Taxation - GST Ch 03: Charge Composition - Test 5: answer key

Question 1 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. Hillview Stationers, a GST-registered retail trader in Uttarakhand, deals exclusively in stationery and office equipment. Its aggregate turnover for FY 2025-26 comprised taxable intra-State sales of ₹48,00,000, goods exempted by notification but leviable to GST of ₹12,00,000, exports of ₹4,00,000 and inter-State outward supplies of ₹6,00,000. It also received inward supplies worth ₹3,00,000 taxable under RCM and paid GST of ₹2,00,000 during the year. These inward supplies and GST amounts are separately recorded. Hillview has no other registration under the same PAN. It has opted for composition levy from 1 April 2026 and makes no inter-State outward supplies in the current financial year. During the first quarter of FY 2026-27, its taxable goods turnover is ₹18,00,000, notified-exempt goods turnover is ₹2,00,000 and taxable repair services turnover is ₹1,20,000. Hillview also provides repair services to customers in Uttarakhand. Its cumulative value of such services, excluding restaurant services and exempt interest income, reaches ₹6,80,000 by 14 October 2026. A separate repair contract worth ₹30,000 is completed on 15 October 2026. The management believes that the composition option can continue because its overall aggregate turnover is substantially below ₹75,00,000. The accountant points out that a separate restriction applies to the value of services supplied by a composition taxpayer under section 10(1). Assume that the repair services are otherwise taxable and all stated turnover is determined in accordance with the applicable GST provisions. The company needs to determine its preceding-year eligibility, quarterly composition tax, permitted service value and statutory withdrawal deadlines.

Determine whether Hillview Stationers satisfies the preceding-year turnover condition for composition levy under section 10(1). Consider the Uttarakhand threshold, the inclusion of exports and inter-State outward supplies, and the exclusion of inward RCM supplies and GST.

1. Eligible, since aggregate turnover is ₹70,00,000 against the ₹75,00,000 limit. (correct answer)
2. Ineligible, since exports and inter-State supplies are included in turnover.
3. Ineligible, since inward RCM purchases increase turnover to ₹73,00,000.
4. Eligible only after excluding the notified-exempt goods from turnover.

Answer: A — Eligible, since aggregate turnover is ₹70,00,000 against the ₹75,00,000 limit.

Explanation. Aggregate turnover = taxable supplies ₹48,00,000 + notified-exempt supplies ₹12,00,000 + exports ₹4,00,000 + inter-State supplies ₹6,00,000 = ₹70,00,000. Inward RCM supplies of ₹3,00,000 and GST of ₹2,00,000 are excluded. Uttarakhand is one of the eight States having the ₹75,00,000 limit. Since ₹70,00,000 does not exceed ₹75,00,000, Hillview satisfies the preceding-year turnover condition, subject to other eligibility conditions.

Where it goes wrong. Excluding exports and inter-State supplies from preceding-year aggregate turnover or including inward RCM purchases in the turnover calculation.

Authority. Section 10(1) of the CGST Act, 2017; Section 2(6) of the CGST Act, 2017; Notification No. 14/2019-Central Tax, dated 07.03.2019

Question 2 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Compute the combined CGST and SGST composition levy payable by Hillview Stationers for the first quarter of FY 2026-27. It is an ordinary trader and has taxable goods turnover of ₹18,00,000, notified-exempt goods turnover of ₹2,00,000 and taxable repair services turnover of ₹1,20,000. Assume the services fall within the permissible marginal-services limit.

1. ₹18,000, calculated on taxable goods turnover alone.
2. ₹19,200, comprising ₹9,600 CGST and ₹9,600 SGST. (correct answer)
3. ₹21,200, including notified-exempt goods turnover in the base.
4. ₹19,200 CGST and ₹19,200 SGST, calculated separately.

Answer: B — ₹19,200, comprising ₹9,600 CGST and ₹9,600 SGST.

Explanation. For an other supplier such as a trader, the effective composition rate is 1% of taxable supplies of goods and services in the State. Taxable turnover = ₹18,00,000 + ₹1,20,000 = ₹19,20,000. GST = ₹19,20,000 × 1% = ₹19,200. CGST = ₹9,600 and SGST = ₹9,600. The ₹2,00,000 of notified-exempt goods is not included in this tax base, although it is considered for eligibility turnover.

Where it goes wrong. Applying the manufacturer's turnover basis to a trader instead of using taxable supplies of goods and services.

Authority. Section 10(1) of the CGST Act, 2017; Rule 7 of the CGST Rules, 2017

Question 3 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Determine the maximum value of non-restaurant services that Hillview Stationers can supply during FY 2026-27 under the second proviso to section 10(1). Also identify the consequence of completing the additional repair contract on 15 October 2026.

1. ₹5,00,000; the additional contract does not affect composition eligibility.
2. ₹6,80,000; eligibility continues because aggregate turnover is below ₹75,00,000.
3. ₹7,00,000; the option lapses on 15 October after services reach ₹7,10,000. (correct answer)
4. ₹7,50,000; services are restricted to the current-year turnover limit.

Answer: C — ₹7,00,000; the option lapses on 15 October after services reach ₹7,10,000.

