Satyanarayan Kabra
Composition Scheme under GST is not beneficial for traders who are dealing in products covered by GST slab rate of 5%. Small traders opt for Composition Scheme only to avoid GST compliances and heavy charges payable to Chartered Accountants. Following examples clearly show the losses for different purchase and sale values. The sale values have been arrived at as per the presumptive scheme of 8% profit under section 44AD of Income Tax Act. Composition limit has been further increased from 1 crore to 1.50 crores subject to required amendment.
| Purchase value | 50,00,000 |
| GST 5% | 2,50,000 |
| Total Rs. | 52,50,000 |
| Sale value | 57,06,522 |
| Profit 8% | 4,56,522 |
| Composition tax : 1% of 57,06,522 | 57,065 |
| Purchase value | 50,00,000 |
| GST 5% | 2,50,000 |
| Total Rs. | 52,50,000 |
| Sale value | 54,34,783 |
| Add GST 5% | 2,71,739 |
| Total Rs. | 57,06,522 |
| Tax collected | 2,71,739 |
| Less Input Tax Credit | 2,50,000 |
| Balance Tax payable | 21,739 |
| C. Loss to Composition Dealer:
Rs. 57,065- 21,739= |
35,326 |
| Purchase value | 70,00,000 |
| GST 5% | 3,50,000 |
| Total Rs. | 73,50,000 |
| Sale value | 79,89,130 |
| Profit 8% | 6,39,130 |
| Composition tax:
1% of 79,89,130 |
79,891 |
| Purchase value | 70,00,000 |
| GST 5% | 3,50,000 |
| Total Rs. | 73,50,000 |
| Sale value | 76,08,695 |
| Add GST 5% | 3,80,435 |
| Total Rs. | 79,89,130 |
| Tax collected | 3,80,435 |
| Less Input Tax Credit | 3,50,000 |
| Balance tax payable | 30,435 |
| C. Loss to Composition Dealer:
Rs. 79,891- 30,435= |
49,456 |
A. Composition tax payable by dealer who issues Bill of Supply :
| Purchase value | 1,00,00,000 |
| GST 5% | 5,00,000 |
| Total Rs. | 1,05,00,000 |
| Sale value | 1,14,13,043 |
| Profit 8% | 9,13,043 |
| Composition tax:
1% of 1,14,13,043 |
1,14,130 |
B. Tax payable by dealer who issues Tax Invoice :
| Purchase value | 1,00,00,000 |
| GST 5% | 5,00,000 |
| Total Rs. | 1,05,00,000 |
| Sale value | 1,08,69,565 |
| Add GST 5% | 5,43,478 |
| Total Rs. | 1,14,13,043 |
| Tax collected | 5,43,478 |
| Less Input Tax Credit | 5,00,000 |
| Balance tax payable | 43,478 |
| C. Loss to Composition Dealer:
Rs. 1,14,130- 43,478= |
70,652 |
Example No. 4
| Purchase value | 1,30,00,000 |
| GST 5% | 6,50,000 |
| Total Rs. | 1,36,50,000 |
| Sale value | 1,48,36,957 |
| Profit 8% | 11,86,957 |
| Composition tax:
1% of 1,48,36,957 |
1,48,370 |
| Purchase value | 1,30,00,000 |
| GST 5% | 6,50,000 |
| Total Rs. | 1,36,50,000 |
| Sale value | 1,41,30,435 |
| Add GST 5% | 7,06,522 |
| Total Rs. | 1,48,36,957 |
| Tax collected | 7,06,522 |
| Less Input Tax Credit | 6,50,000 |
| Balance tax payable | 56,522 |
| C. Loss to Composition Dealer:
Rs. 1,48,370- 56,522= |
91,848 |
A REGD.PERSON IN GST AS A COMPOSISITION SCHEME WHOS INPUTS ARE 98%NILRATED OR EXEMPTED &WHO IS A PROSESSOR/MANUFACTURER&TRADER ALSO DEALING RETAIL/WHOLESALE OF THOSE INPUTS NIL RATED/EXEMPTED HAS TO PAY COMPOSITE TAX OF 1% ON ALL SUPPLIES OR TAXABLE SUPPLIES ONLY?& WHAT ABOUT THE INPUTS IF PURCHASED FROM AGRICULTURIST HAVING 0%OR NIL RATED SUPPLY USED IN MANUFACTURE EG;-LIVE TREES/FIRE WOOD USED IN RAW WOODEN FURNITURE MAKING&WOODEN PRODUCTS SINCE LIVE TREES OF HARD WOOD LIKE NEEM,TALLI ETC ARE NIL RATED UNDER CHAPTER 06&FIRE WOOD IN HSN-4401.PL.
Absolutely true. Based on the principle that consumer pays the same total price to normal dealer or to composite dealer, the normal registered dealer is benefited compared to composite dealer when the tax rate is low or when the profit rate is low. As soon as either the tax rate or profit rate starts increasing, the comparative benefit starts reducing. The break-even point comes at 12.5%Tax Rate if 8% profit rate is taken. If tax rate is retained at 5%, the break-even point comes on a profit rate of 20%. Thereafter it is beneficial for composite dealer.
Composition Scheme is also not beneficial for small retailers or milk distributors. The small retailers dealing with wheat , rice etc which is nil rated 70% of business is dealing with rated or exempted of goods but tax payable at the rate of 1% of aggregate turnover .
milk distributor is also facing the same problem .his 98% business is exempted but the dairy agency providing some scheme such as Rs.15000/- p..m of Dahi, Paneer as a free sample but when he sold the same goods to ratailer is applicable for tax. and when total turnover is aggregate of nil rated as well as taxable.