Comparison between Normal Tax Payers and Composition Scheme under GST

 

Peoples are getting afraid under GST regime about composition scheme. I will give you some presentation by way of example.

ParticularsDescriptionRegistered as a Normal TaxpayerDescriptionRegistered as a Taxpayer under Composition Scheme
ATotal Sale Value112000Total Sale Value112000
BSales Value exclusive of taxes100000Sales Value exclusive of taxes i.e.

(112000/102*100)

109804
CGST @ 12% on sales value12000GST @ 2% on sales value2196*
DInput Purchases70000Input Purchases70000
EGST @ 12%8400GST @ 12%8400
FTotal Purchase Value (D+E)78400Total Purchase Value (D+E)78400
GNet GST Liability (C-E)3600Net GST Liability (only C)2196
HNet Profit {A-(F+G)}30000Net Profit {A-(F+G)}31404

 

 

*Under composition scheme

A supplier cannot collect composite tax separately in an invoice. Here breakup is given only for reference and understanding purpose.

Thus if you see in above example, a supplier registered under the composition scheme and supplying such goods to the consumer at similar rates is earning more profit and his tax liability is also lower.

Other benefits under composition scheme:-

Below are some of the prominent reasons why you should choose to get registered as a supplier under the composition scheme:

  • Limited Compliance:  Under the composition scheme, the taxpayer is required to furnish quarterly return only, and thus he need not worry on record keeping and can focus on his business more rather than being occupied in compliance procedures.
  • Limited Tax Liability: Another benefit of getting registered under the composition scheme is that the tax rate for such taxpayer is nominal under the GST Law
  • High Liquidity: One of the major benefits of registering as a composition supplier is high fund availability in the business. A normal taxpayer will be required to pay output tax on his supplies at a standard rate and any credit of input is available only when his own supplier files a return online which shall reconcile with his own return. Thus a large chunk of his working capital will always remain blocked in the form of input credit. However for a supplier registered under the composition scheme, output liability will be nominal and he does not need to bother about return filing by his supplier.

 

I hope this article is beneficial for those who were confused whether to opt composition scheme or register as a normal tax payer.

Thanks & regards

taxclinic_team700