Explanation. Permissible services = higher of 10% of preceding-year turnover in State or ₹5,00,000. Thus, higher of ₹70,00,000 × 10% = ₹7,00,000 and ₹5,00,000 is ₹7,00,000. Cumulative repair services become ₹6,80,000 + ₹30,000 = ₹7,10,000 on 15 October. The limit is exceeded by ₹10,000. The composition option therefore lapses from 15 October, notwithstanding aggregate turnover remaining below ₹75,00,000.

Where it goes wrong. Applying only the aggregate-turnover ceiling and ignoring the separate maximum value of non-restaurant services.

Authority. Second proviso to Section 10(1) of the CGST Act, 2017; Section 10(3) of the CGST Act, 2017; Section 2(112) of the CGST Act, 2017

Question 4 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Hillview exceeds its permissible marginal-services value on 15 October 2026. Under the withdrawal procedure, determine the last date for filing FORM GST CMP-04 and the deadline for furnishing the stock statement in FORM GST ITC-01, assuming withdrawal takes effect from 15 October 2026.

1. CMP-04 by 14 November and ITC-01 by 22 October 2026.
2. CMP-04 by 30 October and ITC-01 by 15 November 2026.
3. CMP-04 by 21 October and ITC-01 by 30 November 2026.
4. CMP-04 by 22 October and ITC-01 by 14 November 2026. (correct answer)

Answer: D — CMP-04 by 22 October and ITC-01 by 14 November 2026.

Explanation. A composition taxpayer who ceases to satisfy the conditions must file FORM GST CMP-04 within seven days of the event. Seven days from 15 October gives 22 October 2026. The stock statement in FORM GST ITC-01 must be furnished within thirty days from the date from which withdrawal takes effect. Counting thirty days from 15 October gives 14 November 2026. These are separate statutory deadlines.

Where it goes wrong. Interchanging the seven-day withdrawal intimation period with the thirty-day stock-statement period.

Authority. Rule 6 of the CGST Rules, 2017; Rule 44(4) of the CGST Rules, 2017; Section 10(3) of the CGST Act, 2017

Question 5 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Nandini Homeware Pvt. Ltd. is a registered trader dealing in household appliances and consumer products. It has registrations in Maharashtra and Goa under the same PAN. Its aggregate turnover for FY 2025-26, computed across both registrations, was ₹1,32,00,000, comprising taxable goods supplies of ₹1,02,00,000, goods exempted by notification of ₹20,00,000 and exports of ₹10,00,000. During FY 2026-27, both registrations make only intra-State outward supplies. The Maharashtra branch sells taxable appliances directly worth ₹24,00,000 and additionally sells taxable appliances worth ₹8,00,000 through a registered electronic commerce operator which collects TCS under section 52. It also sells notified-exempt but leviable goods worth ₹6,00,000. It purchases goods worth ₹5,00,000 from suppliers located in Gujarat. The Maharashtra branch has opted for composition levy, and the Goa branch has also opted for the same scheme. Nandini has not supplied services through an ECO. Separately, Saffron Diner LLP, a registered restaurant-service provider in Maharashtra, had aggregate turnover of ₹80,00,000 in FY 2025-26. It supplies only restaurant services, does not supply alcoholic liquor and has no notified-premises issue. Its restaurant turnover during the first quarter of FY 2026-27 is ₹12,00,000. Both businesses have submitted their composition intimations before commencement of FY 2026-27 and satisfy all other relevant eligibility conditions. The management also considers whether the ECO restriction applies to goods transactions in the same manner as services. Assume that all turnover figures relate to taxable supplies unless specifically stated otherwise.

Nandini Homeware Pvt. Ltd. has two GST registrations under the same PAN in Maharashtra and Goa. The Maharashtra registration wishes to pay tax under section 10(1), while the Goa registration proposes to remain under the normal levy. Determine whether the Maharashtra registration can independently opt for composition levy.

1. No; all registrations having the same PAN must opt for composition or normal levy uniformly. (correct answer)
2. Yes; every State registration can independently select its tax payment scheme.
3. Yes; only registrations having identical goods turnover must adopt a common scheme.
4. No; composition is available only to taxpayers having a single State registration.

Answer: A — No; all registrations having the same PAN must opt for composition or normal levy uniformly.

Explanation. The proviso to section 10(2) requires all registered persons having the same PAN to opt for composition levy. Nandini has two registrations, Maharashtra and Goa, under one PAN. Therefore, if the Goa registration continues under the normal scheme, the Maharashtra registration cannot independently avail composition. Number of registrations = 2; registrations required to opt uniformly = 2. A separate GSTIN does not create an independent composition election.

Where it goes wrong. Treating each GSTIN as an independent taxable person for determining the uniform PAN-level composition election.

Authority. Proviso to Section 10(2) of the CGST Act, 2017; Section 25 of the CGST Act, 2017

Question 6 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Assuming that both registrations of Nandini Homeware validly opt for composition and satisfy all conditions, calculate the total composition levy attributable to its Maharashtra taxable goods turnover. Direct taxable sales are ₹24,00,000 and taxable sales through the ECO are ₹8,00,000. Notified-exempt goods sales are ₹6,00,000.

