prpri Confusion or Composition Scheme; Under GST! Confusion or Composition Scheme; Under GST!

CA Umesh Sharma

CA Umesh Sharma

Arjuna (Fictional Character): Krishna, For which reasons, Composition Scheme under the GST has been brought?

Krishna (Fictional Character): Arjuna, For Small taxpayers, it was very difficult to comply with provisions of Act and so many rules. To pay tax on normal rates was also difficult for them. Hence, the government has introduced the concept of Composition Scheme. There are some changes already made and some changes are going on in composition scheme, such a complicated and confusing situation this is.

 Arjuna: Krishna, Who can opt for composition scheme?

Krishna: Arjuna, A taxpayer whose turnover is below Rs 1 crore can opt in for Composition Scheme. In case of specified states, the limit is Rs 75 lakh. In the 23rd meeting held by GST council on 10th November, the decision was taken that the limit of turnover for registration under Composition will be increased upto Rs. 2 Crore. But notification relating to that is not issued yet.

Arjuna: Krishna, what are the tax rates applicable to Composition Dealer?

Krishna: Arjuna, under the composition scheme, CGST and SGST together 2% of the turnover in case of a manufacturer and 5% of the services provided in case of a hotel owner and 1% of the turnover in case of others is charged. In the recent meeting, rates under composition scheme also discussed. In that 1% rate was recommended for both manufacturer and retailers but still the notification relating to that is not issued.

Arjuna: Krishna, What are the returns to be filed by a composition dealer?

Krishna: Arjuna, Composition dealers will have to file quarterly returns. A dealer is required to file a quarterly return in Form GSTR-4 by 18th of the month after the end of the quarter. . Also, an annual return GSTR-9A has to be filed by 31st December of next financial year. But due to technical difficulties, the due date of filing return for first quarter is extended from 18th October to 24th December.

Arjuna: Krishna, what are the limitations under the composition scheme?

Krishna: Arjuna, following are the limitations under the composition scheme:

1. No Credit of Input Tax for composition dealers

2. Composition dealers cannot do Inter-state business

3. Pay tax from own pocket

4. Strict Penal provisions

5. Supplier of services other than restaurant related services cannot opt for Composition scheme

6. The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business and on every bill of supply issued by him.

Arjuna: Krishna, what lesson the taxpayer should take from this?

Krishna: Arjuna, there is an option for small taxpayer to opt for Composition scheme to have lesser compliance but there are so many problems relating to that. Input tax credit also not available for them. Further as ITC is not available if purchase from Composition Dealer, other taxpayers do not prefer to purchase from them. Because of that, composition dealers are in dilemma that whether they are composition dealer or confusing dealer?

Author Bio

Qualification: CA in Practice
Company: R.B. Sharma and Co
Location: Aurangabad, Maharashtra, India
Member Since: 27 Jan 2018 | Total Posts: 331
1. Vice-Chairmen of WIRC of ICAI for the year 2015-2021. 2. Youngest Chairman of Aurangabad Branch of WIRC of ICAI in 2002. 3. Author of Popular Tax articles series based on Krishna and Arjuna conversation i.e “KARNITI” published in Lokmat on every Monday. Till date 335+ weekly articles ha View Full Profile

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  1. Mohammed Dhilawala-Articled Assistant says:

    GST paid on RCM for URD purchases by Composition Tax Payer,whether he can avail the credit of tax paid by him for URD Purchases under RCM??

  2. RAJAGOPAL says:

    GST. A- dealer comes under composition scheme and B- dealer comes under normal scheme. Both buys goods from same source Rs.100000 loading with GST say 10000- total cost comes to Rs.110000
    Assume the selling price is Rs.1,20,000 (MRP). B will be the selling at 120000+GST 12000= He will getting Rs.132000. Paying Rs.110000 to supplier and 2000 as GST. The net benefit Rs.20000 ie the difference between 120000 and 100000
    But A will be selling at Rs.120000(mrp) A pays 1200 as GST under composition scheme. His cost will be Rs.100000+10000+1200= Rs111200. Net benefit Rs.8800
    Now judge the composition scheme disadvantage in case of B2B sales
    The situation is different in case of ultimate sales to consumer.
    He will prefer to buy from A because he can’t get credit for gst if he buys from B.
    It is unfortunate that A can’t sell more than MRP. So this is the reason, Govt is trying to bring the GST as a part of MRP.
    This MRP requirement was brought to save the consumers from exploitation. But the purpose is defeated because the Govt had not prescribed the method to fix MRP. So free fixing of MRP and dual MRP are going on. Anti profiting for all goods and services by a law is the solution to save the consumers which no Govt will dare to do it

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August 2021