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
- No Input Tax Credit
Input Tax Credit cannot be availed by dealers registered under the composition scheme. Thus, GST paid on purchase cannot be used for payment of GST on sale of goods or services.
- Cannot collect tax on sales
Business registered under the Composition Scheme cannot collect GST from customers on the sale of goods or services. As a result, it should issue a Bill of Supply and cannot charge GST.
- No E-Commerce Sales
A composition business cannot sell goods or services through an e-commerce platform. Therefore, if a seller wants to sell products online on an e-commerce portal, must compulsorily register under the regular scheme. Thus, an E-Commerce Seller cannot register under Composition Scheme.
- No Inter-State Sales
A composite dealer cannot sell goods outside its state of registration. It also cannot carry out the export of goods. Thus, there is a limited territory for business, and expansion is difficult. However, a composite dealer can sell services outside its state of registration.
- Cannot sell exempt goods
Business registered under composition scheme can supply taxable goods and restaurant services. Thus, they cannot sell non-taxable goods and services other than restaurant services.
- Heavy Penalty
If a dealer has obtained registration under Composition Scheme without being eligible for the same, there are strict penalty provisions. The dealer is liable to pay the amount of differential tax and a penalty of up to 100% of tax liability. Thus, a business should apply for registration under the composition scheme only if it fulfills all the conditions.
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.
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.
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.
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.