Composite scheme

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surbhi jain (Querist)
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23 December 2012 sir,
I want to ask what are the common limits being prescribed in order to adopt the composite scheme by the assessee as per VAT rules.Kindly give special focus on turnover

surbhi jain

surbhi jain (Querist)
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23 December 2012 kindly give ans of my ques....

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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20 July 2024 Under the Value Added Tax (VAT) rules in various states of India, including Maharashtra, the composite scheme (also known as the composition scheme) is designed to simplify tax compliance for small businesses. The scheme allows eligible businesses to pay tax at a fixed rate on their turnover instead of the regular VAT rates on sales. Here are some common limits and criteria typically prescribed for adopting the composite scheme:

1. **Turnover Limit**: The primary criterion for eligibility under the composite scheme is the turnover of the business. States may have different turnover limits, but a common threshold is usually up to Rs. 50 lakhs (Rs. 5 million) per annum.

2. **Types of Businesses**: Typically, the composite scheme is available for:
- Traders or retailers of goods.
- Restaurants or eateries selling food and beverages.
- Small manufacturers.

3. **Fixed Rate of Tax**: Businesses opting for the composition scheme pay tax at a fixed rate on their total turnover. This rate is generally lower than the standard VAT rates. In Maharashtra, for instance, it could be 1% or 2% of the turnover depending on the type of business.

4. **Benefits and Restrictions**:
- **Simplified Compliance**: Businesses under the composition scheme need to file periodic returns at simpler intervals.
- **No Input Tax Credit**: Businesses cannot claim input tax credit on purchases made under this scheme.
- **Limited Transactions**: The scheme may restrict certain transactions, such as interstate sales or purchases from unregistered dealers.

5. **Eligibility Criteria**: Besides turnover, other eligibility criteria may include:
- The type of goods sold or manufactured.
- The nature of the business (e.g., whether it involves manufacturing or trading).

It's crucial for businesses considering the composite scheme to carefully review the specific rules and rates applicable in their state. These schemes are intended to provide relief to small businesses by reducing compliance burdens, but they also come with certain limitations that need to be understood and managed accordingly.

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