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Last updated on 23/09/2014.

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  VAT FAQ 


COMPOSITION SCHEME

Q.1. What is a composition scheme?
A.1. In order to relieve small dealers of the need to keep detailed records, the law provides provision for a simpler method of accounting for VAT known as composition scheme. This schemes make calculation of tax very easy.
Q.2. What are the advantages and disadvantages of Composition Scheme?
A.2. The decision to join Compositions Scheme is an individual decision. This decision will depend on the fact as to how VAT affects the dealerís business. It has advantage that it saves a lot of labour and effort in keeping records. It also simplifies calculation of tax liability of a dealer. The disadvantage of this is the fact that the dealer is not able to claim input tax credit on purchases made by him. Also he is not entitled to issue a tax invoice to a purchaser.
Q.3. What is composition scheme? What are the benefits of the Scheme?
A.3. Small dealers whose turnover does not exceed Rs.50 lakhs in the year ended 31st March 2006 or in the current year, may opt for this scheme.
Q.4. Which dealers are not entitled for composition scheme?
A.4. Where a dealer effects: -
  1. Inter state sales/ purchases, or Inter state transfer of goods
  2. Imports or exports,
  3. Manufacturing activity (except notified by Commissioner)
  4. Sales or purchases through commission agent.
  5. Sale by way of transfer of right to use any property.
  6. Sales/purchases with a dealer paying lump sum tax. He is not entitled for composition scheme.
Q.5. Whether the Government has notified any manufacturers so that such manufacturers can be eligible for composition?
A.5. The Government may issue such a notification.
Q.6. What would be the tax liability of such dealer?
A.6. Such dealers would be required to pay lump-sum tax at a rate notified by the Government on their total turnover. Different rate for special class of dealers including manufacturers will be notified separately.
Q.7. Whether any other tax would be required to be paid by such dealer?
A.7. Yes. Purchase tax payable under section 9 if any, would be required to be paid by such dealer.
Q.8. Whether such dealer can claim input tax credit?
A.8. No. Such dealer will not be entitled to input tax credit.
Q.9. Can such dealer charge the tax or issue tax invoice?
A.9. No, such dealer cannot charge tax on sale. He cannot issue tax invoice.
Q.10. How to obtain permission for composition?
A.10. Dealer has to apply in Form-210 to the Commercial Tax officer in whose jurisdiction he is required to furnish returns and he shall be issued such permission in Form-211
Q.11. What is the procedure for filing of return and payment of tax for such dealer?
A.11. Such dealer shall furnish quarterly return in Form- 202 and pay tax quarterly in Form-207 within twenty-two days of the relevant quarter.
Q.12. Which invoice such dealer shall issue?
A.12. Such dealer shall issue retail invoice.
Q.13. When such permission shall ceases to operate?
A.13. The permission shall cease to operate in event of:
  1. Turnover exceeding rupees fifty lakh
  2. Occurrence of any of the events referred to from (i) to (vi) in A2
  3. On application by such for cancellation of lump-sum facility.
Q.14. What will be the responsibility of a dealer on cancellation of permission under composition?
A.14. A dealer will have to pay tax monthly as per VAT and file monthly return from the month next following the month in which his permission has been cancelled.
Q.15. Can I switch from normal VAT to a composition scheme or vice versa?
A.15. Yes, if otherwise eligible. But, you should apply to Commercial Tax Officer and seek permission for switch over.

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