1. ₹24,000, comprising ₹12,000 CGST and ₹12,000 SGST.
2. ₹32,000, comprising ₹16,000 CGST and ₹16,000 SGST. (correct answer)
3. ₹38,000, comprising ₹19,000 CGST and ₹19,000 SGST.
4. ₹44,000, comprising ₹22,000 CGST and ₹22,000 SGST.

Answer: B — ₹32,000, comprising ₹16,000 CGST and ₹16,000 SGST.

Explanation. Nandini is an other supplier, namely a trader. Under Rule 7, its effective rate is 1% on taxable supplies of goods and services in the State. Taxable turnover = ₹24,00,000 + ₹8,00,000 = ₹32,00,000. Composition levy = ₹32,00,000 × 1% = ₹32,000. CGST = ₹16,000 and SGST = ₹16,000. The ₹6,00,000 of notified-exempt goods remains relevant for aggregate turnover but not this trader's composition tax base.

Where it goes wrong. Including notified-exempt goods in the composition tax base of a trader.

Authority. Section 10(1) of the CGST Act, 2017; Rule 7 of the CGST Rules, 2017

Question 7 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Nandini sells taxable goods through an ECO required to collect TCS under section 52 and also purchases goods from Gujarat. All its outward supplies in FY 2026-27 are intra-State. Assuming the other eligibility conditions are met, determine the effect of these transactions on its composition eligibility.

1. Both transactions disqualify Nandini because every ECO sale and inter-State purchase is prohibited.
2. Only the inter-State inward purchase disqualifies Nandini under section 10(2)(c).
3. Neither transaction by itself disqualifies Nandini; intra-State goods sales through an ECO are permitted subject to the prescribed procedure. (correct answer)
4. The ECO transaction disqualifies Nandini, but the inter-State purchase is permitted.

Answer: C — Neither transaction by itself disqualifies Nandini; intra-State goods sales through an ECO are permitted subject to the prescribed procedure.

Explanation. The restriction on supplies through an ECO required to collect TCS applies to services, since the words 'goods or' were omitted from section 10(2)(d) with effect from 01.10.2023. Therefore, an intra-State sale of goods through an ECO does not automatically disqualify Nandini. Inter-State inward purchases are also permitted. However, the ECO must follow the prescribed procedure, including TCS collection and the restriction on inter-State goods supplies through it.

Where it goes wrong. Using the pre-1 October 2023 restriction on goods supplied through ECOs or confusing inter-State inward purchases with inter-State outward supplies.

Authority. Section 10(2)(c) and section 10(2)(d) of the CGST Act, 2017; Section 52 of the CGST Act, 2017; Finance Act, 2023, Section 137; Notification No. 36/2023-Central Tax, dated 04.08.2023

Question 8 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Saffron Diner LLP had aggregate turnover of ₹80,00,000 in FY 2025-26 and supplies restaurant services of ₹12,00,000 in the first quarter of FY 2026-27. It does not supply alcoholic liquor and satisfies all other composition conditions. Calculate its combined composition levy for the quarter.

1. ₹12,000, comprising CGST and SGST on the taxable supplies.
2. ₹60,000, being 5% of the restaurant turnover, split equally. (correct answer)
3. ₹1,20,000, being 10% of the restaurant turnover.
4. ₹24,000, being 2% of the restaurant turnover, split equally.

Answer: B — ₹60,000, being 5% of the restaurant turnover, split equally.

Explanation. Saffron Diner is a restaurant-service provider. Under Rule 7, the effective composition rate is 5%, comprising CGST at 2.5% and SGST at 2.5%. Tax = ₹12,00,000 × 5% = ₹60,000. CGST = ₹30,000 and SGST = ₹30,000. The preceding-year turnover of ₹80,00,000 is within the general ₹1.5 crore threshold, and the stated facts indicate that the remaining eligibility conditions are satisfied.

Where it goes wrong. Applying the 1% trader/manufacturer rate instead of the 5% restaurant composition rate.

Authority. Section 10(1) and section 10(2) of the CGST Act, 2017; Schedule II, paragraph 6(b) of the CGST Act, 2017; Rule 7 of the CGST Rules, 2017

Question 9 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. Vikramaditya Tech Services LLP, registered in Karnataka, provides software maintenance, technical consultancy and IT-support services. Its aggregate turnover during FY 2025-26 comprised taxable intra-State services of ₹42,00,000 and exempt services by way of extending loans, where consideration was represented entirely by interest, of ₹6,00,000. It has no other outward supplies or registrations under the same PAN. It is not eligible for the composition scheme under section 10(1) and section 10(2), since its principal activities consist of services other than restaurant services. Nevertheless, it satisfies the other conditions for the composition scheme under section 10(2A). During FY 2026-27, it makes taxable intra-State service supplies of ₹28,00,000 and taxable supplies of goods incidental to its service business of ₹4,00,000. It additionally earns ₹2,00,000 as interest on loans. It receives legal services from an individual advocate for ₹2,00,000 during September 2026, on which GST is payable under section 9(3). The LLP wishes to claim input tax credit of the GST paid under RCM against its composition liability. Separately, QuickFix Repairs, a registered service provider with preceding-year aggregate turnover of ₹36,00,000, supplies repair services through an electronic commerce operator required to collect TCS under section 52. It proposes to opt for section 10(2A) on the basis that its turnover is below ₹50,00,000. Vikramaditya also wishes to know whether a composition taxpayer must pay RCM on inward supplies and whether it can collect GST separately from its customers. Assume all supplies are intra-State, the LLP is neither a casual taxable person nor a non-resident taxable person, and the applicable composition rate under section 10(2A) is 6%.

