Page 5 - Chap3 Composition Levy

Answer: Legal Provision:-

ÜAs per sec 10(1), A Registered Person, whose aggregate turnover in the PFY did not exceed `1.5 Cr. may
opt to pay tax under composition levy.
ÜAs per 2nd proviso to sec 10(1) ‘ Marginal Service’
Ø Allows for marginal supply of services along with goods and/or restaurant services.
Ø This marginal limit for supply of services is available in addition to restaurant services.
Ø The specified value should not exceed either
ð10% of the turnover in a State/UT in the preceding financial year or
ð ₹ 5 lakh, whichever is higher.
Discussion & Conclusion:-

i) In given case, M/s. Rajbeer & Sons, engaged in business of selling goods relating to interior decoration, is
eligible for composition scheme in the financial year 20YY-ZZ since its aggregate turnover is ` 80 lakh in
financial year 20XX-YY which does not exceed ` 1.5 crore.

ii) Ü If Karan wishes to start business of providing services relating to interior decoration under the same
firm name M/s Rajbeer & Sons, the sole proprietorship needs to be first converted into a
partnership firm.
Ü Further, new GST registration under the new PAN is required to be obtained.
Ü In such a case, the firm can provide services relating to interior decoration up to a value of ` 5 lakh
(10% of zero turnover of last year or 5 lakh, whichever is higher) to continue enjoying the benefit of `
composition scheme in financial year 20YY-ZZ.

Q.3: Shubhlaxmi Foods is engaged in supplying restaurant service in Maharashtra. In the financial year
20XX-YY, it had a turnover of ` 140 lakh from the restaurant service. Further, it had earned the bank
interest of ` 20 lakh from the fixed deposits in said financial year. You are required to advise Shubhlaxmi
Foods whether it is eligible for the composition scheme under sub-sections (1) and (2) of section 10 in the
financial year 20YY-ZZ.
Further, assuming that in the financial year 20YY-ZZ, its turnover is ` 130 lakh from the supply of
restaurant services and ` 10 lakh from the supply of farm labour in Maharashtra. It has also earned the
bank interest of ` 30 lakh from the fixed deposits. Compute the tax payable by Shubhlaxmi Foods in the
financial year 20YY-ZZ. [ Study Mat]
Answer: Legal Provision:-
Ü As per sec 10(1), A Registered Person, whose aggregate turnover in the PFY did not exceed `1.5 Cr. may
opt to pay tax under composition levy.
Ü As per 2nd proviso to sec 10(1) ‘ Marginal Service’
Ø Allows for marginal supply of services along with goods and/or restaurant services.
Ø This marginal limit for supply of services is available in addition to restaurant services.
Ø The specified value should not exceed either
ð10% of the turnover in a State/UT in the preceding financial year or
ð ₹ 5 lakh, whichever is higher.
Ü For 2nd proviso, to determine value of t/o in a State or Union territory:- The consideration represented by
interest or discount provided by way of extending deposits, loans or advances should not be included in the
value of exempt supply of services
Discussion & Conclusion:-

Ü In given case, the aggregate turnover of Shubhlaxmi Foods in the financial year 20XX-YY is ₹ 140 lakh (since
bank interest of ` 20 lakh from the fixed deposits will not be added for computing aggregate turnover).
Ü Resultantly, it is eligible to opt for composition scheme u/s 10(1) & 10(2) in financial year 20YY-ZZ.
Ü Further, apart from restaurant services, it can provide services upto ` 14 lakh [i.e. 10% of ` 140 lakh or ` 5
lakh, whichever is higher], in the financial year 20YY-ZZ. As already seen, bank interest of ` 20 lakh from
fixed deposits will not be considered while determining this limit.

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