 2020.
What it means
- (a) suppliers of services (apart from restaurants and the incidental services the proviso allows);
- (b) suppliers of goods or services not leviable to tax — for example alcoholic liquor or petrol;
- (c) anyone making inter-State outward supplies of goods or services;
- (d) anyone supplying services through an e-commerce operator who collects tax at source — the words "goods or" were omitted from 01.10.2023, so composition suppliers may now sell goods online;
- (e) manufacturers of notified goods (such as ice cream, pan masala and tobacco products);
- (f) casual and non-resident taxable persons.
- All registrations under the same PAN must opt together.
10(2A)Composition for service providers
Statutory text
11[(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 13[****] 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.]
13. Omitted "goods or" by s. 137 of The Finance (No. 8) Act, 2023 (No. 08 of 2023) - Brought into force w.e.f. 01st October, 2023 vide Notification No. 28/2023-C.T., dated 31st July, 2023.
What it means
Inserted by the Finance (No. 2) Act, 2019 from 01.01.2020, building on a rate notification of 2019 (Notification 2/2019-Central Tax (Rate)). A registered person not eligible under sub-section (1) — typically a supplier of services — with aggregate turnover up to Rs. 50 lakh in the preceding year may pay tax at a rate not exceeding 3% CGST (6% combined), subject to its own list of exclusions mirroring sub-section (2).
10(3)–(5)Lapse, no credit or tax collection, penalty
Statutory text
(3) The option availed of by a registered person under sub-section (1) 11[or subsection (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) 11[or sub-section (2A), as the case may be.]
(4) A taxable person to whom the provisions of sub-section (1) 11[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.
(5) If the proper officer has reasons to believe that a taxable person has paid tax under sub-section (1) 11[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 14[or section 74A] shall, mutatis mutandis , apply for determination of tax and penalty.
11[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 up to 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 up to 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.]
14. Inserted by section 115 of The Finance Act (No. 2) Act, 2024 No. 15 of 2024 dated 16.08.2024
What it means
The option lapses from the day turnover in the year crosses the limit. A composition taxpayer must not collect tax from recipients and gets no input tax credit — the trade-off for the low rate.
If the proper officer has reason to believe a person paid composition tax while ineligible, the person is liable to the tax it should have paid and to a penalty, determined under section 73, 74 or — for periods from 2024–25 — section 74A.
Explanation 1 counts supplies from 1 April up to the date of becoming liable to register when computing aggregate turnover; Explanation 2 leaves them, and interest income on deposits and loans, out of turnover for computing the tax.
Statutory text as published on the CBIC tax information portal, as on 11.10.2026; the numbered notes record each amendment. Official source
Common questions
- What is the turnover limit for the GST composition scheme?
- Rs. 1.5 crore in the preceding year (Rs. 75 lakh in specified special category States) for goods suppliers and restaurants; Rs. 50 lakh for service providers under section 10(2A).
- Can a composition dealer sell on Amazon or Flipkart?
- Goods, yes — since 01.10.2023, when "goods or" was omitted from section 10(2)(d). Services through an e-commerce operator collecting TCS remain barred.
- Can a composition taxpayer charge GST on its invoice or claim credit?
- No. Section 10(4) bars both.
Commentary and case notes checked against the judgments and CBIC sources on 04.10.2026.
What it means
The statutory limit is Rs. 50 lakh, which the Government may raise up to Rs. 1.5 crore (raised from Rs. 1 crore by the CGST (Amendment) Act, 2018, from 01.02.2019). It has been raised to Rs. 1.5 crore, and Rs. 75 lakh in specified special category States, from 01.04.2019 (Notification 14/2019-Central Tax).
The rates actually prescribed (Rule 7 of the CGST Rules) are within the caps in clauses (a) to (c): manufacturers and traders pay 0.5% CGST (1% combined) and restaurants 2.5% CGST (5% combined). For traders, the rate applies to turnover of taxable supplies.
The second proviso allows incidental services — for instance, interest-free credit is not counted, by the Explanation — up to the higher of 10% of the previous year's turnover or Rs. 5 lakh.