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.

Example No. 1
A. Composition tax payable by dealer who issues Bill of Supply :
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
B. Tax payable by dealer who issues Tax Invoice :
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
Example No. 2
A. Composition tax payable by dealer who issues Bill of Supply :
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
B. Tax payable by dealer who issues Tax Invoice :
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
Example No. 3

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

A. Composition tax payable by dealer who issues Bill of Supply :
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
B. Tax payable by dealer who issues Tax Invoice :
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
This is very clear from the above examples that Composition Scheme is not beneficial for those who are trading in products covered by the GST slab rate of 5%. Therefore, traders are required to opt for Composition Scheme carefully taking into consideration the above facts.

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3 responses to “Composition Scheme under GST not beneficial for traders”

  1. O. M. JAIN says:

    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.

  2. NITIN says:

    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.

    • O. M. JAIN says:

      Now, there will not be any extra tax on composite dealers. Composite dealers will not be subjected to tax on NIL/Zero rated or exempted goods.

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