This article applies to selling in: India

Composite dealer vs Regular dealer


There are large number of sellers, who are registered as 'composite dealer' and are not able to launch on the marketplace since the GST law mandatorily requires a seller to be registered as a 'regular dealer' to sell through an e-commerce marketplace. A seller, who is registered as a composite dealer can convert his registration to a regular dealer by following the steps as elaborated in this document. There are certain benefits and additional compliances of getting registered as a regular dealer instead of a composite dealer which can be considered by such sellers which are also detailed in this document.

What are the pros of getting registered as a regular dealer?

You can avail the following benefits, if you are registered as a regular dealer:

Claiming of Input Tax Credit:

As a regular dealer can claim Input Tax Credit (ITC) of the GST paid on purchase and set-off against output liability, whereas as a composite dealer cannot avail ITC of the GST paid on purchase. However, the availment of credits are subject to specified restrictions as provided under the GST Law.

No geographic restrictions:

You can sell goods to customers, who are located in other states i.e. they can to make interstate sales whereas a seller registered as composite dealer cannot make interstate sales. This will significantly increase the market size and in turn, a chance to get more sales.

Supplies on e-commerce marketplaces:

You will be able to launch on the e-commerce marketplace and can supply to customers buying on the e-commerce marketplace, which in turn will increase the market reach and a chance to get more sales turnover.

Supplies to large business customers:

When a composite dealer sells to a buyer registered as regular dealer, since no taxes are collected, the tax portion built into the sale price becomes a cost for the buyer. However, when the regular dealer sells, the buyer who is registered under the regular scheme is eligible to claim credit of the GST paid on such purchases. This will open an avenue to supply to business customers increasing chances to get more sales.

Recovery of GST from the customer:

You can recover the GST and discharge the same, whereas the GST is a cost to the seller, if you are registered as a composite dealer. A composite dealer cannot charge or collect GST on the Bill of Supply.

What are the cons of getting registered as a regular dealer?

As a regular dealer, you need to face the following consequences:

Filing of returns:

As a regular dealer, you will have to file three returns every month and one annual return, whereas a composite dealer needs to file four quarterly returns and one annual return. There is a proposal to simplify this process wherein even regular dealers are required to file only one return per month or quarter (depending on the turnover).

Issuing of tax invoice:

A composite dealer issues a bill of supply whereas the regular dealer will have to issue tax invoice for each supply containing various details as required under the GST law.

Mapping of Harmonised System of Nomenclature (HSN) and tax rates:

Under the GST law, a regular dealer with notified annual taxable turnover need to mention HSN codes on the tax invoice. Further, unlike a composite dealer, who is required to pay a fixed rate of tax on the entire turnover, a regular dealer is required to pay tax at the rates applicable to the items sold.

Maintenance of records:

While both composite and regular dealers are required to maintain records, a regular dealer is also required to maintain the following records as well:

  • Accounts of stock in respect of goods received and supplied by them, and such accounts shall contain particulars of the opening balance, receipt, supply, goods lost, stolen, destroyed, written off or disposed of by way of gift or free sample and the balance of stock including raw materials, finished goods, scrap and wastage thereof.
  • An account, containing the details of tax payable tax collected and paid, input tax, input tax credit claimed, together with a register of tax invoice, credit notes, debit notes, delivery challan issued or received during any tax period.

Tax Collection at Source (TCS) related compliances for supplies on e-commerce marketplaces:

As per the GST laws, an e-commerce operator is liable to collect 1% of the consideration paid to suppliers for supplies made through the e-commerce marketplace. Therefore, consideration received for supplies through the e-commerce marketplace will be after deducting the requisite 1% of value of supply.

  • However, credit of TCS is available to the seller in his cash ledger on accepting the supplies declared by the e-commerce operator on the GST portal.
  • Thereafter, such amount will reflect as TCS credit in the electronic cash ledger and can be used for discharge of output GST liability.
  • In case of excess balance of TCS in cash ledger, the same can be claimed as refund from the Government.

Process of conversion from composite dealer to regular dealer

As per the GST laws, a person who intends to voluntarily withdraw from the Composition scheme will be required to file an application in Form GST CMP-04. Application can be filed at any point during the year, before the date of withdrawal from the scheme.

Follow the steps below to file electronic application in Form GST CMP-04 as on the portal:

  1. Log in to the GST portal, select the registration option from the Services tab and click on Application for Withdrawal from Composition Levy. This will take you to the Form GST CMP-04.

  2. You need to fill the form providing details like reason for withdrawal from scheme, category of registered person, date from which the withdrawal from scheme is sought.

  3. You will need to submit the said form electronically using the digital signature or e-verification.

Further, a person opting out of the composition scheme will be required to furnish a statement in FORM GST ITC-01 electronically, on the GST portal, containing details of the stock of inputs along with those contained in semi-finished or finished goods and capital goods as on date of withdrawal.

  1. You have to log in to the GST portal, select the returns option from the Services tab and click on ITC Forms. Thereafter, the vendor can select Form ITC 01 to be prepared online under Section 18(1) (c).

  2. You need to submit invoice wise details of the inputs, inputs contained in semi-finished goods or finished goods and capital goods on which input credit is claimed.
  3. The input details will require a description of inputs, invoice number, HSN, quantity, value, tax and cess. The requirements are detailed in the screenshot of the form below:

  4. Further, such statement will have to be filed within a period of thirty days from date of withdrawal from the composition scheme.
Note: An intimation to opt out of the composition scheme for any place of business will be considered as deemed intimation for all the places of business registered under the same PAN.
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