Difference between Regular and Composition GST – Who Wins?
When we talk about compliance regulations, one’s size doesn’t fit everyone. It doesn’t matter if you are a freelancer, a small trader, or a business owner; opting for the right GST scheme opens the gateway to streamline cash flow, efficiently manage tax burden, and balance the compliance workload. Here’s when this enduring debate begins: What is the difference between regular and composition GST? Who takes the lead?
Both the schemes serve different business requirements. However, which one is the best for your business depends totally on your turnover, business structure, and expansion plans. While the Regular GST scheme offers Input Tax Credit (ITC) and greater operational flexibility, the Composition Scheme trades off these benefits for ease of use, lower tax rates, and simplified compliance. But the question still lies here- which leads the race in the long run.
Let’s break down the key differences here between the two GST schemes and understand which one aligns perfectly with your business agenda. Let’s quickly dive into the blog to understand the difference between regular and composition GST.
GST Regular Vs composition Scheme: Rates Applied!
What is a Regular GST Scheme- A Quick Takeaway!
The regular scheme aids as a standard tax framework under Indian GST ecosystem. It is specially formulated for businesses meeting the specified turnover thresholds, or opting in voluntarily, irrespective of its size.
Input Tax Credit (ITC) forms the primary benefit facilitating businesses to balance GST paid on every purchase made. GST regular scheme best fits for businesses catering to interstate trade, online sales, and those who plan to maximize tax efficiency through ITCs.
What is a Composition Scheme- Decoding its Definition!
Under India’s GST ecosystem, the composition GST scheme is a simplified tax structure specially planned for small businesses to reduce their tax burden. Unlike regular GST, it doesn’t compute taxes based on goods or service categories but instead applies a fixed rate for eligible businesses.
The composition GST scheme is ideal for local businesses that are not involved in interstate trade or eCommerce and prefer simplified filing over ITC claims. The scheme offers added benefits such as a paperless process, fewer returns, and upfront tax norms.
Small traders, manufacturers, and restaurant owners wanting a non-fuss tax model can opt for this scheme.
Check out our detailed guide on GST composition scheme for more information.
Difference Between Regular and Composition GST: Key Pointers!
Regular Vs Composition GST Scheme : A tough choice, is it? Choosing between the two isn’t just about taxation but is a strategic business move. Though both come with their own set of benefits, tax rates, business structure, and long-term goals, it’s crucial to understand which suits your business needs. To make this decision easier, here’s a table for you that explains what is difference between GST regular and composition!
Let’s scroll down to unfold the key difference that matters the most!
| Category | Regular GST | Composition GST |
|---|---|---|
| Definition | A tax system imposed on the overall value of goods and services supplied. | A taxation model applies to local businesses based on their type. |
| Eligibility Criteria | Mandatory for businesses exceeding the turnover limit ₹40lakhs for goods, ₹20 lakhs for services or those catering to inter-state supplies, ecommerce, etc. | It is a voluntary scheme opted by businesses with a turnover of up to ₹1.5Cr for most of the Indian states and ₹75Lakhs for North-Eastern and Hill States |
| Return Filings | Taxpayers operating under the Regular GST structure are obligated to file the following GST returns: Annual Returns- GSTR 9 and 9C Monthly Returns- GSTR-3B Monthly or Quarterly- GSTR-1 | The Composition GST framework mandates the filing of the following returns by registered dealers: Annual Returns- GSTR-4 Monthly Returns- GSTR-9A Quarterly Returns- CMP-08 |
| Applicable Tax Rates | GST rates are structured into slabs—5%, 12%, 18%, and 28%—based on the type of goods or services. | Tax rates are fixed (1%, 1% of manufacturers, etc.) |
| Nature of Supply | Both Interstate and intrastate supplies are allowed under this standard GST structure. | The scheme confines eligible businesses to operate solely within their state boundaries i.e. intra-state supplies |
| Input Tax Credit (ITC) | ITC is allowed | ITC isn’t allowed |
| Taxpayers not Eligible to Choose the Scheme | It doesn’t have any exceptions | Businesses with interstate supply of non-taxable goods supplied via e-com platform are not eligible. Manufacturers of creamy frozen dessert, tobacco, etc., exceeding the defined turnover threshold, don’t fall under this scheme. |
| What should be used? | Invoices issued should include GST-break up | Bills of supply are more crucial here! |
| How are GST payments applied? | Applied GST = Input GST + Tax on Reverse Charge | Payable GST on supplies = GST made on supplies + Tax on reverse charge |
| Compliance Load | Compliance burden is high with multiple returns, detailed invoices, and reconciled statements | Compliance burden is less with simple quarterly filings and less requirements |
Though you have understood the difference between regular and composition GST, the next big question is – which is the best? There’s no universal answer to this!
The right scheme for you depends on your business size, transactions, ITCs, and compliance requirements. Let’s explore which scheme aligns with your business goals.
You might interested in: What is QRMP Scheme
GST Regular Vs Composition: Which is the Best?
There’s nothing like the best Scheme: Here’s how you can decide!
Regular GST Scheme: Who Can Opt?
- Best fit for medium to large businesses, eCommerce operators, service providers, manufacturers, and B2B businesses.
- You need to have a turnover greater than ₹40 lakhs for goods and ₹20 lakhs for services.
- You are a progressive organization and need a tax structure that supports your expansion plans.
- You can handle tax burdens, return filings, and invoices.
Composition Scheme: Who Should Choose?
- Your annual turnover exceeds ₹1.5Cr for most states and ₹75Lakhs for a few of them.
- You prefer a fixed lower GST rate and don’t wish to claim ITCs.
- Your business is mostly B2C
- You look forward to reducing the tax burden and simplifying the filing process.
Read More: Who can Claim ITC?
Let’s Conclude!
Hopefully you have understood the difference between regular and composition GST. When it comes to choosing between the two- you should list down your checklist and make a smart match.
While a regular scheme offers ITC claims and scalability, a composition scheme brings simplicity and peace of mind.
GST Regular Vs Composition- So, who wins?
The GST scheme that aligns best with your expansion plans, business goals, processes, and requirements is the best one for you! In this world of Tax regulations, it’s always the strategy that leads the race over shortcuts!
Yet not getting what to choose? Get expert advice from us! Connect to our team and get the best solution for your business. Sign up today to our GST filing software- Munim and streamline your compliance.
FAQs on the Difference Between Regular and Composition GST!
1. How to change the composition to a regular scheme in GST?
- Visit GSTN and log in with your credentials.
- Navigate to services > Registration > Application for Withdrawal from Composition Levy.
- Fill in all the details, such as withdrawal date and reason, and upload the documents.
- Submit the application using DSC/EVC.
- Once the form is submitted, you will receive ARN number, and upon approval your status will get updated to regular GST from the composition scheme.
2. What is the difference between regular and composition GST dealers?
A regular dealer under GST can claim ITCs on purchases made and deduct the tax liabilities. However, the composition dealer under GST can’t claim ITCs on purchases.
3. How do you know if the GST is regular or composition?
Enter the GSTIN number and check the taxpayer type column in results to know if it is a GST regular scheme or composition.
4. Is the Reverse charge mechanism applicable on composition schemes?
A taxpayer in a composition scheme needs to pay Tax under RCM wherever applicable.
