The composition scheme trades compliance work for flexibility. You pay a flat percentage of turnover, file quarterly instead of monthly, and your filing burden drops sharply.
What you give up is significant, and it is why the scheme suits some businesses and quietly damages others.
What you give up
- Input credit. GST paid on purchases becomes a cost, not a credit.
- Charging GST. You cannot collect it, so the flat rate comes out of your margin.
- B2B appeal. Your business customers get no credit from your invoice, which makes you effectively more expensive than a registered competitor at the same price.
- Inter-state supply. Not permitted under the scheme.
Who it genuinely suits
Businesses selling mostly to end consumers, buying little, and operating within one state. A local service provider whose customers are households will barely notice the restrictions and will save real time.
Who it hurts
Anyone selling to other businesses. Your customer compares your bill against a competitor whose GST they can reclaim. Even at an identical price, you are the more expensive option, and they will eventually work that out.
It also hurts businesses with heavy input costs, because that GST simply becomes an expense.
How to decide
Work out two numbers for last year: total GST you paid on purchases, and the share of your sales that went to GST-registered businesses. If either is meaningful, the scheme is probably costing you more than the compliance it saves.
Leave a Comment