Advantages and Disadvantages of GST Composition Scheme
The Goods and Services Tax (GST) system launched the composition scheme so as to provide a convenient taxation compliance structure to small businesses. However, the composition scheme has had its own advantages and disadvantages under GST, which have been elaborated in this article.
The following topics have been discussed in this article:

1. About GST Composition Scheme
2. Advantages of Composition Scheme Under GST
3. Disadvantages of Composition Scheme Under GST

About GST Composition Scheme

In order to reduce the maintenance of compliances under the Goods and Services Tax (GST), the GST Composition Scheme was introduced by the government of India. The GST composition scheme aims at reducing the burden of tax compliance on small scale businesses. The eligibility of small scale businesses is determined by their turnover. However, taxpayers who have opted for the composition scheme cannot claim their Input Tax Credit (ITC).
Although registration is optional, the GST composition scheme does not accept every registration. Only those small scale enterprises which have a maximum turnover of Rs. 1.5 crore are eligible to opt for the composition scheme. Earlier this threshold user to be at Rs. 75 lakhs, but it was raised by the GST Council in 2017 to Rs. 1.5 crore per annum. However, the taxpayers will be required to apply for this scheme every year or else they will be treated as normal taxpayers for the year when they dont register under the composition scheme.
Normal taxpayers under GST can opt for the composition scheme and become composition dealers. On the other hand, composition dealers can become normal taxpayers and avail their ITC. Some taxpayers who are migrating to GST may get confused that if or not they should opt for the composition scheme and lose their claim to availing ITC. The advantages and disadvantages of the GST composition scheme discussed in this article may help in sorting out this dilemma.

Advantages of Composition Scheme Under GST

The GST Composition Scheme offers various advantages:

• Reduced Tax Liability: The composition scheme provides reduced rates of tax as compared to normal tax rates to its taxpayers. The tax rate for a composition dealer who is a manufacturer or trader is 1% of this annual turnover. Whereas, the tax rate for composition dealers who own restaurants which dont serve alcohol is 5% of their annual turnover.

• Lesser Compliances: The GST composition scheme was mainly launched to reduce the compliances of taxpayers. The normal GST system has various compliance requirements for its taxpayers while filing their GST returns. Regular taxpayers are required to file their monthly returns in forms GSTR-1, GSTR-2, and GSTR-3, as well as annual returns in form GSTR-9. However, the composition scheme does not impose strict requirements of tax compliance on its taxpayers. A composition taxpayer is only required to file five returns in total: four quarterly returns in form GSTR-4 and one annual return in form GSTR-9A.

• High Liquidity: due to reduce rates of tax for composition dealers, the amount of working capital which goes into the payment of tax also reduces. This results in an increased liquidity for the taxpayers. This liquidity can be used to induce the remaining capital towards the growth and development of the business.

• Ease of doing Business: Limited compliances and reduced tax liability will simplify the process of the growth of the small businesses. As a result, the profit margin will be surged due to reduced taxes, and the hassles of compliance will be reduced by limited compliance. This will help the businesses in focusing more on their growth.

Disadvantages of Composition Scheme Under GST

The drawbacks of the GST Composition Scheme are:

• Unavailable Input Tax Credit (ITC): Regular GST taxpayers are allowed to claim ITC on the tax they have paid through the form GSTR-9C. However, the composition scheme does not allow its taxpayers to avail ITC paid on inward supplies when regular taxpayers can reclaim it at the point of sale. The unavailability of ITC to composition taxpayers further brings in the cascading effect of tax and increases the cost of goods for customers.

• Prohibitions on Sale of Goods: The GST composition scheme does not allow businesses to make interstate sales, i.e. businesses can only make sales in the state they have registered themselves in. the composition scheme only allows intrastate sale of goods. This means that composition dealers are not allowed to even export their goods because the GST rules consider export as an interstate sale. Also, the businesses cannot sell their goods through any e-commerce platform. The composition scheme further prohibits the sale of exempted goods because those goods are considered beyond the scope of the scheme.

• Collection of Taxes Prohibited: The composition levy scheme does not permit its taxpayers to collect any tax from their customers. Furthermore, composition taxpayers are not even allowed to raise a tax invoice under the scheme. The businesses which have opted for the composition scheme are required to pay all the taxes under the scheme by themselves.

• Supply of Services Not Covered: A business which is a supplier of services is not eligible to opt for the composition scheme. The scheme is only available to intrastate suppliers of goods and does not allow any supply of services.

• Penalty: The composition scheme has strict penalty for committers of fraud. In case any taxpayer is found to be fraudulently registered under the composition scheme so as to avoid paying normal taxes, s/he will be penalized to pay the normal taxes along with a penalty fee valued at 100% of the taxes s/he is liable to pay.