Difference between Regular GST and Composite GST

The Goods and Services Tax (GST) system in India offers two different schemes for businesses: Regular GST and the Composition Scheme (Composite GST). These schemes differ primarily in tax rates, filing procedures, and compliance requirements. Below is a breakdown of the key differences between them.

1. Eligibility:

• Regular GST: Applicable to businesses whose annual turnover exceeds ₹40 lakh (₹20 lakh for special category states). Any business that wants to register voluntarily can opt for this, irrespective of their turnover.
• Composite GST: Designed for small businesses with an annual turnover of up to ₹1.5 crore (₹75 lakh for special category states). Businesses with higher turnover cannot opt for this scheme.

2. Tax Rate:

• Regular GST: The tax rate varies based on the nature of goods or services supplied. GST rates are generally 0%, 5%, 12%, 18%, or 28%, depending on the item or service.
• Composite GST: The tax rate is much lower but fixed based on the type of business:
  • 1% for manufacturers and traders of goods.
  • 5% for restaurants (without alcohol).
  • 6% for service providers under specific conditions (effective April 2019).

3. Input Tax Credit (ITC):

• Regular GST: Businesses can claim input tax credit on purchases, reducing the tax payable on sales by the amount of GST paid on purchases.
• Composite GST: Businesses under the Composition Scheme cannot claim ITC. They pay a lower tax rate but are not entitled to credit for taxes paid on purchases.

4. Filing of Returns:

• Regular GST: Requires filing of multiple monthly returns, including GSTR-1 (details of outward supplies) and GSTR-3B (summary return for tax payment). The filing process is more frequent and comprehensive.
• Composite GST: Simplified compliance with quarterly filing through GSTR-4 and an annual return (GSTR-9A). The reporting is less detailed compared to regular GST.

5. Invoicing:

• Regular GST: Businesses must issue GST-compliant tax invoices, which include details like GSTIN, tax breakup, and mention of CGST, SGST, or IGST.
• Composite GST: Businesses under the composition scheme cannot issue tax invoices with GST. Instead, they issue a bill of supply since they do not collect GST from customers.

6. Collection of GST from Customers:

• Regular GST: Businesses collect GST from customers on the sale of goods or services and remit the same to the government.
• Composite GST: Businesses cannot collect GST from customers. The tax is paid from the business’s pocket at the reduced composite rate.

7. Scope of Business:

• Regular GST: Businesses can operate across India and engage in both inter-state and intra-state supplies without restrictions.
• Composite GST: Businesses under the composition scheme cannot engage in inter-state supply of goods or services. They are restricted to intra-state supplies (within the same state).

8. Who Should Opt for Each Scheme?

• Regular GST: Ideal for medium to large businesses, or businesses that engage in B2B transactions where input tax credit is an advantage. Businesses that deal with inter-state supplies or exports must opt for regular GST.
• Composite GST: Best suited for small businesses like retailers, manufacturers, and small service providers who operate within a state and do not wish to deal with the complexities of regular GST filings and higher tax rates.

Summary of Key Differences:

Conclusion

The Regular GST scheme is suitable for businesses with higher turnover, those involved in inter-state transactions, or those who want the benefit of the input tax credit. The Composition Scheme (Composite GST) is a simplified tax option for small businesses with lower turnover, offering lower compliance and tax rates but without the benefit of input tax credit and with restrictions on the nature of business operations.

Related Topic: Overview of GST Return Filing