Difference between regular GST and composition GST

 

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.

The Difference Between Regular GST and Composition GST Scheme

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.

GST Composition Scheme: Rules, Turnover Limit, Rate, Benefits

 

GST Composition Scheme

Composition Scheme is a simple and easy scheme under GST for taxpayers. Small taxpayers can get rid of tedious GST formalities and pay GST at a fixed rate of turnover. This scheme can be opted by any taxpayer whose turnover is less than Rs. 1.5 crore*. 

You can know whether a taxpayer opted for a composition scheme or not using the GST search tool. Enter any GSTIN and check the ‘Taxpayer Type’ column in the results to know whether the taxpayer is a regular taxpayer or opted for the composition scheme.

*CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5 Crores.

Who can opt for Composition Scheme?

A taxpayer whose turnover is below Rs 1.5 crore* can opt for Composition Scheme. In case of North-Eastern states and Himachal Pradesh, the limit is now Rs 75* lakh. As per the CGST (Amendment) Act, 2018, a composition dealer can also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. 

This amendment will be applicable from the 1st of Feb, 2019. Further, GST Council in its 32nd meeting proposed an increase to this limit for service providers on 10th Jan 2019*. Turnover of all businesses registered with the same PAN should be taken into consideration to calculate turnover.

*CBIC has notified the increase to the threshold limit from Rs 1.0 Crore to Rs. 1.5 Crores.

Who cannot opt for Composition Scheme

The following people cannot opt for the scheme-

• Manufacturer of ice cream, pan masala, or tobacco.
• A person making inter-state supplies or exempt supplies.
• A casual taxable person or a non-resident taxable person.
• A person supplying services through an e-commerce operator who is required to collect TCS under the CGST Section 52.
• A manufacturer of such goods or supplier of such services notified by the Government on the recommendations of the GST Council.

What are the conditions for availing Composition Scheme?

The following conditions must be satisfied in order to opt for composition scheme:

• No Input Tax Credit can be claimed by a dealer opting for composition scheme
• The dealer cannot supply goods not taxable under GST such as alcohol.
• The taxpayer has to pay tax at normal rates for transactions under the Reverse Charge Mechanism
• If a taxable person has different segments of businesses (such as textile, electronic accessories, groceries, etc.) under the same PAN, they must register all such businesses under the scheme collectively or opt out of the scheme.
• The taxpayer has to mention the words ‘composition taxable person’ on every notice or signboard displayed prominently at their place of business.
• The taxpayer has to mention the words ‘composition taxable person’ on every bill of supply issued by him.
• As per the CGST (Amendment) Act, 2018, a manufacturer or trader can now also supply services to an extent of ten percent of turnover, or Rs.5 lakhs, whichever is higher. This amendment will be applicable from the 1st of Feb, 2019.

How can a taxpayer opt for composition scheme?

To opt for composition scheme a taxpayer has to file GST CMP-02 with the government. This can be done online by logging into the GST Portal. This intimation should be given at the beginning of every Financial Year by a dealer wanting to opt for Composition Scheme. Here is a step by step Guide to File CMP-02 on GST Portal.

Guide to File CMP-02 on GST Portal

When a dealer wants to opt for Composition Scheme under GST, they have to intimate the government about it. This can be done by filing Form GST CMP-01 or Form GST CMP-02.

CMP-01 is a form to be filed by a migrated taxpayer who wants to opt for Composition Scheme. The due date for this was 1st August 2017 (1 month from July 2017).  A taxpayer who wants to opt for Composition Scheme for a financial year or during the middle of a financial year has to inform the government about their choice. This is to be done by filing GST CMP-02 If CMP-02 is filed in the middle of the financial year, the rules of the scheme are applicable from the month immediately succeeding the month in which CMP-02 is filed.

For example – A taxpayer files CMP-02 in the month of December 2017. This means that the rules of the Composition Scheme will be applicable from January 2018. Both CMP-01 and CMP-02 are required to be filed online on the GST Portal/ GSTN and the process to file is the same.

Here is a Guide to File GST CMP-02 on GST Portal

Step 1 – Login to GST Portal.  

Step 2 – Go to ‘Services’ > ‘Registration’ > ‘Application to Opt for composition Levy’.  

Step 3 – On this window read the ‘Composition Declaration’ and ‘Verification’ carefully and tick on the checkbox. Choose the ‘Name of Authorized Signatory’ from the drop-down. Also, type the ‘Place’ and click on ‘SAVE’.  

Step 4 – If you are a Company or an LLP you can only submit the application with DSC. Any other registrant can use any of the three methods to submit the return.  

Step 5 – A pop up will open containing the warning. Click on ‘PROCEED’ here.

Once the application is submitted a success message is displayed. Also, an acknowledgment is sent to your registered email id and mobile.  

After filing this form a Composition Dealer has to file GST CMP-03 within 90 days.

How Should a Composition Dealer raise bill?

A composition dealer cannot issue a tax invoice. This is because a composition dealer cannot charge tax from their customers. They need to pay tax out of their own pocket. Hence, the dealer has to issue a Bill of Supply. The dealer should also mention “composition taxable person, not eligible to collect tax on supplies”  at the top of the Bill of Supply.

Composition Scheme GST Rate for a dealer

Following chart explains the rate of tax on turnover applicable for composition dealer:

As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘ Turnover of taxable supplies of goods’.

How should GST payment be made by a composition dealer?

GST Payment has to be made out of pocket for the supplies made. The GST payment to be made by a composition dealer comprises of the following:

• GST on supplies made.
• Tax on reverse charge
• Tax on purchase from an unregistered dealer*

*Only on the specified categories of goods and services and well as the notified class of registered persons with effect from 1st Feb 2019 but is yet to be notified. Hence, not applicable until then.

What are the returns to be filed by a composition dealer?

A dealer is required to pay tax in a quarterly statement CMP-08 by 18th of the month after the end of the quarter. Also, a return in form GSTR-4 has to be filed annually by 30th April of next financial year from FY 2019-20 onwards. GSTR-9A is an annual return to be filed by 31st December of the next financial year. It was waived off for FY 2017-18 and FY 2019-20. Also, note that a dealer registered under composition scheme is not required to maintain detailed records.

What are the advantages of Composition Scheme?

The following are the advantages of registering under composition scheme:

• Lesser compliance (returns, maintaining books of record, issuance of invoices)
• Limited tax liability
• High liquidity as taxes are at a lower rate

What are the disadvantages of Composition Scheme?

Let us now see the disadvantages of registering under GST composition scheme:

• A limited territory of business. The dealer is barred from carrying out inter-state transactions
• No Input Tax Credit available to composition dealers
• The taxpayer will not be eligible to supply non-taxable goods under GST such as alcohol and goods through an e-commerce portal.