Taxgen Team
- Dec 23, 2019
- 3 min read

COMPOSITION SCHEME COST BENIFIT ANALYSIS

Updated: Dec 24, 2019

COMPOSITION SCHEME WITH PRACTICAL EXAMPLES

It is a simple & easy scheme under G.S.T for tax payers. The objective of composition scheme is to bring simplicity & to reduce the compliance cost for the small taxpayers. it is an option to pay tax under this scheme.

Threshold Limit under Composition Scheme:-

According to Sec 10(1), a registered person whose aggregate turnover in preceding financial year does not exceed 1.5 crore* can opt for composition scheme in current financial year.

*Threshold limit is 75 Lakhs for following 8 states:-

• Arunachal Pradesh

• 3 M’s (i.e. Manipur, Meghalaya & Mizoram)

• NST (i.e. Nagaland, Sikkim, Tripura)

• Uttrakhand

Following Persons are not eligible for this scheme:-

1. Person making Inter-state outward supply of goods.

2. Supplier of any service other than:- (i) Restaurant Service#

(ii) Services whose value exceed maximum value* defined under CGST Amendment Act, 2018

*Maximum value:-10% of turnover within the state/UT or Rs.5 Lacs Whichever is higher.

# Note for Restaurant Service provider: - If exempt service including service by way of extending deposit, loan or advance supplied, assesse remain eligible. I.e. Value of Exempt service & Interest or discount on deposit, loan or advance is not including in turnover for determining eligibility for composition scheme.

3. Supplier of Non-Taxable goods.

4. Person who supply goods through E-commerce operator.

5. Manufacturer of Notified goods (pan masala, tobacco, Ice-cream).

6. Casual Taxable Person & Non-Resident Taxable Person.

Rate of Tax under Composition Scheme:-

Important Note: - 1. Composition Scheme defined under section 10 does not override sec 9(3),

9(4) of CGST Act i.e. Reverse charge mechanism. Hence Recipient pay G.S.T at normal rate under reverse charge even he opted composition scheme.

2. Composition dealer issue Bill of Supply instead of Tax Invoice and can’t charge GST from customer and composition tax will not be input tax for buyer. Hence buyer will not be eligible for ITC.

3. Composition dealer is required to file GSTR-4 till 30th April of Next Financial Year. But Dealer has to deposit tax on quarterly basis and submit a quarterly statement in Form GST CMP-08 till 18th day of the month succeeding the quarter.

Composition Scheme in case of Multiple Units:-

Example:- B & Associates having multiple units at Jalandhar, Chandigarh & Delhi. Aggregate turnover was 1.40 crores. Break-up of Unit-wise turnover as follows:-

Turnover of unit in Jalandhar 60 Lacs Turnover of unit in Chandigarh 40 Lacs Turnover of unit in Delhi 40 Lacs

B & Associates wants to opt composition scheme only for Jalandhar unit. Wheteher it is possible or not?

Solution: - Proviso to Sec 10(2) states that all units of registered person having same pan has to opt for Composition Scheme. Hence B & Associates can’t opt for composition scheme for only Jalandhar unit.

If B & Associates wishes to opt this scheme, then B & Associates should opt for all units, otherwise it will fall under Normal GST Registration.

Practical Case study regarding when it is beneficial for businessman to opt composition scheme:-

Mr. Rahul, a retailer presents the following expected information for the year:-

Determine whether Mr. Rahul should opt for composition scheme if composite tax is 1 % of turnover

and book keeping & return filing expenses under GST will get reduced to Rs. 70,000 from Rs.

1,50,000 p.a., other expenses are Rs. 2,00,000 p.a.

Solution:- To determine whether Mr. Rahul should opt for Composition scheme it is important to compare the cost & profit earned by Mr. Rahul under both options.