Determine whether Vikramaditya Tech Services LLP can opt for composition levy under section 10(2A). Its preceding-year service turnover was ₹42,00,000 and interest income from loans was ₹6,00,000. It is not eligible under section 10(1) and section 10(2), and all other conditions specified in section 10(2A) are fulfilled.

1. Ineligible, because aggregate turnover including interest is ₹48,00,000 and it supplies services.
2. Ineligible, because section 10(2A) is restricted to manufacturers and traders.
3. Eligible, because interest income is excluded and relevant turnover is ₹42,00,000. (correct answer)
4. Ineligible, because its turnover must be below ₹40,00,000.

Answer: C — Eligible, because interest income is excluded and relevant turnover is ₹42,00,000.

Explanation. The section 10(2A) preceding-year threshold is ₹50,00,000. Interest income from extending loans is excluded where consideration is represented by interest or discount. Thus, relevant turnover = ₹42,00,000, not ₹42,00,000 + ₹6,00,000 = ₹48,00,000. Since ₹42,00,000 does not exceed ₹50,00,000 and the LLP is not eligible under section 10(1) and section 10(2), it can opt under section 10(2A), subject to the other statutory conditions.

Where it goes wrong. Including exempt interest income from loans in the turnover calculation for section 10(2A) eligibility.

Authority. Section 10(2A) of the CGST Act, 2017; Section 2(6) of the CGST Act, 2017; Explanation 1 to Section 10 of the CGST Act, 2017

Question 10 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Compute the composition levy payable by Vikramaditya Tech Services LLP for FY 2026-27 under section 10(2A). It makes taxable intra-State services of ₹28,00,000, taxable goods supplies of ₹4,00,000 and earns ₹2,00,000 as interest on loans. Assume that the interest income qualifies for the statutory exclusion.

1. ₹1,68,000, being 6% of taxable service turnover alone.
2. ₹1,92,000, comprising ₹96,000 CGST and ₹96,000 SGST. (correct answer)
3. ₹2,04,000, including the interest income in the turnover base.
4. ₹1,92,000 as CGST and another ₹1,92,000 as SGST.

Answer: B — ₹1,92,000, comprising ₹96,000 CGST and ₹96,000 SGST.

Explanation. The effective composition rate under section 10(2A) is 6% of turnover of supplies of goods and services in the State. Taxable supplies = ₹28,00,000 + ₹4,00,000 = ₹32,00,000. Interest income of ₹2,00,000 is excluded. Composition tax = ₹32,00,000 × 6% = ₹1,92,000. CGST = 3% × ₹32,00,000 = ₹96,000, and SGST = ₹96,000.

Where it goes wrong. Applying 6% only to services and excluding taxable goods supplies made by the same section 10(2A) taxpayer.

Authority. Section 10(2A) of the CGST Act, 2017; Rule 7 of the CGST Rules, 2017; Explanation 2 to Section 10 of the CGST Act, 2017

Question 11 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

QuickFix Repairs has preceding-year aggregate turnover of ₹36,00,000 and supplies repair services through an ECO required to collect TCS under section 52. It proposes to opt for section 10(2A), arguing that its turnover is below ₹50,00,000. Which conclusion is correct?

1. It is eligible because the turnover condition is the only restriction under section 10(2A).
2. It is eligible because the ECO collects TCS instead of the service provider.
3. It is ineligible because services supplied through the specified ECO are a statutory disqualification. (correct answer)
4. It is eligible because the ECO restriction applies only to supplies of goods.

Answer: C — It is ineligible because services supplied through the specified ECO are a statutory disqualification.

Explanation. QuickFix satisfies the turnover condition because ₹36,00,000 is less than ₹50,00,000. However, section 10(2A)(c) independently disqualifies a person engaged in supplying services through an ECO required to collect TCS under section 52. The deletion of the words 'goods or' from the relevant restriction does not remove the restriction on services. Accordingly, QuickFix cannot opt for section 10(2A), notwithstanding its low turnover.

Where it goes wrong. Treating satisfaction of the turnover ceiling as sufficient for eligibility while ignoring the independent ECO-service restriction.

Authority. Section 10(2A)(c) of the CGST Act, 2017; Section 52 of the CGST Act, 2017; Finance Act, 2023, Section 137

Question 12 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Vikramaditya receives legal services from an individual advocate for ₹2,00,000, on which GST is payable under RCM at 18%. Its section 10(2A) composition levy is ₹1,92,000. Determine its RCM obligation and whether the GST paid under RCM can be claimed as input tax credit.

