Table of Contents
1. Introduction
2. Overview Of The Regular GST Scheme
3. Overview Of Composition GST Scheme
4. Key Differences Between Regular and Composition GST Schemes
5. Conclusion
6. FAQs
Introduction
Under the Goods and Services Tax (GST) system in India, businesses can choose between two different methods of tax payment and compliance: the regular scheme and the composition scheme. Understanding the key differences between these schemes is crucial for businesses to make informed decisions that best suit their operations and compliance capabilities.
What is the Difference Between Regular and Composite GST schemes?
Overview of the Regular GST Scheme
The regular GST scheme is designed for businesses that handle larger turnovers and are capable of managing more detailed tax compliance requirements. Under this scheme, businesses must maintain comprehensive records of all transactions, file monthly returns, and pay GST on the value of goods and services supplied.
Overview of Composition GST Scheme
The composition GST scheme is tailored for small businesses with a turnover of up to ?1.5 crores. It simplifies tax compliance by allowing these businesses to pay a fixed rate of tax on their turnover and file quarterly returns. This scheme reduces the compliance burden but comes with certain restrictions, such as the inability to claim input tax credits and limitations on interstate transactions.
Key Differences Between Regular and Composition GST Schemes
Below is a detailed comparison highlighting the differences between the regular and composition GST schemes:
|
Particulars
|
Regular GST Scheme
|
Composition GST Scheme
|
|
Meaning
|
Tax mechanism where registered taxpayers collect and pay GST on the value of goods and services supplied.
|
Designed for small taxpayers with a turnover of up to ?1.5 crores, paying tax at a lower rate with simplified compliance.
|
|
Filing of Returns
|
Monthly/quarterly returns: GSTR-1, GSTR-3B, and annual return GSTR-9.
|
Quarterly returns: CMP-08 and annual return GSTR-4.
|
|
Supply
|
Can be made interstate and intrastate.
|
Restricted to intrastate supply only.
|
|
Tax Collection
|
GST collected at various rates depending on the type of goods/services.
|
Lower tax rate, paid on turnover.
|
|
Supply Services
|
Can supply all types of services.
|
Limited to specific services.
|
|
Not Eligible To Opt
|
No exceptions.
|
Excludes interstate suppliers, non-taxable goods suppliers, e-commerce operators, and specific product manufacturers like ice cream, tobacco.
|
|
Specified Conditions
|
No restrictions for PAN-based registration under regular GST.
|
Cannot claim input tax credit, must display registration status prominently, reverse charge mechanism applies.
|
|
Document Issued
|
Tax Invoice
|
Bill of Supply
|
|
GST Payment
|
GST payable as Output GST – Input GST + Tax on Reverse Charge.
|
GST payable from pocket on supplies and reverse charge.
|
|
Merits
|
Unlimited business territory, input tax credit available, can sell via e-commerce.
|
Less compliance, lower tax rates, no ledger maintenance.
|
|
Demerits
|
More compliance, detailed accounting required.
|
Limited business territory, no input tax credit, restricted from certain goods supply.
|
|
Restriction on SEZ
|
No restriction on export or SEZ supplies.
|
Cannot supply to SEZ or SEZ developers.
|
|
Opt-Out Conditions
|
Can opt-out anytime.
|
Must stay until financial year-end.
|
Choosing the Right Scheme
The regular GST Scheme is better suited for businesses with higher turnovers, interstate transactions, and those needing input tax credits to manage their tax liabilities efficiently. It offers flexibility but comes with higher compliance requirements.
Composition GST Scheme is ideal for small businesses with simpler operations, focusing on intrastate supplies and preferring lower tax rates and reduced compliance efforts. However, it limits growth opportunities and benefits such as input tax credits.
Conclusion
Both the regular and composition GST schemes offer unique advantages and disadvantages. The regular scheme provides flexibility and the ability to claim input tax credits but requires more stringent compliance. The composition scheme simplifies compliance and reduces tax rates, making it suitable for small businesses but with certain limitations. Businesses must carefully evaluate their needs and circumstances before choosing between the two schemes.
At Anil D’Souza & Associates (ADCA), we specialize in guiding businesses through the complexities of GST compliance. Our experts can help you determine the best scheme for your business, ensuring optimal tax management and compliance. Contact us today to learn more about our GST services and how we can assist you.
FAQs
Who is eligible for the composition scheme?
Businesses with an annual turnover of up to ?1.5 crore for goods and ?50 lakh for services are eligible for the composition scheme.
Can we convert composition scheme to regular in GST?
Yes, businesses can switch from the composition scheme to the regular scheme by filing the necessary forms before the start of the financial year.
What is the benefit of the composition scheme under GST?
The composition scheme offers lower tax rates, simplified compliance, and reduced record-keeping requirements, making it ideal for small businesses.
Which scheme is better, composition or regular?
The choice depends on your business size and nature. The composition scheme is better for small businesses with limited turnover and intra-state operations, while the regular scheme suits larger businesses needing ITC and engaging in interstate trade.
What is the GST composition limit?
The composition scheme is available to businesses with an annual turnover of up to ?1.5 crore for goods and ?50 lakh for services.
What is the regular limit for GST?
The regular GST scheme has no upper turnover limit; it applies to businesses with turnover above ?1.5 crore or those engaging in interstate trade regardless of turnover.
