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Home > GST > Help Center > Difference between Composite & Regular GSTLast Updated: Dec 09th 2023

What are the differences between Composition & Regular GST Schemes?

The composition scheme is meant for small businesses whose turnover of taxable goods not more than ₹1.5 crores, where GST must be borne by the seller @ 1% of such turnover by Traders & @2% by Manufacturers. Read more on conditions, tax rates, restrictions, advantages, dis-Advantages

Composition GST vs Regular GST ?

This document covers

  1. What is Composition GST Scheme ?
  2. Advantages of Composition Scheme
  3. Dis-Advantages of Composition Scheme
  4. What is Regular GST or Normal Scheme?
  5. Business eligible to opt for Composition Scheme
  6. Difference Between Composition GST & Regular GST Schemes ?
  7. How to switch from a Regular GST to Composition GST ?
  8. Next Steps

1. What is Composition GST Scheme ?

The composition scheme is an alternative method for levy of GST. It is designed for small business whose turnover is up to prescribed limit. Initially the composition scheme was designed for supplier of goods and restaurant services. But subsequently , composition scheme was extended to service providers upto certain threshold. Composition scheme is a voluntary and optional scheme. The objective of composition scheme is to bring simplicity and reduce the compliance cost of the business.

2. Advantages of Composition Scheme

  1. Lower Rates of Tax (1%, 2%, 5%, 6%)
  2. High Liquidity
  3. Less and Easy Compliance as no accounts and records to be maintained.
  4. Simple calculation of tax based on the turnover.
  5. No need to worry about the classification of goods or services i.e., the rate of GST applicable on their goods or services

3. Dis-Advantages of Composition Scheme

  1. Cannot make Inter-State sales which effects the business reach.
  2. Cannot collect the GST from customers.
  3. Cannot claim Input Tax Credit on purchases.

4. What is Regular GST or Normal Scheme?

  • Regular GST is a one type of registration under GST. Every supplier of goods or services or both is required to obtain registration in the state or union territory from where he makes the taxable supply if his aggregate turnover exceeds specified threshold limit in a financial year.
  • In a fiscal year, the threshold limit for GST registration is Rs 20 lakhs / 40 lakhs. However, in certain states, the registration fee is reduced to Rs 10 lakhs Refer GST Registration Thresholds & Registration process of GST
  • The taxpayers registered under regular GST are required to pay taxes on monthly basis and file returns on quarterly basis up to turnover of Rs 5 crores and pay taxes and file returns on monthly basis for business with turnover above 5 crores.

5. Business eligible to opt for Composition Scheme

The following business are eligible to opt for composition scheme if their turnover is within the limit of Rs 1.5 crore/ 75 lakhs (specified states), 50 lakhs for services

  • Restaurants
  • Trader of Goods
  • Manufacturer of Goods
  • Shop Keeper
  • Fruits and Vegetable Vendors
  • Service Providers
  • Repairs shop
  • Salons
  • Tailors
  • Artists

6. Difference Between Composition GST & Regular GST Schemes ?

SubjectComposition SchemeRegular Scheme
MeaningIt is designed for small taxpayers whose turnover is upto certain threshold and dealing only with intra state sales.It is for the taxpayers who don’t want to pay tax at fixed rates and dealing in intra state and inter state sales
  • Supplier of goods/Restaurants- Rs 1.5 crore (Specified states-75 lakhs)
  • Service providers- Rs 50 lakhs
Rs 20 lakhs/40 lakhs depending on the state and nature of business Refer GST Registration Thresholds
Intra State/Inter State salesCan do only Intra State sales. Cannot make Inter State salesCan make both Intra State/Inter State sales
SEZ/ExportsCannot make SEZ Sales or exportsCan make SEZ or exports
Rate of Taxes0%, 1%, 2%, 5%, 6%0%, 5%, 12%, 18%, 28%
Input Tax CreditCannot claim Input Tax CreditCan claim Input Tax Credit
DocumentsBill of Supply needs to be issuedTax invoice needs to be issued
  • Quarterly payment of taxes and Returns in CMP-08
  • Annual Return- GSTR-4
  • Return of outward supply GSTR-1
  • Returns of GSTR- 3B & Inward Supply GTR-2A (Automatic)
  • Annual Return GSTR-9
Charge of GSTGST cannot be collected from customers. Need to pay from pocketGST can be collected from customers
Entry/ExitCan Opt out from composition at any time in any yearCannot opt out of regular scheme any time. Can opt into composition during Feb-March every year

7. How to switch from a Regular GST to Composition GST ?

  • Form for opting into Composition Scheme: the taxpayers are required to file CMP-02 for opting into composition scheme. The scheme will be effective from 01/04/2020.
  • Due Date : The due date for conversion of regular GST to Composition GST is 31st March every year. The window for conversion will be opened in the month of Feb-March every year
  • Important : The taxpayers who were regular taxpayers in previous Financial Year but are opting into composition scheme for 2020-21 should file ITC-03 for reversal of ITC credit on Stocks of Inputs, Semi-finished goods, and finished goods available with him within a period as prescribed under Rule-3. This rule is designed not to misuse the ITC by switching for taxpayer's advantage.

8. Next Steps

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Disclaimer: This article provides an overview and general guidance, not exhaustive for brevity. Please refer Income Tax Act, GST Act, Companies Act and other tax compliance acts, Rules, and Notifications for details.