The GST regime offers two primary schemes: the composition scheme (for small taxpayers) and the regular scheme (for all others). The choice between them affects tax rates, compliance burden, and ITC eligibility. Understanding the trade-offs is essential for small businesses.
This article explains both schemes and the factors to consider.
Composition Scheme
Under Section 10, eligible taxpayers with turnover up to ₹1.5 crore (₹75 lakh for special category states) can opt for the composition scheme. The benefits are:
- Lower tax rates (1% for traders, 5% for restaurants, 1% for manufacturers).
- Reduced compliance — quarterly payment in CMP-08, annual return in GSTR-4.
- No monthly returns.
The limitations are:
- No ITC: Cannot claim input tax credit.
- No inter-state supplies: Cannot make inter-state sales.
- No e-commerce: Cannot supply through e-commerce operators.
- Bill of supply: Must issue bill of supply, not tax invoice.
Regular Scheme
The regular scheme applies to all other taxpayers. It requires:
- Monthly GSTR-1 and GSTR-3B filing.
- Full ITC eligibility.
- Inter-state supply permitted.
- E-commerce supply permitted.
- Tax invoice issuance.
Key Differences
| Feature | Composition Scheme | Regular Scheme |
|---|---|---|
| Turnover limit | ₹1.5 crore | No limit |
| Tax rate | 1%–5% | Applicable rates |
| ITC | Not available | Available |
| Returns | CMP-08, GSTR-4 | GSTR-1, GSTR-3B, GSTR-9 |
| Inter-state | Not permitted | Permitted |
| E-commerce | Not permitted | Permitted |
Choosing the Right Scheme
- Composition: Suitable for small, local businesses with B2C customers.
- Regular: Necessary for B2B suppliers, inter-state sellers, and e-commerce sellers.
Conclusion
The choice between composition and regular scheme depends on turnover, customer base, and business model. Composition reduces compliance but forfeits ITC and restricts operations. Regular scheme provides full flexibility but requires higher compliance.
At Anuj Desai & Associates, we provide expert advisory services on GST scheme selection and compliance. Our team can help you choose the right scheme for your business.
For a confidential consultation, contact us at office@anujdesaiassociates.com or call 9619456656. Visit our website at https://anujdesaiassociates.com or connect with our founder on LinkedIn at linkedin.com/in/ca-anuj-desai-122547230.