GST Gives Two Broad Forms Of Registrations To Taxpayers In India
GST gives two broad forms of registrations to taxpayers in India: the Composition Scheme and Regular Scheme. Selection of appropriate schemes is important, as it would have a direct impact on the tax rates, compliance price, and business.
The article defines the difference between GST Composition Scheme and Regular Scheme on crucial factors, such as eligibility, tax rates, returns, benefits, and lacunae, and has been presented in tabular form for a better view.
What Is The GST Composition Scheme?
The scheme of Goods and Service Tax Composition is designed in such a way that it provides relief to the small taxpayers, hence minimising the burden on them. In this scheme, the tax is collected on a lower percentage of the turnovers, and the number of returns is reduced.
The scheme is not compulsory and can be completed during registration or towards the beginning of the financial year.
Objective Of The Composition Scheme
- Reduce compliance burden for small businesses
- Simplify GST return filing
- Lower tax liability at a fixed rate
What Is The GST Regular Scheme?
The Regular GST Scheme is the scheme used by the majority of businesses in South Africa. In this case, the taxpayers impose a GST on their invoices and receive tax revenue along with a benefit through ITCs.
This plan will be achieved through record-keeping and filing returns on a regular basis.
Eligibility Criteria
Composition Scheme Eligibility
- Annual turnover does not exceed the prescribed limit (generally ₹1.5 crore; ₹75 lakh for certain special category states)
- The business is not involved in inter-state outward supplies
- The business does not provide goods through e-commerce services that are liable to collect TCS
- The business is not a manufacturer of notified goods (such as ice cream, pan masala, tobacco, etc.)
Regular Scheme Eligibility
- Applicable to all businesses registered under GST
- Mandatory if turnover exceeds the composition scheme threshold
- Mandatory for inter-state suppliers and e-commerce sellers
Tax Rates Under Both Schemes
Composition Scheme Tax Rates
- Manufacturers & Traders: 1% (0.5% CGST + 0.5% SGST)
- Restaurants (not serving alcohol): 5%
- Service Providers (under special composition scheme): 6%
Regular Scheme Tax Rates
Under the Regular Scheme, GST is charged according to applicable slabs:
- 5%
- 12%
- 18%
- 28%
Depending upon the goods or services.
Input Tax Credit (ITC)
Composition Scheme
- Input Tax Credit (ITC) is NOT allowed
- Purchasing tax is an expense to the company.
Regular Scheme
- ITC is allowed on eligible purchases
- Helps reduce overall tax liability
GST Returns Filing
Composition Scheme Returns
- CMP-08: Quarterly statement of tax payment
- GSTR-4: Annual return
Compliance is minimal and easy.
Regular Scheme Returns
- GSTR-1: Monthly/Quarterly outward supplies
- GSTR-3B: Monthly summary return
- Annual Return (GSTR-9)
Compliance is more detailed and frequent.
Invoice Requirements
Composition Scheme
- Cannot issue tax invoice
- Must issue Bill of Supply
- Cannot collect GST from customers
Regular Scheme
- Can issue Tax Invoice
- Can collect GST from customers
Inter-State Supply
| Scheme | Inter-State Supply |
|---|---|
| Composition Scheme | Inter-state outward supply is not allowed |
| Regular Scheme | Inter-state supply is allowed |
Compliance Burden
Composition Scheme
- Low compliance
- Fewer records
- Less professional fees
Regular Scheme
- Higher compliance
- Detailed accounting
- Higher compliance cost
Advantages And Disadvantages
Advantages Of The Composition Scheme
- Lower tax rates
- Simple compliance
- Reduced paperwork
- Suitable for small businesses
Disadvantages Of The Composition Scheme
- No Input Tax Credit
- No inter-state sales
- Cannot collect GST
- Limited business expansion
Advantages Of The Regular Scheme
- Input Tax Credit available
- Suitable for growth-oriented businesses
- Inter-state and e-commerce sales allowed
Disadvantages Of The Regular Scheme
- Higher compliance burden
- Monthly return filing
- Higher professional costs
Difference Between GST Composition Scheme & Regular Scheme (Comparison Table)
| Basis | Composition Scheme | Regular Scheme |
|---|---|---|
| Eligibility | Small taxpayers | All taxpayers |
| Turnover Limit | Up to ₹1.5 crore | No limit |
| Tax Rate | Fixed lower rate | Slab-based rates |
| Input Tax Credit | Not available | Available |
| GST Collection | Not allowed | Allowed |
| Invoice Type | Bill of Supply | Tax Invoice |
| Return Filing | Quarterly & Annual | Monthly/Quarterly & Annual |
| Inter-State Supply | Not allowed | Allowed |
| Compliance Cost | Low | High |
Which Scheme Is Better: Composition Or Regular?
The Composition Scheme should be chosen in case you have a small business, are located in one state, and deal primarily with end consumers.
Select the Regular Scheme if you intend to grow, want to serve B2B customers, require ITC, or will serve multiple states.
The choice that is best for you will depend on the size, type, and growth potential of your business.
Conclusion
The composition scheme of GST is most appropriate for small businesses that want simplicity and low compliance, while the GST regular scheme is appropriate for businesses that want scalability, benefits of ITC, and interstate supply.
Before selecting a GST scheme, businesses must analyze the needs for turnover, customer base, compliance, and long-term goals for GST efficiency and legal compliance.
