Should you opt for Composition Scheme if you are in Normal Scheme at Present

If you are an assessee currently under Normal Scheme then you can be one of the following -:

1. You are either a Manufacturer/Trader or Both – In this case you are presently filing 12 monthly returns for Excise and four/twelve quarterly/monthly returns in accordance to respective VAT Act.

 

2. You can be a Service Provider - In this case you are presently filing filing 2 monthly half-yearly and paying taxes monthly.

 

Now let us analyze the pros and cons for dealer opting for Composition Scheme

Pros

1. Liquidity – A large amount of working capital will always be blocked for the normal dealer in the form of Input Credit. On the other hand for a supplier registered under composition scheme this output liability will be nominal and does not need to check whether his supplier has filed his return or not

 

2. Competitiveness – It does not mean that any supplier loses competitiveness only because of the fact that he is a Composite Dealer. The profit margin of a composite dealer is much higher than a large enterprise. So it can still be possible for Composite Dealers to outplay the economies of scale enjoyed by large enterprises. Thus, composition scheme ensures the interest of small suppliers carrying out intrastate transactions and provides with a sustainable and competitive supply market.

 

3. Low Compliance – A dealer opting for composition scheme is required to file only 5 returns

 instead of filing 37 returns annually under normal scheme. This drastic reduction in the number of returns is very beneficial for small taxpayers.

Cons

1. Small Market – A taxpayer registered under composition scheme cannot carry on any Inter State Sales or Import or Export of Goods and Services. Thus, he is compelled to carry only intra-state transaction and this limits the territory of his business. [However, you can always register as a casual taxable person for providing such inter-state supply.]

 

2. E-Commerce Sales out of Scope – E-Commerce Sales are carried by several small units. They carry their business online through internet and supply across states. If a Supplier chooses to opt for composition scheme then he would be closing the doors for industry which is though still in its nascent stage and yet has grown at high pace in India.

3. ITC forms part of Cost:  A composite dealer will not get any ITC. Thus any purchase from a registered dealer will form part of cost. This cost will in turn be passed on to the buyer of such goods resulting in increased price. Eventually buyers would avoid purchasing from a composite dealer.

Thus, composition scheme has its own benefit and drawbacks. Registering under this scheme basically depends on your scope and area of operations and future expansion plans. However, an registered composite dealer can always opt out of this and pay tax on a normal basis.

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