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The key differences between regular and composite tax schemes under GST include the tax rates, compliance requirements, eligibility criteria, and input tax credit availability. Choosing the appropriate scheme is essential for businesses, as it can impact their tax liability and compliance burden.
The Regular GST Scheme is for businesses with a turnover above the prescribed limit. Under this scheme, businesses collect GST from customers and can claim Input Tax Credit (ITC) on their purchases, reducing their tax liability. Regular taxpayers must file monthly or quarterly GST returns, such as GSTR-1 and GSTR-3B. This scheme allows the seamless flow of ITC across the supply chain, ensuring transparency and compliance. It is suitable for businesses that deal with taxable goods or services and have significant expenses, as ITC helps lower their overall tax burden. However, it requires detailed record-keeping and regular tax filings.
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The Composition GST Scheme is designed for small businesses with limited turnover, generally up to ₹1.5 crore (₹75 lakh for 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, making compliance easier. This scheme is ideal for small businesses like 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.
Choosing the right GST scheme depends on business size, turnover, and operational needs. The Regular Scheme under GST suits larger businesses with significant expenses and interstate trade, as it allows ITC claims and seamless tax flow. The Composition Scheme is better for small businesses, as it prioritizes simplified compliance and lower tax rates. Businesses must evaluate their turnover, the nature of operations, and the trade-off between compliance requirements and tax savings. Consulting a tax professional can help decide the most suitable scheme to ensure compliance and optimize tax efficiency.
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Below is a table comparing the two of them to highlight the differences.
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| Particulars | Regular GST Scheme | Composite GST Scheme |
|---|---|---|
| Meaning | A regular GST scheme is a tax system where a registered taxpayer collects and pays GST on the value of the goods and services supplied. | The Composite GST scheme is designed for small taxpayers with a turnover of up to Rs. 1.5 crores who pay tax at a lower rate and file quarterly returns. |
| Filing Of Returns | The following returns are to be filed: Annual Return: Form GSTR-9 or GSTR-9CMonthly Basis: GSTR 3BMonthly or Quarterly Basis: GSTR-1 | The following returns are to be filed: Annual Return: Form GSTR 4 yearly as decided in the 32nd council meeting.Monthly Basis: Form GST-9A for Annual ReturnStatement of tax paid on Quarterly Basis: Form CMP-08 |
| Supply | Supply can be made interstate and intrastate under the standard GST scheme. | The supply can only be made within an intra-state under the composite GST. |
| Tax Collection | Taxpayers must pay GST at different rates, depending on the type of goods or services supplied. | The taxpayer has to pay a lower tax rate. |
| Supply Services | Taxpayers can supply all kinds of services. | Taxpayers can only supply specific services. |
| Not Eligible To Opt For The Scheme | There are no exceptions. | The following cannot opt for the scheme: The person carrying interstate supplies Supplier of non-taxable goods Supply of goods via e-commerce portal. Producer of ice cream, tobacco, or pan masala Businesses whose turnover exceeds the prescribed limits. |
| Specified Condition Of Scheme | No firm using the same PAN can be registered under the composition system once the taxable person has registered under the standard GST scheme. | Below are the specific conditions: No dealer under this scheme can claim the input tax credit. The dealer cannot supply GST-exempted goodsThe dealer can supply services to 10% of the turnover or Rs. 5 Lakh or whichever is higher.The taxpayer under this plan must state on each bill, notice, and signboard at their place of business that they are a taxable person and are not allowed to collect taxes.Tax should be paid at the normal tax rates under the reverse charge mechanism. If a PAN name is used for more than one type of business, they must register them all under this programme or choose not to participate. |
| What To Issue | Tax Invoice | Bills Of Supply |
| GST Payment | The GST is payable as: Output GST – Input GST+Tax on Reverse Charge. | The GST is payable out of pocket for the supplies as: GST on supplies made+Tax on reverse charge |
| Merits | The following are the merits of a regular GST scheme:It has unlimited business territory. Availability of input tax credit paid.It can be sold via an e-commerce portal. | The following are the merits of a composite GST scheme: It has less complianceIt just has a small tax obligation.It does not require keeping ledgers.Because the taxes are paid at a reduced rate, there is a lot of liquidity. |
| Demerits | The following are the demerits of the regular GST Scheme:It has more compliance than composite GST, i.e., several returns will be filed. Less liquidity prevents huge tax amounts in e-ledgers; one can only access input when the provider has submitted the return. Detailed accounting records must be kept. | The following are the demerits of the composite GST Scheme: It has limited territory business as it does not allow interstate transactions. No input tax credit is available to dealers.The taxpayers are not eligible for the supply of exempted goods or goods via the e-commerce website. |
| Restriction on SEZ | There is no restriction on export or supply to SEZ or SEZ developers. | A person who cannot make any supplies for SEZ or its developers. |
| Condition To Opt-Out | Any person can opt out of the regular GST scheme at any time. | The taxpayer cannot opt out of the scheme until the end of the financial year. |
Both the regular and composite GST schemes have their respective advantages and disadvantages. While the regular scheme offers flexibility and allows businesses to claim input tax credits , it also involves more compliance requirements and higher tax liability. Whereas, the composite scheme offers easy compliance procedures, lower tax rates, and is suitable for small businesses with lower turnovers. However, it has limitations against input tax credits and restricts businesses from supplying goods and services outside the state. Businesses must assess their specific needs and circumstances before choosing between regular and composite GST schemes.
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