Composition scheme - whats so exciting about it?
This query is : Resolved
23 April 2017
Dear Experts
Why should Mr. X opt for Composition Scheme?
1. He gets no input credit. So it gets added into the cost which makes his product expensive.
2. His customer does not get any input credit of the goods bought from Mr. X. So buyers will prefer the ones from whom they can get credit. Mr. X looses customers.
3. X cant collect tax from customers. So he pays out of his pocket. Why the hell will someone like to do that?
4. Also the limit of rs. 50 lakh is based on aggregate turnover and not taxable turnover.
How thoughtful is this?
Am I missing anything?
regards
shivani
Why should Mr. X opt for Composition Scheme?
1. He gets no input credit. So it gets added into the cost which makes his product expensive.
2. His customer does not get any input credit of the goods bought from Mr. X. So buyers will prefer the ones from whom they can get credit. Mr. X looses customers.
3. X cant collect tax from customers. So he pays out of his pocket. Why the hell will someone like to do that?
4. Also the limit of rs. 50 lakh is based on aggregate turnover and not taxable turnover.
How thoughtful is this?
Am I missing anything?
regards
shivani
24 April 2017
Basically composition is suitable for the last man in distribution chain and who is having a good margin and low turnover. For example say A is having profit of 20% on cost. Buy a product for Rs 100 and sell it for 120. Say product is in 18% tax rate, he need to pay Rs 3.60 even after taking input credit. However under composition he would pay Rs 1.20. Hence he will be benefited under composition scheme.
But I agree with you that composition scheme has become meaningless after insertion of Section 9(4) of CGST Act, which provides that in case of purchase from unregistered person, registered person has to pay tax under reverse charge. Now most of the traders opting for composition would be buying major portion of goods from unregistered person. In case if they buy from unregistered person, they need to pay tax at normal rate on their purchases ( as per above example @ 18%) and further they would not get the credit. A retrogressive move in my opinion.
Further a person under composition neither can issue tax invoice nor can collect tax. Basically he is supposed to collect a specified sum @ certain % which is not termed as tax but as an amount. Please understand that the nature of indirect tax is such that it is ultimately collected from the consumer and remitted to the government. Same was case in case of existing VAT laws.
I hope I am understood.
But I agree with you that composition scheme has become meaningless after insertion of Section 9(4) of CGST Act, which provides that in case of purchase from unregistered person, registered person has to pay tax under reverse charge. Now most of the traders opting for composition would be buying major portion of goods from unregistered person. In case if they buy from unregistered person, they need to pay tax at normal rate on their purchases ( as per above example @ 18%) and further they would not get the credit. A retrogressive move in my opinion.
Further a person under composition neither can issue tax invoice nor can collect tax. Basically he is supposed to collect a specified sum @ certain % which is not termed as tax but as an amount. Please understand that the nature of indirect tax is such that it is ultimately collected from the consumer and remitted to the government. Same was case in case of existing VAT laws.
I hope I am understood.
24 April 2017
Dear Alam
Please clarify.
Are you saying that seller under composite scheme will collect some "amount" from buyer which we cant say tax?
Do you mean that he will factor 1% that he has to pay in his selling price?
regards
Please clarify.
Are you saying that seller under composite scheme will collect some "amount" from buyer which we cant say tax?
Do you mean that he will factor 1% that he has to pay in his selling price?
regards
24 April 2017
Shivani you are absolutely correct.
Section 10(1) of CGST Act reads as follows
" Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate.............". Therefore person opting for the composition would not pay tax but an amount which would be in lieu of tax. Further this amount would be collected from the buyer and remitted to government.
Hope I am clear and understood
Section 10(1) of CGST Act reads as follows
" Notwithstanding anything to the contrary contained in this Act but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at such rate.............". Therefore person opting for the composition would not pay tax but an amount which would be in lieu of tax. Further this amount would be collected from the buyer and remitted to government.
Hope I am clear and understood
25 April 2017
no sir not understood (respectfully)
(4) A taxable person to whom the provisions of sub-section (1) apply shall not collect
any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
u r saying that amount will be collected from buyer but sub section 4 clearly prohibits that.
government doesn't want seller to burden buyer with it.
that's what I was asking.
will he pay out of his pocket.
regards
(4) A taxable person to whom the provisions of sub-section (1) apply shall not collect
any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.
u r saying that amount will be collected from buyer but sub section 4 clearly prohibits that.
government doesn't want seller to burden buyer with it.
that's what I was asking.
will he pay out of his pocket.
regards
26 April 2017
True. A person opting for composition scheme cannot collect taxes from his customers. But the Section effectively only means that tax shall not be shown separately on the invoice. The tax liable to be paid under composition scheme is a cost to the business and the person opting for it shall treat it as cost and may incorporate in the price.
30 April 2017
https://www.caclubindia.com/articles/all-about-composition-levy-under-gst-29768.asp
11 May 2017
It is to be understood that composition scheme is for the benefit of small dealers having turnover of not more than Rs 50 Lakhs. For the ease of compliance, the composition dealers can do away with filing 5 returns a year (4+1) under the GST regime as compared to normal dealer who has to file 37 returns in a year comprising of effectively 3 returns per month along with annual return. Yes it is true that some restrictions have been applied on composition dealers. Moreover composition scheme was already there is some state VAT laws such as rajasthan where composition scheme was for traders whose annual turnover does not exceed Rs 75 Lakhs.
11 May 2017
It is to be understood that composition scheme is for the benefit of small dealers having turnover of not more than Rs 50 Lakhs. For the ease of compliance, the composition dealers can do away with filing 5 returns a year (4+1) under the GST regime as compared to normal dealer who has to file 37 returns in a year comprising of effectively 3 returns per month along with annual return. Yes it is true that some restrictions have been applied on composition dealers. Moreover composition scheme was already there is some state VAT laws such as rajasthan where composition scheme was for traders whose annual turnover does not exceed Rs 75 Lakhs.
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