Difference Between Regular and Composite GST Schemes

 

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.

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.

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.

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.