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COMPOSITION SCHEME UNDER GST FACILITATE FOR SMALL SCALE

BUSINESSES AND CONSUMERS

Article · November 2022

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 ISSN- 2394-5125 VOL 6, ISSUE 5, 2019

COMPOSITION SCHEME UNDER GST

FACILITATE FOR SMALL SCALE BUSINESSES
AND CONSUMERS
Prof. Dr Rupa Khanna Malhotra, Rakesh Kumar
Department of Commerce,
Graphic Era Deemed To Be University, Dehradun, UK
Email [email protected]

Received: 10 July 2019 Revised and Accepted: 14 August 2019

ABSTRACT: Composition Scheme under Goods and services tax reduced burden of compliances and to
small taxpayers. Scheme is applicable up to turnover Rs. 1.5 Crore (75 Lakhs in case of special Status
states) in preceding financial year. However Composition Scheme limits numbers of benefit like input tax
credit not applicable under this scheme. Composition scheme person required to pay tax under reverse
charge mechanism. In addition composition person cannot pass on tax burden to consumers. On the other
side consumers also get goods and services at reduced GST rate. So that under Composition Scheme both
consumer and dealer get benefit. However, scheme is limit-off in intra –state trade only. In addition, Ice-
cream, Pan Masala Tabbaco business, Casual taxpayer e-commerce and Non-resident person cannot avail this
scheme

Keywords: Compliances, Reverse Charge Mechanism, Composition Scheme, intra-state trade, input tax credit,
Consumers

1. INTRODUCTION
Indirect Tax (GST) is a major source of revenue in Indian economy as well as world economy. As per Union
Budget and Finance commission report indirect tax account for 65 percent of the country’s overall tax
revenue , while direct taxes( corporate tax and income tax ) account for only about 35 percent of tax. In
addition, there are number of local indirect taxes are at local level. Government brought out many changing in
indirect taxation since independence. Finally, new GST law has changed whole scenario of indirect tax system.
Indian has adopted dual GST model which is almost like Canadian model. But question is arise why we need
this change? There are many answers of this question. In old regime there were no set-off of tax which result to
cascading of tax. In addition there was no input tax credit in previous system at many places. Broadly we can
say GST law brought out transformed in indirect taxation.
Before inception of GST, lawmaker has a done a comprehensive study about implementation of law. In term of
economy, various part of the country is underdeveloped in which there are small businesses run by business. On
the other hand, different sectors have different impact of GST. In addition some sector like petroleum, Tabbaco
are outside GST law. Some sectors are exempted from GST. Broadly, there is different procedure in different
scenario.
Like Composition Scheme, compulsory registration, non-eligibility of registration etc are some scheme which
benefit to business in terms of procedure and reduced tax burden.

2. REVIEW OF LITERATURE
According to Ms. Priti Jadhav in article ―Impact of GST on E-commerce‖ No benefit under Composition
Scheme for E-commerce business. Most of small sellers huge contribute in Indian economy included E-
commerce business. But E- commerce business out the preview of Composition Scheme.
According to Dr Patil , Composition Scheme reduce compliance burden compare to normal scheme.
Scheme is restricted to some manufactured goods and services. Only one time return required under
Composition Scheme with compare to normal scheme where monthly, quarterly and yearly compliances have
to followed.
A Study, ―Impact of GST on FMCG‖ revealed that Composition Scheme is for small businessmen to relief from
monotonous formalities. Apart from that Composition scheme holder get goods and services at reduced GST
rate without availing of ITC.
―GST: its impact on common man in India‖ reveals that some sectors like telecommunication, insurance ,
aviation etc have more burden of tax on common man. However some are like FMCG products such as
food items , tooth’s paste, tea, coffee , edible oil, spices etc became cheaper.
Mr V.A Chowdappa in his article ―Statuary provision of Reverse Charge Mechanism‖ prescribed that recipient

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is responsible to paid GST even it is under composition scheme. Under Reverse Charge Mechanism (RCM),
unregister person makes supply to registered person.
As per Study material of Institute of company Secretary of India (ICSI), Composition scheme reduce
compliance burden. Composition Scheme restricted in some area like based on turnover and limit to intra- state
supply. In addition Composition Scheme is available for manufactured goods except notified goods like Pan
Masala , Tabbaco, Ice-Cream etc. Now Composition scheme is extended to service sectors up to Rs 50 Lakhs.

3. RESEARCH METHODOLOGY
Research Design
This is descriptive study which try to understand about Composition Scheme’ in GST and its benefit to
both the small scale businessmen and consumers . Study based on primary and secondary data. Sources of
primary data are small Businessmen. However, respondents are not revealing actual fact. So that studies
broadly based on secondary data. Secondary data collected from various publication, study material, website,
news paper and case study. Study highlights comparability between normal process and Composition Scheme.
In addition study also brought out data of registered person under Composition Scheme in India.

