The VAT Acts are designed so that high value tax payers should not be spared and on the contrary small dealers should be hassle free from compliance procedure. The object of all such composition schemes is not to burden small dealers by the provisions of record keeping. Therefore, such schemes will generally contain the following features:
- Such dealer shall require registration under VAT Act of a State.
- A small dealer whose turnover does not exceed a specified limit of Rs. 25 lakhs. (in delhi it is Rs. 50 lakhs) can opt for composition scheme.
- He shall have to pay tax himself at a small percentage of gross turnover.
- Such dealer shall not be allowed input credit on the purchases made by it from other dealers.
- A simple return form to cover longer return period shall be sufficient.
- The buyer of goods from a dealer under composition scheme will not be entitled to input VAT Credit.
- The dealer covered under the composition scheme shall not be required to maintain lengthy records as are required under VAT.
- Such scheme is a optional scheme.
Who is not allowed to opt for composition scheme
The following dealers are not allowed to opt for composition scheme.
- A manufacturer or any other dealer who makes an inter State purchases.
- A manufacturer or any other dealer who makes an inter State sale.
- A manufacturer or any other dealer who exports or import the goods to a country outside india.
- A dealer who wants to issue VAT invoice.
- A dealer who wants to transfer goods outside the State otherwise than by way of sales.
The following are merits of composition scheme.
- The dealer is not required to maintain the detailed VAT records.
- The dealer is required to file return in a simple form and it is required for a longer period instead of monthly or quarterly.
- The dealer has to pay only a small percentage of tax. However it cannot be separately collected from the purchasing but can be included in the sale value of the goods.
- It s implies tax calculation as No input tax credit is available.
- No input tax credit can be availed by the dealer under composition scheme on its purchases.
- No input tax credit will be available to the dealer who has purchased goods from the dealer who is under composition scheme.
- VAT chain breaks on opting of composition scheme as the person under composition scheme cannot issue tax invoice which is main requirement of availing input tax credit and continuing of VAT chain.