GST Regular and Composition Difference: Regular GST vs Composition GST Explained
Quick Summary
- The Regular GST Scheme is for businesses with high turnover, allowing them to claim input tax credits and requiring monthly or quarterly returns.
- The Composition GST Scheme is for small businesses with limited turnover, offering lower tax rates and simpler quarterly returns but no input tax credits.
- Businesses in the Regular Scheme can trade interstate, while those in the Composition Scheme are limited to intrastate trade.
- The choice between Regular and Composition schemes depends on business size, turnover, and the need for input tax credits versus simpler compliance.
- Consulting a tax professional can help businesses decide which GST scheme best suits their needs and optimizes tax efficiency.
The GST regular and GST composite tax schemes can be differentiated by their applicable tax rates, compliance requirements, eligibility criteria, and the availability of input tax credit. Thus, choosing the appropriate scheme is essential for businesses, as it can impact their tax liability and compliance burden.
Book A Demo
Quick answer: Difference between regular and composition GST in one minute
Regular GST is the usual GST method. You charge GST on a tax invoice, claim ITC, and file returns such as GSTR 1 and GSTR 3B.
Composition GST is a simpler option for small businesses. You pay GST as a fixed % of turnover, but you cannot charge GST separately, you cannot claim ITC, and you usually file CMP 08 quarterly and GSTR 4 yearly.
Overview of the Regular GST Scheme
The Regular GST Scheme applies to businesses with a turnover above the prescribed limits of 40 lakhs for goods and 20 lakhs for service providers. Under this scheme, businesses collect GST from customers and can claim Input Tax Credit on their purchases, reducing their tax liability. Regular taxpayers must file monthly or quarterly GST returns, such as
GSTR-1
and GSTR-3B.
It is suitable for businesses that deal in taxable goods or services and incur significant expenses, as ITC helps reduce their overall tax burden.
Regular GST: tax invoice, ITC, and returns like GSTR 1 and GSTR 3B
In regular GST, you follow the full GST system.
1) You issue a tax invoice
A tax invoice clearly shows GST, such as 5% or 12%. This helps your business customers by allowing them to claim ITC on your invoices.
2) You can claim ITC
ITC means you can reduce your GST payment using the GST you already paid on purchases. Example: You collected ₹50,000 GST from customers. You have ₹20,000 ITC on purchases. You may pay only ₹30,000 if ITC is eligible.
3) You file GSTR 1 and GSTR 3B
You file GSTR 1 to report your sales invoices, and GST 3B is filed when you pay GST and claim ITC in summary form.
Overview of GST composition scheme
The GST composition scheme is designed for small businesses with a turnover of up to ₹1.5 crore (₹75 lakh in some states). Under this scheme, businesses pay a fixed percentage of their turnover as GST and cannot collect GST from customers or claim ITC. They only need to file quarterly returns, which simplifies compliance.
The GST composition scheme is ideal for small businesses such as retailers, manufacturers, and service providers with minimal expenses or those dealing with exempt goods. However, it restricts interstate trade and excludes certain businesses, such as those selling taxable goods via e-commerce platforms.
Composition scheme in GST turnover limit: 1.5 crore and 75 lakh for special category states
Composition is mainly for small sellers who want simpler GST.
- Turnover limit is usually ₹1.5 crore
- For special category states, it is usually ₹75 lakh
If your turnover is close to the limit, it is safer to plan a shift to regular GST early.
GST composition scheme for service providers: turnover limit 50 lakh and rate 6%
Some service providers can also opt for a composition scheme.
- Turnover limit: ₹50 lakh
- Rate: 6% total (usually 3% CGST and 3% SGST)
This can suit local service businesses that do not depend on ITC and do not need to pass ITC to customers.
Eligibility Criteria for Composition Scheme
The Composition Scheme is meant for small taxpayers who want simple GST compliance and do not want to file many detailed returns. It is not open to everyone. A business must meet certain basic conditions before it can opt in.
Simply, you can usually choose the Composition Scheme if:
- Your annual turnover is within the limit notified for the scheme (as per the latest GST rules).
- You are not making interstate outward supplies of goods or services.
- You are not supplying through e-commerce operators that collect tax at source.
- You primarily focus on local sales within your state, and your business is small and straightforward.
You cannot opt for the Composition Scheme if you are:
- A casual taxable person or non resident taxable person.
- Running a business that supplies non-taxable goods or services (like alcohol for human consumption).
- Engaged in the manufacture of certain restricted goods (for example, some types of pan masala, tobacco products, etc., which are kept outside the scheme).
- Acting as an input service distributor (ISD), eCommerce operator or TDS/TCS deductor under GST.
Some service providers and mixed suppliers (goods + services) may also be eligible under a special composition option, but they must still comply with the turnover limit and other conditions.
CBIC conditions: not eligible supplies, inter-state restrictions, and e-commerce operator TCS rules
Composition has strict conditions. It may not fit if:
- You deal in certain restricted goods or supply types
- You do interstate outward sales
- You sell through many online platforms where TCS is applied
If your business wants multi-state growth or marketplace selling, regular GST is usually a better fit.