Objective of Study
 Composition Scheme and its applicability.
 Compliances and comparability with normal scheme.
 State –wise registered person under Normal Scheme and Composition scheme.
 Recommendation and conclusion.

Hypothesis
As mentioned in objective of the study the following hypothesis has been framed for testing:-

H1 There is significant difference between Composition Scheme and normal scheme.

H0There in not difference between Composition Scheme and normal scheme.
H2 There is benefit to dealer under Composition Scheme.
H0 There is no benefit to dealer in Composition Scheme.
H3 There is benefit to consumer under Composition Scheme.
H0 There is no benefit to consumer under composition scheme.

Research Instrument
This is descriptive and analytic study. Both primary and secondary data used for descriptive study.
Questionnaire was framed to collection of primary data. However, questionnaire was limit-off few people
which may not brought out actual result. Source of secondary data was council meeting, conferences,
newspapers, website, magazines amendment issued by department time to time and study material. Simple
stastical tool like percentage, comparison etc used in study. Most of data present in tabulation form.

4. COMPOSITION SCHEME AND ITS APPLICABILITY

Rationale Behind the Composition Scheme
As we know that, new GST law have various compliances have to follow. For example Registration, monthly
return, quarterly return, uploading of Invoice for input tax credit. It is always not to feasible to follows these
compliance. Composition scheme in GST reduced compliance cost and bring out simplicity in whole GST
procedure for small taxpayer, who have annual turnover is less than 1.5 crore in the preceding financial year
and less than Rs 75 Lakhs for special states in which includes all North-East state excluding Assam,
Uttarakahand and Telengana. Turnover means Taxable supply, exempted supply, zero-rated supply and inter-
state supply. However, Composition Scheme person cannot avail input tax credit and cannot shift burden of
GST on the consumer. Precisely, Composition levy person direct pay reduce rate tax without claiming ITC and
without shifting of burden to other person. So that in some sector benefit of ITC not availed by consumer. In this
regard government bought this policy. Rate of GST under Composition Scheme are as under:-

Particular SGST CGST

Manufacturing(excluding Notified .5% .5%
Goods)
Restaurant not serving alcoholic 2.5% 2.5%
liquor
Services 3% 3%
Other eligible suppliers .5% .5%

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Composition Scheme in Real- Estate

Previous Honourable Finance minister, Shri Arun Jaitely , in his conference stated that the builders have not
passed on the benefits of input tax credit accrued to them due to the implementation of GST. Therefore, the
GST Council intends to block the credit available to them with a reduced GST rate on real –estate sector. The
GST press release for 33th GST council meeting stated that, ―Real estate is one of the largest contributors to
the national GDP and provides employment opportunity to large numbers of people. Housing for all by 2022
envision that every citizen would have a house and the urban area would free from slum‖

After implementation of GST, it was expected that all businesses will adhere to anti-profiting provision and
will pass on huge amount of credit avail by them to their consumers. However real-estate industry fail to
pass on the benefits to consumer. In this regard government brought out the provision of composition scheme
in real—sector. Viability can be measured with help of an example. As per existing scheme, tax rate are as
under:-

Particular Rate of GST Non affordable Unit Affordable Unit

Sale Prices 60 Lakhs 40 Lakhs

Land Cost 20 15
Construction Cost 30 (ITC Available) 20(ITC available)

Total cost 50 35
ITC available on Input Tax 18% 5.4 3.6
Out Put in GST before Composition 12% 7.2 3.2(8%)
Scheme
Effective rate 7.2 7.2
Effective rate of GST 12 % 8%

In above illustration dealer can avail ITC Rs 5.4 Lakhs i.e. 18 percent of 30 lakhs. But benefit of ITC not passes
on to the consumer. Further Consumer is paying 7.2 lakhs GST i.e. 12 percent of 60 lakhs, total cost of Unit.
Same is paying in affordable at 12 percent rate. But in Composition Scheme, rate has been reduced without
availing of input tax credit.
Particular Rate of GST Non affordable Unit Affordable Unit

As per new composition 5% 3 ( 5% of 6Lakhs) 1(1% of 40 Lakhs)

Scheme
Effective tax paid on new 3+5.4= 8.4 .2+3.6=3.8
scheme due to non availability
of ITC

Effective rate of GST 14% 9.5%

As mentioned above in composition Scheme effective for non affordable and affordable unit rate is 14 %
and 9.5 percent respectively when there no ITC on input Goods and Services to the dealers . Precisely
Consumers are getting more benefit compare with dealers.

Composition Scheme in Service Sectors

Before 2019, Composition Scheme was not available for service sectors except Restaurant scheme. 32th GST
council meeting held on 10th January 2019 for consideration of Composition Scheme. Meeting took two
decision, one was increase of threshold limit of Composition Scheme from 1 crore to 1.5 Crore and second
decision was include of service sector under Composition Scheme up to some limit and condition. Limit in
service sector is up to 50 Lakhs.