1. RCM is nil because composition taxpayers are not liable for inward GST.
2. RCM is ₹36,000, and the amount is eligible as input tax credit.
3. RCM is ₹18,000, and the remaining tax is included in composition levy.
4. RCM is ₹36,000 separately payable, with no input tax credit available. (correct answer)

Answer: D — RCM is ₹36,000 separately payable, with no input tax credit available.

Explanation. Legal services supplied by an individual advocate to a business entity attract RCM. GST = ₹2,00,000 × 18% = ₹36,000, comprising CGST ₹18,000 and SGST ₹18,000. Rule 5 requires a composition taxpayer to pay applicable RCM on inward supplies. Section 10(4) prohibits input tax credit. Thus, the LLP must discharge the ₹36,000 RCM separately from its ₹1,92,000 composition levy, with no credit for the RCM amount.

Where it goes wrong. Assuming that the composition taxpayer's absence of input tax credit also removes its liability to pay RCM.

Authority. Section 9(3) of the CGST Act, 2017; Section 10(4) of the CGST Act, 2017; Rule 5(1)(d) of the CGST Rules, 2017; Notification No. 13/2017-Central Tax (Rate), Sl. No. 2

Question 13 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Shivam Furnishings has GST registrations in two States under one PAN. Its preceding-year outward supplies include taxable supplies of ₹86,00,000, goods exempted by notification of ₹18,00,000, exports of ₹7,00,000 and inter-State outward supplies of ₹9,00,000. It also has inward RCM purchases of ₹4,00,000, GST paid of ₹3,00,000 and exempt interest income from loans of ₹2,00,000. Calculate its aggregate turnover for section 10 eligibility and determine whether the general ₹1.5 crore threshold is satisfied.

1. ₹1,20,00,000; eligible on the turnover condition. (correct answer)
2. ₹1,24,00,000; ineligible on the turnover condition.
3. ₹1,22,00,000; eligible only in the State having the higher turnover.
4. ₹1,29,00,000; ineligible due to inward RCM purchases.

Answer: A — ₹1,20,00,000; eligible on the turnover condition.

Explanation. Aggregate turnover = ₹86,00,000 + ₹18,00,000 + ₹7,00,000 + ₹9,00,000 = ₹1,20,00,000. Inward RCM purchases of ₹4,00,000 and GST of ₹3,00,000 are excluded. Qualifying interest income from loans of ₹2,00,000 is also excluded. Turnover is computed across India for registrations under the same PAN. Since ₹1,20,00,000 is below ₹1,50,00,000, the turnover condition is satisfied.

Where it goes wrong. Calculating the threshold separately for individual GSTINs instead of aggregating all outward supplies under the same PAN.

Authority. Section 2(6) of the CGST Act, 2017; Section 10(1) of the CGST Act, 2017; Explanation 1 to Section 10 of the CGST Act, 2017

Question 14 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan Retailers operates only in Assam and has aggregate turnover of ₹1,10,00,000 during FY 2025-26. It is otherwise eligible for composition levy under section 10(1), makes no inter-State outward supplies and is not a manufacturer of notified goods. Although Assam is a Special Category State, determine the applicable preceding-year threshold by distinguishing it from the eight States having the reduced limit.

1. ₹75,00,000, because every Special Category State has the reduced threshold.
2. ₹1,50,00,000, since Assam is not among the eight States having the reduced limit. (correct answer)
3. ₹50,00,000, because the statutory limit under section 10(1) is unchanged.
4. ₹1,00,00,000, because Assam has a separate intermediate threshold.

Answer: B — ₹1,50,00,000, since Assam is not among the eight States having the reduced limit.

Explanation. The reduced ₹75,00,000 limit applies to eight specified States: Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura and Uttarakhand. Assam, Himachal Pradesh and Jammu and Kashmir have the general ₹1,50,00,000 limit. Therefore, Assam's applicable threshold is ₹1,50,00,000. Aryan's turnover of ₹1,10,00,000 is below that limit by ₹40,00,000, so it satisfies the turnover condition.

Where it goes wrong. Assuming that every State classified as a Special Category State has the reduced composition threshold.

Authority. Section 10(1) of the CGST Act, 2017; Notification No. 14/2019-Central Tax, dated 07.03.2019

Question 15 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered wholesale trader in Maharashtra purchases manufactured tobacco products from registered manufacturers and resells them without undertaking manufacture or processing. Its aggregate turnover in the preceding financial year is ₹1,20,00,000. It has no inter-State outward supplies, non-leviable supplies or services through an ECO collecting TCS. Determine whether the specific notified-manufacturer restriction under section 10(2)(e) prevents it from opting for composition.

1. Ineligible, because every transaction involving tobacco products is prohibited.
2. Ineligible, because trading in tobacco is treated as manufacture for section 10.
3. Eligible on this issue, because the restriction concerns manufacture of notified goods, not ordinary trading. (correct answer)
4. Eligible only if its turnover is reduced below ₹50,00,000.

Answer: C — Eligible on this issue, because the restriction concerns manufacture of notified goods, not ordinary trading.

