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What are disadvantages of registering under Composition Scheme in GST?

author portrait

Sakshi Shah

Bill of Supply
Composition Scheme
GST
GSTR-4
ITC
Last updated on April 19th, 2021

Registration under the composition scheme in GST has its own set of benefits and drawbacks. The taxpayer should analyse the advantages and disadvantages to opt for GST Composition Scheme on GST Portal.

Disadvantages of GST Composition Scheme

FAQs

Can a person who has opted to pay tax under the composition scheme avail Input Tax Credit (ITC) on his inward supplies?

No. A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies. When he switches over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed.

Can a registered person, who purchases goods from a taxable person paying tax under the composition scheme, avail credit of tax paid on purchases made from the composition dealer? 

No, as the composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered person making purchases from a taxable person paying tax under the composition scheme cannot avail input tax credit.

Can a person paying tax under the composition scheme issue a tax invoice under GST? 

No. He can issue a bill of supply in lieu of tax invoice. As he cannot issue a tax invoice, he cannot charge and collect tax from his supplies.  

What are the consequences if a person who is not eligible opts for the composition scheme? 

If a taxable person has paid tax under the composition scheme though he was not eligible for the scheme then the person would be liable to penalty and the provisions of section 73 or 74 shall be applicable for the determination of tax and penalty.

Got Questions? Ask Away!

  1. Hey @Shweta_Saini

    You can opt out of Composition Scheme from your account on GST Portal. Once the taxpayer type is updated to Regular in your profile, you can start filing GST Returns under the regular scheme. If you are facing any issues while making the withdrawal application, you can create a grievance on the GST Portal.

    Do let us know if you have any further queries.

  2. I want to be able to claim input tax credit for GST paid. Should I opt for the GST composition scheme or regular scheme?

  3. Hey @Joe_Fernandes

    If you wish you claim Input tax credit, you should opt for GST Regular Scheme.

    Read more about the difference here.