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 ISSN- 2394-5125 VOL 6, ISSUE 5, 2019

Terms and Condition under Composition Scheme

Composition scheme is benefited both suppliers and consumers. But some condition must satisfy before
opting of this scheme. As mentioned in above paragraph no input tax credit facility is available under this
scheme. Taxpayer has to pay tax at normal rate in case of reverse charge mechanism. Tax payers has to
mentioned the word ―Composition Taxable person‖ on every notice board and sign board display at their
business place and also mentioned in bill of supply. However following person cannot avail Composition
Scheme:-
 Inter –state Supply.
 E-commerce person
 Casual tax payers
 Pan Masala, Tabbaco and Ice- Cream business .
 Mix service with goods only up 5 Lakhs or 10 % of goods supply whichever is higher .
 Service supply up to Rs 50 Lakhs.

5. COMPLIANCES AND COMPARABILITY WITH NORMAL SCHEME .

Registration, Return and Cancellation of Composition Scheme.
Main objective of composition scheme was to reduce compliance burden like return, stock detail , refund
etc. In normal scheme returns are file at monthly basis in GSTR 1, GSTR 2 and GSTR3B. On the other hand
under composition Scheme annually return file in GSTR 4. Under normal scheme, both supplier and recipient
are responsible to upload Invoice for input tax credit. Under Composition Scheme there in not requirement to
upload such invoice because no ITC available under this scheme. Some forms are required under Composition
Scheme are:-

From old regime to new Regime CMP-01 Within 30 Days

Newly business setup under Composition Scheme Reg-01 Within 30 Days
Stock – in trade Detailed CMP-02 Prior to Commencement of
Financial year
Normal scheme to Composite scheme CMP-03 With 30 Days
Withdrawal from Composition scheme CMP-04 Within 60 days of the exercise
of the option
Notice given by Department CMP-05 Within seven days of the
occurrence of the event
Reply of Notice by Person CMP-06 Within 15 days
Action taken by department CMP-06 Within 30 days

Switch Over from Composition Scheme to Normal Scheme.

In new GST law composition scheme subjected to certain limitation like inter-state person cannot opt this
scheme, no input tax credit available, Threshold limit fixed both service sector and manufacturing sectors
etc. In this regard, there is transaction provision from composition scheme to normal scheme. Switching form
composition to normal scheme will attract transaction provision and will be allowed input tax credit on
finished goods, semi-finished goods and raw material from the date of switchover subject to following terms
and conditions :-
 Goods are under taxable supply.
 Not being composite Scheme holder.
 Being eligible claim to ITC under section 16 if IGST Act, 2017.
As above mention dealer can switchover from composition scheme to normal scheme or vice versa subjected to
terms and conditions. However, input tax credit will be available on finished / semi-finished / raw material stock
held on the date of transaction. Previous input tax will be not available to such person.

6. STATE –WISE REGISTERED PERSON UNDER NORMAL SCHEME AND COMPOSITION

SCHEME REGISTERED
Registered Under Normal Scheme
Data was collected till Jul 2020 from top 20 States. Below chart showing that highest number of person
registered in Maharashtra i.e. 1382273 and lowest registered person is in Jammu and Kashmir i.e. 85278.
Total registered person in India under normal scheme is 10475118. As per analysis 90 percentage of total
registration are under normal scheme with compare to Composition Scheme. However, data does not include
UIN, Casual Taxpayers and ISD.

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 ISSN- 2394-5125 VOL 6, ISSUE 5, 2019

State- wise Registration Chart Till Jul 2020 in

Normal Scheme
1,600,000
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
0

Registered under Composition Scheme

Same data as collected in normal scheme has been collected for Composition Scheme. Rajasthan is top state
where total 145320 people are registered under Composition Scheme in these 20 states. Maharashtra is
second highest state where 134851 persons area registered and Jammu & Kashmir is at last position where 9142
persons are registered under Composition Scheme.

State-Wise Registration Under Compsition

Scheme Till July 2020
160000
140000
120000
100000
80000
60000
40000
20000
0

Comparison between Normal Scheme and Composition Scheme Registered Person

According to analysis it is find that Composition scheme holder are proportioned to normal scheme holders.
State in which highest number of person s under normal scheme also highest number of person under
composition scheme. In addition percentage vary between 4 percent in Ladakh to 31 percent in Nagaland.
Total registered person under normal scheme are 10475118 Where total registered person under
composition scheme are 1074340 which is almost 10 percent of total registered person under normal
scheme.