Explanation. The notified-goods restriction applies to a person engaged in manufacturing specified goods such as tobacco products. The taxpayer described is a trader who purchases finished goods and resells them without manufacture. Therefore, the specific manufacturer restriction does not disqualify it. Its preceding-year turnover is ₹1,20,00,000, which is below ₹1,50,00,000. It may opt for composition if all other eligibility and procedural conditions are fulfilled.

Where it goes wrong. Treating a trader of tobacco products as a manufacturer of notified goods merely because the products fall within the notified category.

Authority. Section 10(2)(e) of the CGST Act, 2017; Rule 5(1)(e) of the CGST Rules, 2017; Notification No. 14/2019-Central Tax, dated 07.03.2019

Question 16 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Nandini Traders has preceding-year turnover of ₹45,00,000. During FY 2026-27, it proposes to sell taxable electronic goods and goods exempted by a specific GST notification. It also proposes to supply alcoholic liquor for human consumption as a separate business activity. Assuming all the stated products are supplied within the State, determine the effect of these activities on eligibility under section 10(2)(b).

1. It is eligible because both notified-exempt goods and alcoholic liquor are exempted supplies.
2. It is eligible because the aggregate turnover remains below ₹50,00,000.
3. It is ineligible only if the notified-exempt electronic goods exceed 10% of turnover.
4. It is ineligible because alcoholic liquor is not leviable under the CGST Act. (correct answer)

Answer: D — It is ineligible because alcoholic liquor is not leviable under the CGST Act.

Explanation. Notified-exempt supplies that remain leviable under the GST law do not, merely by being exempted, trigger section 10(2)(b). However, alcoholic liquor for human consumption is outside the GST levy. Section 10(2)(b) disqualifies a person engaged in making supplies of goods or services not leviable under the Act. Thus, despite turnover of ₹45,00,000 being below the ordinary threshold, Nandini cannot opt for section 10(1) while making the stated alcoholic-liquor supply.

Where it goes wrong. Equating goods exempted by notification with goods that are not leviable to tax under the CGST Act.

Authority. Section 10(2)(b) of the CGST Act, 2017; Section 2(47) of the CGST Act, 2017; Section 9(1) of the CGST Act, 2017

Question 17 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Aryan Manufacturers is an eligible manufacturer under section 10(1). During the quarter, its turnover in the State comprises taxable manufactured goods of ₹30,00,000 and goods exempted by notification of ₹5,00,000. It has also received inward supplies under RCM worth ₹2,00,000 and paid GST of ₹1,00,000. Calculate its combined composition levy at the applicable manufacturer rate.

1. ₹35,000, comprising CGST ₹17,500 and SGST ₹17,500. (correct answer)
2. ₹30,000, comprising CGST ₹15,000 and SGST ₹15,000.
3. ₹36,000, comprising CGST ₹18,000 and SGST ₹18,000.
4. ₹70,000, comprising CGST ₹35,000 and SGST ₹35,000.

Answer: A — ₹35,000, comprising CGST ₹17,500 and SGST ₹17,500.

Explanation. Manufacturers other than manufacturers of notified goods pay composition levy at the effective rate of 1% of turnover in the State. Turnover in State = ₹30,00,000 + ₹5,00,000 = ₹35,00,000. Total levy = ₹35,00,000 × 1% = ₹35,000. CGST = ₹17,500 and SGST = ₹17,500. Inward RCM purchases and GST paid are not included in turnover in the State for this calculation.

Where it goes wrong. Using only taxable turnover for a manufacturer, whereas the manufacturer composition rate applies to turnover in the State.

Authority. Section 10(1) of the CGST Act, 2017; Section 2(112) of the CGST Act, 2017; Rule 7 of the CGST Rules, 2017

Question 18 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered trader engaged in taxable goods supplies opts for composition levy under section 10(1). Its preceding-year turnover in the State was ₹38,00,000. During the current year, it supplies technical support services worth ₹4,70,000 and earns exempt interest income of ₹40,000 by extending loans. Determine the maximum marginal-services limit and whether the trader remains eligible under the second proviso to section 10(1).

1. Limit ₹3,80,000; services exceed the limit by ₹90,000.
2. Limit ₹5,00,000; services remain within the limit by ₹30,000. (correct answer)
3. Limit ₹4,70,000; services exhaust the entire permitted amount.
4. Limit ₹8,40,000; services and interest must both be included.

Answer: B — Limit ₹5,00,000; services remain within the limit by ₹30,000.

Explanation. The permissible value is the higher of 10% of preceding-year turnover in State or ₹5,00,000. Ten per cent of ₹38,00,000 is ₹3,80,000. The higher amount is ₹5,00,000. Interest income on loans is excluded when determining this limit. Technical services of ₹4,70,000 are therefore within the limit by ₹5,00,000 − ₹4,70,000 = ₹30,000. The trader may continue composition, subject to other conditions.

Where it goes wrong. Applying the 10% calculation without comparing it with the statutory ₹5,00,000 minimum or including exempt interest income.

