Cost analysis for small traders under composition levy scheme and normal tax levy

Last udpated: Nov. 4, 2017, 9:12 p.m.

Whether to go for composition levy or normal levy is the main question asked by small clients.

I got a call from a client who deals in materials falling under tax rate of 28%, his question was whether he should opt for composition levy or normal levy.

He presented following numbers to calculate the impact on final price that he will be charging to his customers. His customers are not registered and all outward supplies will be made to end consumers.

He will not even deal in interstate outward supplies.

Particulars Amounts
Cost of Inward supply 100
Tax on inward supply 28
Transport Cost 30
Tax on transport 1.5
Total cost with tax 159.5
Total cost without tax 130

Now the question is whether he should opt for composition levy or normal tax levy.

There are different advantages and disadvantages of composition levy.

But, here we discussed only numbers since most of the disadvantages were in his favor.

He wants to keep his margin of 10 Rs.

Now lets us analyse the final selling price under composition levy and normal levy.

Selling price in case of normal scheme

Particulars Amounts
Cost of inward supply 130
Margin 10
Total value of supply 140
Tax @28% 39.2
Final selling price 179.2

Selling price in case of composition levy

Particulars Amounts
Cost of inward supply 159.5
Margin 10
Total value of supply 169.5
Tax @1% 1.7
Final selling price 171.2

Even if we consider his margin at 10 the max selling price can go up to 172 under composition scheme.


With composition scheme your compliance requirements such as return filing, will be significantly low. As a composition dealer you will be filing only a single return quarterly instead of monthly 3 returns.

For small traders who wants to have a benefit of pricing over the bigger traders should opt for composition levy.

The client has agreed to go with composition levy and has further made his life easy by using billing software for bill of supply.

Posted by Pulkit Sharma under GST

A Chartered Accountant by qualification. Love to code and share knowledge. On a mission to create the largest knowledge library for finance and taxation professionals. Check Profile

No comments yet, be first to comment.

You need to be logged in to comment.