Section 10(1) Clause by Clause: The Composition Levy and Its Two Provisos

Section 10 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Section 10(1) is a single sentence carrying a non-obstante clause, a saving for reverse charge, a turnover gate, three rate ceilings and two provisos. Read as a whole it looks simple. Read clause by clause it decides most composition disputes.

Section 10(1) overrides the Act "notwithstanding anything to the contrary" but stays subject to s.9(3) and s.9(4) — so reverse charge survives the scheme. The gate is aggregate turnover in the preceding financial year not exceeding fifty lakh rupees, which the first proviso lets the Government raise to one crore fifty lakh, and it has. The rate is what the Rules prescribe, capped at 1% for manufacturers, 2.5% for restaurant-type supplies under clause (b) of paragraph 6 of Schedule II, and 0.5% for other suppliers. The second proviso then lets a goods composition dealer supply other services up to 10% of turnover in a State or ₹5 lakh, whichever is higher.

The opening words, and what they actually override

The sub-section opens: "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…"

Two separate operations sit in that phrase.

The non-obstante clause displaces s.9(1). Without it, the charging section would demand tax at the notified rate on the value of every supply. Section 10 replaces that with an amount computed on turnover.

The "subject to" clause preserves reverse charge. Section 9(3) — notified categories — and s.9(4) — supplies from unregistered persons to notified classes of registered recipients — both continue to apply to a composition dealer, in full, at the ordinary rate. This is the single most misread feature of the scheme, and it is not an inference; the words are in the sub-section. Rule 5(1)(d) restates it as a condition.

And "a registered person" is the third operation. Composition is available only to somebody already registered. It is not an alternative to registration, and it does not lower the registration threshold. Persons liable to register →

The turnover gate is a preceding year test

"…whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees…"

Three words carry the weight.

"Aggregate turnover" is the s.2(6) expression — all taxable, exempt, export and inter-State supplies of persons on the same PAN, computed all-India, net of taxes. It is not the turnover of the registration.

"In the preceding financial year" makes eligibility a look-back. A person tests entry against last year's figure, not this year's.

"Did not exceed" is the entry test only. What happens when the current year's turnover crosses the limit is dealt with separately by s.10(3), which makes the option lapse from the day of crossing. Aggregate turnover vs turnover in State →

"In lieu of the tax payable… an amount of tax calculated at such rate"

The words were substituted with effect from 01.02.2019 by the CGST (Amendment) Act, 2018. Before that the sub-section read "in lieu of the tax payable by him, an amount calculated at such rate".

The substitution matters in two ways. The composition sum is now expressly an amount of tax rather than merely an amount, and it is expressly in lieu of tax payable under s.9(1) rather than tax generally — which sits consistently with reverse charge under s.9(3) and (4) remaining payable.

And "at such rate as may be prescribed" means Rule 7 fixes the rate, not the section. The section only sets ceilings. The actual rates are lower than two of the three caps. Rule 7 rate table →

The three ceilings

Read clause (b) carefully. It does not say "restaurants". It says persons making the supplies described in clause (b) of paragraph 6 of Schedule II — the supply, by way of or as part of any service, of goods being food or any other article for human consumption or drink, for cash, deferred payment or other valuable consideration. That is a description of an activity, not of a trade licence.

And every ceiling is expressed on "turnover in State or turnover in Union territory". The eligibility test is all-India on PAN; the payment base is per registration. Two different figures, in the same sub-section.

First proviso: the power to raise fifty lakh

"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…"

The ceiling on the ceiling — one crore fifty lakh — was itself substituted with effect from 01.02.2019; before that the outer limit was one crore. The power has been exercised by Notification No. 14/2019-CT dated 07.03.2019, which set ₹1.5 crore generally and ₹75 lakh for eight specified States. The ₹1.5 crore threshold →

So the statutory figure of fifty lakh is never the operative figure for a goods composition dealer. It remains the operative figure for s.10(2A), where no such power has been exercised.

Second proviso: the service allowance

"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."

Inserted with effect from 01.02.2019, it converted an absolute bar on services into a tolerance. The Explanation added by the Finance (No. 2) Act, 2019 and notified from 01.01.2020 then excluded interest or discount on deposits, loans and advances from the turnover used for that computation. The 10% service allowance →

Key takeaways

• The non-obstante clause displaces s.9(1); the "subject to" clause preserves s.9(3) and s.9(4) reverse charge.
• Eligibility is tested on aggregate turnover of the preceding year on a PAN-wide, all-India basis.
• The rate is paid on turnover in State or Union territory — a per-registration figure.
• The section sets caps; Rule 7 sets the rates, and two of the three are below the cap.
• The first proviso power has been used — ₹1.5 crore, ₹75 lakh in eight States.
• The second proviso permits services up to 10% of preceding-year State turnover or ₹5 lakh, whichever is higher.

Read next

• The ₹1.5 Crore Composition Threshold and the Eight ₹75 Lakh States
• Section 10(2)(a) to (f): The Six Gates a Composition Dealer Must Clear
• Rule 7 Rate Table, Column by Column
• Aggregate Turnover vs Turnover in State

Disclaimer: Positions stated as on 5 September 2026, based on section 10 of the CGST Act, 2017 and Rules 3 to 7 of the CGST Rules, 2017 as amended to 31 March 2026 (ICAI Bare Law, 12th edition), and the ICAI Handbook on Composition Scheme under GST (February 2026, 3rd edition), which states the law to 31 January 2026.