The Indian government introduced the GST Composition Scheme as a simpler and more affordable way for small businesses to comply with GST regulations. The scheme allows eligible taxpayers to pay a fixed percentage of their turnover as a tax instead of the regular GST rates. While this scheme has several advantages, such as reduced compliance burden and cash flow benefits, it also has certain drawbacks that taxpayers should be aware of.
In this context, the drawbacks of registering under the GST Composition Scheme refer to the disadvantages businesses may face by opting for this scheme.
These drawbacks include restrictions on inter-state sales, limitations on the input tax credits, and reduced competitiveness in the market, among others. In this article, we will discuss these drawbacks in more detail and help taxpayers decide whether to opt for the GST Composition Scheme.
The GST Composition Scheme is essential for traders with annual sales below Rs. 1 Crore*. While registering under the GST composition scheme provides advantages, there are also a number of disadvantages, some of which will be discussed below.
**CBIC has increased the threshold limit from Rs. 1 crore to Rs. 1.5 crore as of February 1st, 2019.
Given below are some of the drawbacks of registering under the GST composition scheme:
Given below are the applicable GST rates in the composition scheme:
|Type Of Business||CGST||SGST||Total|
|Manufacturer And Trader (Goods)||0.5%||0.5%||1%|
|Restaurants Not Serving Alcohol||2.5%||2.5%||5%|
|Other Sevice Providers||3.0%||3.0%||6%|
Turnover for traders is defined as “Turnover of taxable supplies of goods” according to notification 01/2018.As a result, the responsibility for paying the tax remains with the taxpayer, who must do it out of pocket. As a result, this case disproves the core idea of restricted compliance and the tax burden on small taxpayers.
It is reasonable to conclude from an analysis of this clause that a small taxpayer with limited knowledge of tax laws and compliance who commits any error under the composition scheme will be required to pay tax at the standard rate on his total turnover in addition to a penalty that will be equal to the full amount of tax owed.
They are not eligible for the composition scheme because they deal in interstate supply; hence, they cannot take advantage of this section’s provisions. This runs counter to the government’s “Digital India” and “Startup India” initiatives, which seek to advance the startup environment and the digital experience for Indian residents.
The GST Composition Scheme is a simplified way for small businesses in India to comply with GST regulations by paying a fixed percentage of their turnover as tax instead of the regular GST rates. However, there are drawbacks to registering under this scheme. One major drawback is the restriction on inter-state sales, which limits the geographic scope of the business.
Additionally, there are limitations on input tax credit, no collection of tax, and penalties for incorrect registration. E-commerce businesses are also not eligible for this scheme, which goes against the government’s initiatives to advance the digital experience for Indian residents. Ultimately, small taxpayers must weigh the benefits and drawbacks of the GST Composition Scheme before deciding whether or not to register.