Differences Between Regular and Composite Gst Schemes
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.
Overview of the Regular GST Scheme
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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Overview of Composition GST Scheme
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 Scheme
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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What is the Difference Between a Regular GST Scheme and Composite GST Scheme?
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 | 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 |
Conclusion
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.
Jagdish Prasad is a Chartered Accountant with over 5 years of experience. He helps people and businesses with GST, income tax, and HSN codes. Jagdish makes sure his clients follow all tax rules and save money the right way. He also enjoys writing simple articles to help others understand taxes and stay updated with the latest rules.
Frequently Asked Questions
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What is the primary difference between GST Regular and Composition schemes?The primary difference between the GST Regular and Composition schemes is the compliance burden and tax rate. Regular GST requires monthly returns and input tax credit, while the Composition Scheme offers quarterly returns with a simplified tax rate but restricts input tax credit.
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How does the Regular GST vs Composition GST scheme impact small businesses?In the Regular GST vs. Composition GST debate, small businesses often prefer the Composition Scheme due to its simplified compliance and lower tax rates. However, they cannot claim input tax credit, which is available in the regular scheme.
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Can you explain the difference between Composition and Regular GST schemes?The difference between the Composition and Regular GST schemes lies in the tax rate and filing frequency. The Regular GST scheme requires higher compliance with monthly returns and higher tax rates. In contrast, the Composition GST scheme offers lower tax rates and quarterly returns but limits the input tax credit.
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What are the eligibility criteria for Regular GST vs Composition GST?For Regular GST vs Composition GST, any business can opt for the regular scheme, but only those with an annual turnover of up to ₹1.5 crore (₹75 lakh for some states) can choose the Composition Scheme.
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What makes the difference between Regular and Composition GST important for businesses?The difference between Regular and Composition GST is crucial as it affects the business's tax burden and compliance requirements. The Regular Scheme involves detailed records and higher taxes but offers input tax credits, while the Composition Scheme simplifies the process at the cost of higher compliance limitations.
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How does the difference between GST Regular and Composition affect tax filing frequency?The difference between GST Regular and Composition significantly impacts tax filing frequency. Under the Regular GST scheme, businesses must file monthly returns, whereas the Composition Scheme allows for quarterly filings, easing the compliance burden for smaller firms.
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In what way does the difference between the Regular GST scheme and the Composite GST scheme influence input tax credit?The difference between the Regular GST scheme and the Composite GST scheme is particularly evident in input tax credit eligibility. The Regular GST scheme allows businesses to claim input tax credits on purchases, whereas the Composition Scheme does not.
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What are the critical factors in choosing between Regular vs Composition GST?Choosing between Regular vs. Composition GST depends on business size, turnover, and compliance capability. Larger businesses might prefer Regular GST because of the input tax credit, while smaller businesses may opt for the Composition Scheme due to its simplified tax structure and lower rates.
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How does the difference between regular and composition GST impact the tax rate?The difference between regular and composition GST significantly impacts the tax rate. The Regular GST scheme has standard GST rates ranging from 5% to 28%, whereas the Composition Scheme has a fixed lower rate (1% for manufacturers and traders, 5% for restaurants).
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Can you detail the difference between GST Regular and Composition regarding compliance?The frequency and complexity of filings mark the difference between GST Regular and Composition in compliance. The Regular GST requires monthly GSTR-1, GSTR-3B, and annual GSTR-9 filings, while the Composition Scheme simplifies this to quarterly CMP-08 and annual GSTR-4 filings.