Is It Better To Go For Composition Scheme Or Normal Scheme?

Rahul Rai
watch_later 3 years, 9 months ago

For following class of taxable person which levy you suggest? Composition levy or normal tax levy?

  1. Retailers,
  2. Wholesalers,
  3. Manufacturers,
  4. Others
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1 Answer

Pulkit Sharma watch_later 3 years, 9 months ago

Every person who supplies taxable goods or services and turnover exceeds 20 lakhs needs to register under GST. For those who are supplying Goods, have option to opt for composition levy if turnover does not exceed 75 lakhs in a single financial year.

Composition scheme has certain benefits such as:

  • Lower returns to be filed and a single quarterly return instead of details of outward and inward supplies and monthly return,
  • Need to issue bill of supply instead of Tax invoice,
  • Lower rate of tax,

However it also has disadvantages such as:

  • No input credit is available on inward supplies,
  • Can not charge tax in bill of supply,
  • Input credit is not available to buyer or recipient of supplies

Looking at advantages and disadvantages, we can broadly say that composition levy is beneficial for small traders who wants to avoid complexity and follow lesser compliance.

But, it should be noted that composition levy should be opted only if you are into B2C segment. In B2B segment your buyers will demand input credit which you cannot pass to them.

In case of B2B for buyers the composition tax charged will a cost and they will avoid any such supplies and you may lose business.

I will say you should check who your customers are and then decide.

Retailers can opt for composition scheme if their customer are consumers instead of businesses. Similar analysis should be done by wholesalers and manufacturers.

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