Authority. Second proviso to Section 10(1) of the CGST Act, 2017; Explanation to Section 10 of the CGST Act, 2017

Question 19 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Vikramaditya Consumer Ltd. has two GST registrations under the same PAN. Its Maharashtra business satisfies all conditions for section 10(1), while its Gujarat business independently satisfies the turnover threshold but decides to remain under the normal levy. Determine whether the Maharashtra registration can continue under composition while the Gujarat registration pays normal GST.

1. Yes, because each GSTIN is treated as an independent unit for section 10.
2. Yes, provided both registrations have aggregate turnover below ₹1.5 crore.
3. No, because all registrations under the same PAN must adopt composition uniformly. (correct answer)
4. No, because composition is unavailable to a person having registrations in multiple States.

Answer: C — No, because all registrations under the same PAN must adopt composition uniformly.

Explanation. Vikramaditya has two registrations under one PAN: Maharashtra and Gujarat. The proviso to section 10(2) requires all such registered persons to opt for composition levy. If Maharashtra opts for composition but Gujarat continues under normal levy, the uniformity condition is not fulfilled. Number of registrations = 2; registrations required to opt uniformly = 2. Multiple-State registration itself is not prohibited, but different tax schemes under one PAN are not permitted.

Where it goes wrong. Assuming that State-wise GST registration permits separate composition and regular levy elections under a common PAN.

Authority. Proviso to Section 10(2) of the CGST Act, 2017; Section 25 of the CGST Act, 2017

Question 20 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered trader proposes to sell goods through an ECO collecting TCS under section 52 and also provide repair services through the same ECO. Both supplies are intra-State. The taxpayer otherwise satisfies the section 10(1) turnover condition. Considering the amendment effective from 1 October 2023, determine the eligibility consequence.

1. Both goods and services through an ECO are permitted without any additional condition.
2. Both supplies through the ECO disqualify the trader under section 10(2)(d).
3. Only goods through the ECO disqualify the trader, while services are permitted.
4. Goods through the ECO are permitted subject to procedure, but services through the TCS ECO disqualify the trader. (correct answer)

Answer: D — Goods through the ECO are permitted subject to procedure, but services through the TCS ECO disqualify the trader.

Explanation. From 01.10.2023, the restriction in section 10(2)(d) relates to services supplied through an ECO required to collect TCS. The words 'goods or' were omitted from that provision. Accordingly, goods supplied through an ECO are permitted subject to the notified procedure, including TCS and the restriction on inter-State supplies through that ECO. Repair services supplied through the specified ECO remain a disqualification for composition eligibility.

Where it goes wrong. Applying the original unamended section 10(2)(d) instead of distinguishing supplies of goods from supplies of services.

Authority. Section 10(2)(d) of the CGST Act, 2017; Finance Act, 2023, Section 137; Notification No. 36/2023-Central Tax, dated 04.08.2023

Question 21 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered trader under composition has taxable goods turnover of ₹8,00,000 for a tax period and purchases inputs carrying GST of ₹18,000. Its applicable combined composition rate is 1%. The accountant proposes to issue a regular tax invoice, collect 1% GST from customers and utilise the ₹18,000 input tax credit against the composition levy. Which compliance treatment is correct?

1. Issue a bill of supply, collect no GST separately and claim no ITC; composition levy is ₹8,000. (correct answer)
2. Issue a tax invoice, collect ₹8,000 from customers and claim the ₹18,000 ITC.
3. Issue a bill of supply, collect ₹8,000 separately and claim ₹18,000 ITC.
4. Issue a tax invoice, collect no GST and claim ₹8,000 as input tax credit.

Answer: A — Issue a bill of supply, collect no GST separately and claim no ITC; composition levy is ₹8,000.

Explanation. Composition levy = ₹8,00,000 × 1% = ₹8,000. Section 10(4) prohibits a composition taxpayer from collecting tax separately from recipients and from claiming ITC. Thus, eligible ITC against the ₹18,000 input GST is nil, and the ₹8,000 composition levy remains payable. The supplier must issue a bill of supply bearing the prescribed composition declaration and display the composition status on the prescribed notices and signboards.

Where it goes wrong. Assuming that composition tax is a regular output-tax charge that can be collected from customers and offset against input tax credit.

Authority. Section 10(4) of the CGST Act, 2017; Rule 5(1)(f) and Rule 5(1)(g) of the CGST Rules, 2017

Question 22 · 2 marks · Taxation - GST Ch 03: Charge Composition · medium

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

Smt. Anuradha Sen, who was previously unregistered, applies for GST registration on 10 August 2026 and selects composition levy in Part B of FORM GST REG-01. Her registration certificate specifies an effective date of 1 August 2026. Separately, an already registered regular taxpayer wishes to switch to composition from 1 April 2027. Which statement correctly describes the respective intimation requirements?

1. Both taxpayers must submit their composition intimations within thirty days after the relevant commencement date.
2. Anuradha's option is effective from 1 August; the existing taxpayer must intimate before 1 April 2027. (correct answer)
3. Anuradha's option is effective only from 10 August; the existing taxpayer may intimate after April.
4. Both taxpayers can elect composition only through FORM GST CMP-04.

Answer: B — Anuradha's option is effective from 1 August; the existing taxpayer must intimate before 1 April 2027.

