Chartered Accountant · ICAI M.No. 153926 · FRN 136869W
No credit, no charge
Composition is a simplified, low-rate scheme, and the price of that simplicity is the loss of input tax credit. A composition dealer cannot claim ITC on the GST paid on purchases, and cannot collect GST from customers — you issue a bill of supply rather than a tax invoice.
What that means for cost
Because you can’t reclaim input GST, the tax on your purchases becomes a cost, and your flat composition rate comes from your margin. This is fine for a business buying little input or selling to consumers, but a business with heavy GST-bearing purchases or B2B customers usually loses out. Weigh your purchase profile before opting in.
A worked example
Example: a small restaurant under composition pays 5% on turnover and cannot claim ITC on its rent, equipment or supplies — acceptable, as its diners don’t want ITC anyway. A wholesaler selling to registered shops would instead prefer a regular registration, so its buyers get ITC and it reclaims its own. The right choice depends on who you buy from and sell to. Our team can advise.