February 23, 2023

Marginal scheme in GST

The marginal scheme, also known as the "Composition Scheme," is a special scheme under the Goods and Services Tax (GST) that allows small taxpayers to pay tax at a lower rate and file simplified returns. The scheme is available to taxpayers whose annual turnover is less than Rs. 1.5 crores.

Under the marginal scheme, taxpayers are required to pay a fixed percentage of their turnover as tax instead of the regular GST rate, which can be as high as 18%. The tax rates under the scheme range from 1% to 6%, depending on the nature of the business.

The marginal scheme is designed to make it easier for small businesses to comply with the GST law and reduce their tax liability. It simplifies the tax calculation process and reduces the compliance burden on small taxpayers.

However, taxpayers who opt for the marginal scheme are not eligible to claim input tax credit, which means they cannot claim credit for the GST paid on their purchases. Additionally, taxpayers under the marginal scheme are not allowed to engage in inter-state sales, which means they can only sell their goods and services within the state.

Scope of supply and valuation for GST under the margin scheme

Rule 32(5) of the CGST Rules, 2017 outlines the scope of supply and valuation for GST when a person is dealing with second-hand goods. According to the rule, the value of the supply is calculated as the difference between the purchase price and the selling price of the goods. In case the value of the supply is negative, it will be ignored. Second-hand goods refer to used goods or goods that have undergone minor processing that did not affect the nature of the goods, and input tax credit has not been claimed on them.

Conditions to be fulfilled to avail margin scheme

A notification issued on 28th June 2017 (Notification No.10/2017) exempts a second-hand goods dealer from paying CGST when purchasing second-hand goods from an unregistered supplier. The exemption applies to the entire amount of CGST payable in case of intra-state supplies. A similar notification is issued under the IGST Act.

To be eligible for the margin scheme, the supplier of goods must be a second-hand goods dealer, and the taxpayer cannot claim input tax credit if they opt for the margin scheme. Additionally, any further processing of the goods should not change the nature of the goods, and the transaction must be a taxable supply.


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