Demerits of the Composition Scheme

The demerits of registering under Composite Scheme by a taxable person are as follows:

*Limited Territory for Business: A taxpayer registered under the composition scheme is barred from carrying out inter-state transactions and cannot affect import-export of goods and services.

*No Credit of Input Tax: Under the scheme, the credit of input tax paid on the purchases of inputs from a normal taxpayer will not be allowed. The buyer of goods supplier by scheme holder will also not enjoy input tax credit resulting in price distortion, cascading, loss of business to scheme holders.

*No Collection of Tax: Though the rate of tax for a scheme holder is lower the burden of such tax is kept on the taxpayer himself, leading to higher cost of sales.

*Penal Provision: As per the Model GST Law, if the taxpayer who has previously been given registration under composition scheme is found to be not eligible to the composition scheme or if the permission granted earlier was incorrectly granted, then such taxpayer will be liable to pay the differential tax along with a penalty.

Not applicable to the supplier supplying goods through e-commerce.