presentation on composition scheme with explained implications

1. COMPOSITION SCHEME UNDER GST
• Made by :
Name Vivek Verma
Course B.Com (H)
College SRCC

2. Normal Scheme
Prior to Composition Scheme

3. Normal
Scheme
File Many returns
1. Monthly details for outward supplies. 2. Monthly details for inward supplies.
3. Monthly return. 4. Annual return.

4. Drawbacks
o Complex records to be maintained.
o Filing monthly records and large records keeping require large
finance team.
o Helpful only to dealers having B2B supplies.
o High prices offered to customers are higher as compared to
prices offered in composition scheme in case of B2C
suppliers.
o Shopkeepers, small traders and small scale manufacturers are
not taken care of.

5. Composition
Scheme
File fewer returns
1. Quarterly return. 2. Annual return.
Details of :
- Inward supply under GSTR 4A.
- Outward supplies
- Collection of all 4 quarterly returns.
- No audit
- Easy reconciliation.
Note : GSTR 4A is an auto populated form means
GSTR4A inward supply forms will be filled automatically after collection of GSTR outward supply forms
of our
supplier of raw materials, and if not satisfied one can have option to submit details of any additions,

6. WHAT IS COMPOSITION SCHEME ?

7. SCHEME
 TO R E D U C E T H E C O M P L I A N C E C O S T F O R S M A L L TA X PAY E R S .
 B E N E F I C I A L TO T H E D E A L E R W H O D O E S N ’ T M A K E B 2 B
S U P P L I E S .
 S C H E M E I S O P T I O N A L TO R E G I S T E R E D TA X A B L E P E R S O N .
 M O R E P R O F I T S A S C O M PA R E D TO N O R M A L S C H E M E ( I N
C A S E O F B 2 C S A L E S ) .
 N O D E TA I L E D R E C O R D S TO B E K E P T.
 C O M P E T I T I V E P R I C E S C A N B E O F F E R E D TO C U S TO M E R S .
A simplified scheme has been introduced under section 10 to focus on following relevant poi

8. CONDITIONS AND RESTRICTIONS FOR
COMPOSITION LEVY
Person opting for composition scheme
a) Shouldn’t be a casual taxable person or NRTP.
b) Shall pay tax under sec 9(3)/9(4) [reverse charge] on inward supply of goods and services.
c) Shouldn’t manufacture ice cream, pan masala and related substitute.
Restrictions :
i. Turnover shouldn’t exceed Rs.1 crore in preceding financial year, but in
Northeast part of the country, limit is Rs.75 lacs.
ii. Supply of services are excluded from this scheme except services provided with sale of prime goods worth Rs. 5
lacs and supplies referred to in clause(b) of para 6 of sch. 11.
iii. Scheme is available for intra state supply only.
note : 1. aggregate turnover includes turnover from all businesses registered with same PAN.
2. North eastern states includes Meghalaya, Sikkim, Assam, Mizoram, Tripura, Manipur, Nagaland, H.P, A.P .

9. RATE OF TAX OF COMPOSITION LEVY
S.no. Category of registered person Rate of tax
1. Manufacturers, other than the manufacturers of such goods
as may be notified by the govt.
1 %
2. Suppliers making supplies referred to in clause (b) of the
paragraph 6 of schedule II.
2.5 %
3. Any other supplier eligible for composition levy under
section 10
0.5 %

10. IMPLICATIONS
Let us consider an example where we have 3 units
A B
C
FACTORY WHOLESALER
RETAILER
CONDITION : 1. A, B, C follows normal taxation scheme.
2. A, C = normal tax, B follows composition scheme.
3. A, B = normal tax, C follows composition scheme.

11. 1. A, B, C FOLLOWS NORMAL TAXATION
SCHEME.
Action Amount(A)
Sales 1000
Add : GST @ 20
%
200
Total invoice 1200
Action Amount (B) Amount (C)
Purchases 1000 1100
Add : profit @ 10
%
100 110
Selling price 1100 1210
Add : gst @ 20 % 220 242
Total invoice
price
1320 1452
OPERATIONS
Taxation
Action Amount (A) Amount (B) Amount (C)
Output tax 200 220 242
Less : Input tax 0 (200) (220)
Net tax liability 200 20 22

12. CONCLUSION FOR CONDITION 1
• Total tax paid = 200(A) + 20(B) + 22(C)
= Rs. 242
• Purchase price doesn’t includes tax already paid by supplier of
raw material means no double taxation.
Purchase price = Invoice price – GST paid
• ITC is availed by buyer when tax is already paid by supplier.

13. 2. A, C = normal tax, B follows composition sc
OPERATIONS
Action Amount(A)
Sales 1000
Add : GST @ 20
%
200
Total invoice 1200
Action Amount (B) Amount (C)
Purchases 1200 1320
Add : profit @ 10
%
120 132
Selling price 1320 1452
Add : gst @ 20 % 0 290
Total invoice
price
1320 1742
Taxation
Action Amount (A) Amount (B) Amount (C)
Output tax 200 (@ 1 % of
1320)13
290
Less : Input tax 0 (0) (0)
Net tax liability 200 13 290

14. CONCLUSION FOR CONDITION 2
• Total tax paid = 200(A) + 13(B) + 290(C)
= Rs. 503
• Purchase price includes tax already paid by supplier of raw material
means there is double taxation.
Purchase price = Total Invoice price of supplier
• ITC is not availed by buyer when tax is already paid by supplier.
• C has to purchase raw materials from B at Total Invoice value i.e.,
Rs. 1320
There is loss to B’s customer,
hence C doesn’t wants to trade with B, rather prefer dealing with
one by which ITC can be availed and purchase price excludes taxes

15. 3. A, B = normal tax, C follows composition
scheme.
Action Amount(A)
Sales 1000
Add : GST @ 20
%
200
Total invoice 1200
Action Amount (B) Amount (C)
Purchases 1000 1320
Add : profit @ 10
%
100 132
Selling price 1100 1452
Add : gst @ 20 % 220 0
Total invoice
price
1320 1452
OPERATIONS
Taxation
Action Amount (A) Amount (B) Amount (C)
Output tax 200 220 15
Less : Input tax 0 (200) (0)
Net tax liability 200 20 15

16. CONCLUSION FOR CONDITION 3
• Total tax paid = 200(A) + 20(B) + 15(C)
= Rs. 235
• If we have B2C business, then composition scheme is beneficial
for us
• Less tax paid means more profit.
• No other business gets affected, fair prices offered to
customers.

17. CONCLUSION
1. UNDER NORMAL SCHEME PURCHASE PRICE DOESN’T INCLUDES GST PAID BY
SUPPLIER, BUT UNDER COMPOSITION SCHEME PP INCLUDES TAX ALREADY
PAID.
2. NO ITC IS GIVEN UNDER COMPOSITION SCHEME.
3. NO COLLECTION OF TAX FROM CUSTOMERS IF ORGANIZATION FOLLOWS
SCHEME.
4. NO FRESH INTIMATION EVERY YEAR.
5. SCHEME REDUCES OPERATIONAL COST FOR MAINTAINING VAST RECORDS.
6. IN SHORT THIS SCHEME IS GOOD FOR B2C BUSINESS ( CASE 3).