Another important provision under GST (Goods and Service Tax) which is all set to roll out in July 1, 2017 is composition Scheme. The main aim of composition Scheme is to minimize the compliances of Startups & small and medium Enterprises (SMEs), unlike Regular dealer. Let’s understand with an illustration:
| Under Composition Scheme | |
| Purchase | 50,000 |
| VAT@5% | 2,500 |
| Dealer Cost | 52,500 |
| Margin | 5,250 |
| Sales Price | 57,750 |
| VAT | 0 |
| Customer Price | 57,750 |
| Tax payable @1% on Turnover (INR 66,000) | 577.50 |
From above illustration, following important points can be concluded:
- Input Tax Credit (ITC) will not be allowed to composite dealer (it is added to the cost).
- It is not allowed to collect tax.
| As a Regular Dealer | |
| Purchase | 50,000 |
| VAT@5% | 2,500 |
| Dealer Cost | 50,000 |
| Margin | 5,000 |
| Sales Price | 55,000 |
| VAT@5% | 2,750 |
| Customer Price | 57,750 |
| Tax payable
Output VAT- 2750 Input VAT- 2500 |
250 |
From above illustration, following important points can be concluded:
- Input Tax Credit (ITC) will be allowed to composite dealer (it is added to the cost).
- It is allowed to collect tax & issue tax invoice.
So, from above, we can easily make out the difference between the composite dealer and the regular dealer.
Now, let’s have a look on its applicability:
| Places | Trigger limit
(Aggregate turnover*) |
| North East India + Sikkim, Himachal Pradesh & Uttarakhand | Rs.10 lakhs – Rs. 50 lakhs (previous year) |
| Rest of India | Rs. 20 lakhs- 50 lakhs (previous year) |
*aggregate turnover means ‘value of all (taxable, exempt and export supplies and inter-State supplies) – (Taxes + Value of inward supplies + Value of supplies taxable under reverse charge) of a person having the same PAN and has to be computed on all India basis for the relevant financial year.
Rate of Levy
| Sl No | Category of registered persons | Rate of tax |
| 1 | Manufacturers, other than manufacturers of such goods as may be notified by the Government | 1% |
| 2 | Suppliers making supplies referred to in clause (b) of paragraph 6 of Schedule II | 2.5% |
| 3 | Any other supplier eligible for composition levy under section 10 and these rules | 0.5% |
Person liable for Composition Scheme
Businesses dealing in only goods can only opt for composition scheme, Services Provider have been kept outside the scope of this scheme. However restaurant sector taxpayers may also opt for the scheme.
| A dealer registered under composition scheme is not required to maintain detailed records as in the case of a Normal Taxpayer. |
Conditions for availing Composition Scheme
- A service supplier cannot opt for this scheme.
- Permission will not be granted to a person, who makes any supply of goods, which does not attract GST levy.
- Such a person should not have Inter- State supply of goods.
- He should not avail any credit
Impact of Composition Levy
- Composition dealer is not eligible to avail the credit of input tax paid
- He is not entitled to effect inter-State supply of goods
- Composition dealer is not eligible to collect tax
Return Forms under Composition Levy
| Return type | Frequency | Due date | Details to be furnished |
| Form GSTR-4A | Quarterly | – | Auto-populated details of inward supplies made available to the recipient registered under composition scheme on the basis of FORM GSTR-1 furnished by the supplier. |
| Form GSTR-4 | Quarterly | 18th of succeeding month | All outward supplies of goods and services including auto-populated details from Form GSTR-4A and tax payable details. Details of any additions, modifications, or deletions in Form GSTR-4A should also be submitted in Form GSTR-4. |
| Form GSTR-9A | Annual | 31st December of next fiscal year | Consolidated details of quarterly returns filed along with tax payment details. |
Penalties
If a business has opted for composition levy without meeting the conditions above, penalty shall apply. Penalty may be as much as the tax actually payable under GST. The business will be given a notice and allowed an opportunity to show cause.
The entire Composite Scheme has remained the same along with its concepts, when compared to old VAT and GST Law.
Author: C S Ekta Maheshwari is the Author of this article and is Company Secretary by profession. The Author can be reached at csektamaheshwari14@gmail.com
Disclaimer: The entire contents of this article is solely for information purpose and have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation.. It doesn’t constitute professional advice or a formal recommendation. The author has undertook utmost care to disseminate the true and correct view and doesn’t accept liability for any errors or omissions. You are kindly requested to verify & confirm the updates from the genuine sources before acting on any of the information’s provided herein above.
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