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

Author
By Sakshi Shah on February 18, 2019

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 analysed to decide whether to opt for composition scheme or not.

What is Composition Scheme under GST?

Following are the drawbacks of taking registration under the Composition Scheme:

1. No Input Tax Credit

Input Tax Credit cannot be availed by dealers registered under the composition scheme. Thus, tax paid on the purchase of goods or services cannot be utilized for payment of tax on the sale of goods or services by the business registered under composition scheme.

2. Cannot collect tax on sales

Business registered under 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.

3. No E-Commerce sales

A composition business cannot sell goods or services through an e-commerce platform. Therefore, if a seller wants to sell its products online on an e-commerce portal, he must compulsorily register under the regular scheme.
[Read More: What is the impact of GST on an E-Commerce Supplier?]

4. 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.

5. 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.

6. Heavy Penalty

If a dealer who has obtained registration under the 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 fulfils all the conditions.

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