GST :- Comparison of Composition Scheme with Registered Taxpayer under GST

Sunday, June 25, 2017 | comments

Friends,  It is well know by all Indian that GST Act will be started w.e.f. 01.07.2017. Now it is assumed that Composition Scheme is better than Registered Tax Payer in case of sales made between Retailer to Consumer.   Reason of this is that there is no input and no output GST.  A simple lower tax liability will be arise in Composition Scheme.   No of Returns will also be shortlisted.  For getting more clarity few lines are given below with example  :-

Turnover and Rate of Tax Under GST Composition Scheme

A registered taxpayer, whose aggregate turnover does not exceed Rs fifty lakh (now recommended  be increased to Rs seventy five lakh) in the preceding financial year pay tax at a rate more than 1% for manufacturer, 2.5% for restaurant sector and 0.5% for other suppliers of turnover.

No Tax, No Credit

  • No Credit of Input Tax There has been no provision of input credit on B2B transactions. Thus, if any taxable person is carrying out business on B2B model, such person will not be allowed the credit of input tax paid from the output liability. Also, the buyer of such goods will not get any credit of tax paid, resulting in price distortion and cascading. This will further result into a loss of business as buyers might avoid purchases from a taxpayer under composition scheme. Scheme holder cannot claim input tax credit even if he makes taxable purchases from a regular taxable dealer. Ideally, the taxable amount would be added to the composite tax payer’s cost.
  • No Collection of Tax Though the rate of composition tax is kept very nominal at 0.5% or 1% or 2.5%, a taxpayer under composition scheme is not allowed to recover such tax from his buyer, as he is not allowed to raise a tax invoice. Consequently, the burden of such tax is kept on the taxpayer himself and this must be paid out of his own pocket. Thus, the fundamental principle of limited compliance and tax burden on small taxpayer is defeated here.

Example :-

1.    Registered Tax Payer under GST where GST rates are 28% 
       Purchase      Value     =  100 + 28 (as input Tax)
       Sales            Value     =  140.00 (including All taxes)

       Sales without GST =  140- 30.625 (output GST)= 109.375
       GST Liability               =  30.625-28 =  2.625 (will be paid by collection)
       Net Profit / Saving      =109.375-100 = 9.375


2.   Composition Scheme  under GST where GST rates are 28% 
       Purchase      Value     =  100 + 28 (as GST) = 128.00 
       Sales            Value     =  140.00 (including All taxes)

       Sale Cost                    =  140.00 
       GST Liability  =  a) Minimum 0.50 % in one Case  = 0.70 (will be paid out of profit)
                                   b) Maximum  2.50% in  other Case =  3.50
       Net Profit / Saving  =  a) 140 - 128 - 0.70 = 11.30 
                                            b) 140 - 128 - 3.50 =  8.50


Decision is in your hand or on applicability 

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