What is the Difference Between a Regular GST Scheme and a composite GST Scheme?
Below is a table comparing the two of them to highlight the differences.
| Particulars | Regular GST Scheme | Composite GST Scheme |
|---|---|---|
| Meaning | Registered taxpayer collects & pays GST | For small taxpayers (turnover ≤ ₹1.5 Cr) with lower tax & quarterly returns |
| Filing Of Returns | GSTR-9/9C (Annual), GSTR-3B (Monthly), GSTR-1 (Monthly/Quarterly) | GSTR-4 (Annual), GST-9A (Annual), CMP-08 (Quarterly) |
| Supply | Interstate & intrastate allowed | Only intrastate allowed |
| Tax Collection | GST at regular rates | GST at lower fixed rate |
| Supply Services | All services allowed | Only specific services allowed |
| Not Eligible To Opt | No restriction | Interstate suppliers, e-commerce sellers, tobacco/ice cream/pan masala makers, turnover > limit |
| Specified Condition | No PAN entity can be both regular & composite | No ITC, no exempt supply, services ≤10% or ₹5L, must show “composition taxable person,” RCM applies |
| What To Issue | Tax Invoice | Bill of Supply |
| GST Payment | Output GST – Input GST + RCM | GST on supplies + RCM (out of pocket) |
| Merits | Unlimited territory, ITC available, e-commerce allowed | Less compliance, small tax, no ledger, better liquidity |
| Demerits | More compliance, less liquidity, dependent on supplier filing | Limited territory, no ITC, no exempt supply, no e-commerce |
| Restriction on SEZ | No restriction | Not allowed to supply to SEZ |
| Condition To Opt-Out | Can opt out anytime | Can opt out only at year end |
Return filing in regular GST vs composition scheme: GSTR 1, GSTR 3B, CMP 08, and GSTR 4
In Regular GST
- GSTR 1 is for sales reporting
- GSTR 3B is for tax payment and ITC
In Composition GST
- CMP 08 is a quarterly payment statement
GSTR 4 is an annual return
Regular GST scheme return filing: how GSTR 1 and GSTR 3B work for monthly and QRMP
Monthly filers
- File GSTR 1 for the month’s invoices
- File GSTR 3B to pay GST for the month
QRMP filers
- File quarterly returns
- Tax is usually paid month-wise for Month 1 and Month 2, then adjusted in the quarterly return
Note: Always match your sales tax in GSTR 1 with the tax payable in 3B before filing 3B.
When can the Composition Scheme be better?
Composition may be more suitable when:
- The client is a small trader, manufacturer, or local restaurant with simple operations.
- Sales are primarily B2C (end customers) who do not care about input tax credit.
- There is limited purchase of goods or services subject to GST, so losing ITC is not a significant issue.
- The client wants very simple compliance. fewer returns, basic tax payments, and less detailed record-keeping.
In such cases, paying a small percentage on turnover and avoiding complex monthly returns can save time, effort and professional costs.
When can the Regular GST Scheme be better?
A regular scheme is generally a better fit when:
- The business has a large or growing turnover and wants to scale operations.
- Sales are mainly B2B, and customers want proper GST invoices and full input tax credit.
- The business needs to do interstate supplies, exports or eCommerce.
- There are significant input taxes on raw materials, services, rent, logistics, and capital goods.
Under the regular scheme, the taxpayer can collect GST separately, claim full ITC, and participate properly in the credit chain. This is crucial for competitive pricing in B2B markets.
GST registration types and how to choose the right GST scheme
GST registration can be done under two schemes: the GST regular scheme and the GST composition scheme.
Choose Regular GST if
- You sell to businesses, and they ask for ITC
- You want ITC on purchases
- You sell outside your state
- You sell online through marketplaces
- Your turnover is growing fast
Choose Composition GST if
- You sell mostly locally to end customers
- You want simpler returns
- You do not need ITC
- Your turnover stays within limits
Switching between schemes: how to move from composition to regular and opt out correctly
Here is the process of switching between schemes and how to pick the right option for your business:
When to move from composition to regular
- Turnover is close to the limit
- You want interstate sales
- You want a marketplace selling
- Buyers want a tax invoice and ITC
How to switch properly
- Decide the switch date.
- From that date, start issuing tax invoices instead of bill of supply.
- Update prices and billing system.
- Start tracking ITC properly from the switch period.
- Keep records of the last bill of supply and the first tax invoice.
Explore All BUSY Calculators for Easy GST Compliance
Conclusion
Both the regular and composite GST schemes have their respective advantages and disadvantages. Businesses must assess their specific needs and circumstances before choosing between regular and composite GST schemes.
-
GST Rates for ProductsGST Rates: GST on ac GST for laptops GST on iphone GST for hotel room GST on flight tickets GST on silver GST for tv wood GST rate GST on train tickets GST on water bottle GST for medicines GST on tyres GST in garments GST on milk GST on stationery GST on tractor GST for food GST rate on tiles GST on sweets GST on gold