7. RECOMMENDATION AND CONCLUSION

Composition Scheme removes monotonous formalities of suppliers. Compliances, Under Composition are very
less compare to normal scheme. GSTR-04 filed annually under composition Scheme. . On the other hand, there
are monthly, quarterly and annually compliances under normal scheme. However, under Composition Scheme
there is no input tax credit facility available to dealers. Composition Scheme can be opt only those person

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 ISSN- 2394-5125 VOL 6, ISSUE 5, 2019

whose turnover is 1.5 crore (Rs. 75 lakhs in case of special category states) for manufactured goods and 50 lakhs
for services. Composition Scheme cannot availed by inter-state supply, casual tax payers, E-commerce, Non
resident person, Tabbaco, Pan Masala and ice-cream business. In real sector, Under Composition Scheme GST
rate is 5 % for non- affordable and 1% for affordable units. In this case consumer can get benefit to pay reduce
rate of GST under composition scheme. Form Feb 2019, Composition Scheme extended in service sector and
mixed with goods also. The aim of scheme is to reduce burden of GST rate for small supplier and given this
benefit to consumers. But somewhere comsumers are unawares about this process. It shall be reasonability of
consumers to know about this scheme before dealing with product. In addition, it is fundamental duty of dealer
to pass on Composition Scheme benefit to consumers. Precisely, composition scheme is a boon to small
business and consumers.

REFERENCES
[1] Ms Priti Jadhav (2017):Impact of GST on E-commerce, IJERS ISSN: 2349-6495[P]
[2] Patil Saroj(2017): Myth and reality of Goods and Service Tax, , International Journal of Science ,
spirituality, Business and technology (IJSSBT) Vol 5 ISSN(Print) 2277-7261
[3] Padhi Shiba Prasad (2018): GST and Railway, Tax Bulletin Volume -30.
[4] Dr Kumar Suresh Turka (2017): Impac of Goods and Services Tax(GST) oon Micro, Small and
Medium Enterprises(MSMEs)
[5] Pwc(2018). Impact of GST on aviation sector. Retrieved from https://www.pwc.in.
[6] Dey Ranjan Amar(2020) : GST: its impact on common man in India, International Journal of
Management. P-ISSN2321-4643
[7] Pwc(2018). Impact of GST on Media and Entertainment Industry sector. Retrieved from
https://www.pwc.in.
[8] GST impact on Train(2017): retrieved from https://m.economictimes.com.
[9] Kumar Ajit (2017); Goods and Services Tax –Problem and Prospectus, International Journal
in Management and Social Science Volume-05.

Annexure

State State Name Normal Composition Percentage of

Code Taxpayers Taxpayers composition scheme
holders compare to
Normal Scheme
1 Jammu and Kashmir 85278.00 9,148

10.73
2 Himachal Pradesh 86119.00 20,667
24.00
3 Punjab 311894.00 41,525 13.31
4 Chandigarh 26836.00 1,812
6.75
5 Uttarakhand 313242.00 33,992
10.85
6 Haryana 428051.00 20,582 4.81
7 Delhi 738612.00 18,244 2.47
8 Rajasthan 559755.00 145320
25.96
9 Uttar Pradesh 1148778.00 367299 31.97
10 Bihar 332456.00 102421
30.81
11 Sikkim 7612.00 854 11.22
12 Arunachal Pradesh 12143.00 2,466
20.31
13 Nagaland 6694.00 2,122 31.70
14 Manipur 10705.00 1,778 16.61
15 Mizoram 6334.00 164
2.59
16 Tripura 24499.00 2,953
12.05
17 Meghalaya 25524.00 2,571 10.07
18 Assam 148536.00 36,118 24.32
19 West Bengal 608084.00 74,102 12.19

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 ISSN- 2394-5125 VOL 6, ISSUE 5, 2019

20 Jharkhand 146251.00 20,353 13.92

21 Odisha 230273.00 30,830
13.39
22 Chattisgarh 109152.00 33,761
30.93
23 Madhya Pradesh 357056.00 59,516 16.67
24 Gujarat 892851.00 104436
11.70
25 Daman and Diu 5794.00 327 5.64
26 Dadra and Nagar 8325.00 377
Haveli 4.53
27 Maharastra 1382273.00 134851 9.76
29 Karnataka 742698.00 113277 15.25
30 Goa 35721.00 5,401 15.12
31 Lakshadweep 269.00 30
11.15
32 Kerala 304483.00 51,509
16.92
33 Tamil Nadu 889198.00 85,696 9.64
34 Puducherry 19553.00 2,639 13.50
35 Andaman and 3808.00 879
Nicobar Islands 23.08
36 Telangana 361131.00 61,324 16.98
37 Andhra Pradesh 283914.00 114411 40.30
38 Ladskh 3172.00 591
18.63
97 Other Territory 81.00 0 0.00
99 Central Jurisdiction 0.00 0
00
Total 10475118 1704340
Source : GST Council Report

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