What are the advantages of registering under the Composition Scheme in GST?

By Sakshi Shah on February 24, 2020

Registration under the composition scheme in GST has its own set of benefits and drawbacks. Based on the situation of the business, the advantages and disadvantages must be carefully analysed to decide whether to opt for composition scheme or not.

What is Composition Scheme under GST?

A business must opt for composition scheme to avail the following benefits:

1. Less Record Keeping

Detailed records and accounts are not required to be maintained. The taxpayer can focus on running a business effectively rather than worrying about accounting and record keeping.

2. Less Returns

While other taxpayers need to file monthly returns, a composite dealer needs to file only quarterly returns (GSTR-4) and an annual return (GSTR-9A) for a financial year. Thus, the compliance burden is less.

3. Limited Tax Liability

The tax liability of a composite dealer is 1%, 2%, 5% or 6% of the turnover which is negligible in comparison to regular dealers who generally pay GST at 5%, 12%, 18% or 28%. However, the regular dealers can claim an input tax credit of GST paid on purchases.

What is the tax rate under Composition Scheme?

4. High Liquidity

A composite dealer has to pay tax at a lesser rate than regular dealers. The payment of tax is to be done every quarter. Thus, there would be an easy flow of funds with high liquidity in the business.

5. Competitive Advantage

Under the composition scheme, the dealer cannot collect tax from its customers. Thus, they can sell goods at a lesser price than the competitors who charge GST from the customers.

What are the disadvantages of registering under the Composition Scheme in GST?