Explanation. An unregistered person applying for registration may select composition in Part B of FORM GST REG-01. The option becomes effective from the effective date of registration, which is 1 August 2026 in Anuradha's case. An already registered person must furnish the prescribed composition intimation before commencement of the financial year for which the scheme is selected. Therefore, the existing taxpayer must file before 1 April 2027.

Where it goes wrong. Applying the existing-registered-person deadline to a new registration applicant or using the application submission date instead of the effective registration date.

Authority. Rule 3 of the CGST Rules, 2017; Rule 4 of the CGST Rules, 2017; FORM GST REG-01

Question 23 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A composition taxpayer has total CGST and SGST liability of ₹72,000 for the quarter October to December 2026. Under Rule 62, the corresponding FORM GST CMP-08 and payment are due on 18 January 2027. The taxpayer deposits the full amount on 28 January 2027. Assuming simple interest at 18% per annum and a 365-day year, calculate the total interest payable for the delay.

1. ₹284.93, calculated for eight days at 18%.
2. ₹296.71, calculated for nine days at 18%.
3. ₹355.07, calculated for ten days at 18%. (correct answer)
4. ₹426.08, calculated for twelve days at 18%.

Answer: C — ₹355.07, calculated for ten days at 18%.

Explanation. CMP-08 payment is due by 18 January 2027. Delay runs from 19 January to 28 January, amounting to 10 days. Interest = ₹72,000 × 18% × 10/365 = ₹355.07, rounded to paise. The principal includes both CGST and SGST components. Section 50(1) requires interest on tax remaining unpaid after the prescribed due date, calculated at the notified annual rate.

Where it goes wrong. Counting the due date as the first day of delay or calculating interest on only one component of the composition levy.

Authority. Section 50(1) of the CGST Act, 2017; Rule 62 of the CGST Rules, 2017; Notification No. 13/2017-Central Tax, dated 28.06.2017

Question 24 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered casual taxable person has preceding-year aggregate turnover of ₹12,00,000 and proposes to opt for composition levy under section 10(1) for FY 2026-27. Its outward supplies are exclusively intra-State taxable goods, and it has no other registration under its PAN. Determine whether it can opt for the composition scheme, assuming all turnover-related conditions are otherwise satisfied.

1. Eligible, because ₹12,00,000 is below the applicable ₹1.5 crore threshold.
2. Eligible, because composition is available to every registered person below the threshold.
3. Eligible, provided it files FORM GST CMP-02 before commencement of the year.
4. Ineligible, because a casual taxable person is expressly excluded from composition. (correct answer)

Answer: D — Ineligible, because a casual taxable person is expressly excluded from composition.

Explanation. The preceding-year turnover of ₹12,00,000 is within the general ₹1,50,00,000 limit. However, section 10(2)(f) expressly excludes casual taxable persons and non-resident taxable persons. Rule 5(1)(a) also requires a person exercising the composition option not to be a casual or non-resident taxable person. Therefore, satisfying the turnover test and making intra-State supplies do not cure the disqualification arising from casual taxable person status.

Where it goes wrong. Treating the turnover threshold as the sole eligibility requirement and ignoring the separate exclusion for casual taxable persons.

Authority. Section 10(2)(f) of the CGST Act, 2017; Rule 5(1)(a) of the CGST Rules, 2017

Question 25 · 2 marks · Taxation - GST Ch 03: Charge Composition · hard

Scenario. During Tax Year 2026-27, a registered taxpayer is evaluating statutory compliance, computation of taxable income, and eligible tax deductions in accordance with the provisions of the Income-tax Act, 2025 and applicable rules for the May 2027 examination.

A registered taxpayer wrongly pays composition tax despite being ineligible under section 10 because of inter-State outward supplies. Proceedings under section 10(5) result in determination of short-paid tax of ₹1,20,000. There is no fraud or wilful misstatement, and the taxpayer does not settle the liability within sixty days of the show-cause notice. Under section 74A(5)(i), calculate the applicable penalty, comparing 10% of tax due with the statutory minimum.

1. ₹10,000, because the statutory minimum always overrides the percentage calculation.
2. ₹9,000, being 10% of the determined tax due.
3. ₹1,20,000, being a penalty equal to the entire short-paid tax.
4. ₹12,000, being higher of 10% of tax due and ₹10,000. (correct answer)

Answer: D — ₹12,000, being higher of 10% of tax due and ₹10,000.

Explanation. Section 10(5) makes an ineligible person who paid composition tax liable to the applicable tax and penalty determination provisions. For a non-fraud case, section 74A(5)(i) prescribes penalty of 10% of tax due or ₹10,000, whichever is higher. Ten per cent of ₹1,20,000 = ₹12,000. Comparing ₹12,000 with ₹10,000, the penalty is ₹12,000. The sixty-day settlement relief is unavailable because payment was not made within that period.

Where it goes wrong. Applying the ₹10,000 minimum irrespective of the 10% calculation, or assuming that the non-fraud nature automatically removes penalty.

Authority. Section 10(5) of the CGST Act, 2017; Section 74A(5)(i) of the CGST Act, 2017; Section 74A(8) of the CGST Act, 2017