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Difference between Regular GST Scheme and Composite GST Scheme

Minakshi Bindhani
10 Jul, 2023 10 Jul, 2023
Difference between Regular GST Scheme and Composite GST Scheme

Introduction

Businesses with an annual turnover above a certain threshold are subject to the Regular GST Scheme, which mandates meticulous record-keeping, regular submission of GST forms, and permits claims for input tax credits. The Composite GST Scheme, on the other hand, is made for smaller companies with a lower yearly turnover level. It features streamlined compliance requirements, quarterly return submissions, no input tax credit claims, and a fixed percentage-based tax payment.

Businesses must abide by the Act’s rules since it was introduced in 2017 with the GST Act. The distinction between the Regular GST and Composite GST schemes is described in this article.

To make people aware of the concept of GST, schemes have been introduced to ease the process of GSTR registration & compliance.

What Is a Regular GST Scheme?

  • One kind of registration under GST is regular GST. Suppose their combined turnover exceeds the designated threshold limit in a financial year. In that case, suppliers of goods or services must register in the state or union territory where they make the taxable supply.
  • The threshold limit for GST registration in a fiscal year is Rs. 20 lakhs/Rs. 40 lakhs. However, in some jurisdictions, the registration fee is only Rs. 10 lakhs.
  • Taxpayers registered for regular GST must file quarterly returns up to a turnover of Rs 5 crores and pay taxes monthly. For companies with a revenue over five crores to submit returns every month, an exception is that some states allow this scheme to be used when the previous year’s revenue was a little less, i.e. 75 lakhs. Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Uttarakhand are among the other states. Monthly returns must be filed by taxpayers subject to the regular GST. It offers an input tax credit for the GST paid while buying services and goods.

What Is Composite GST Scheme?

A taxpayer who earns less than Rs 1.5 crore per year may choose the composition scheme. In the North-Eastern states and Himachal Pradesh, the cap is now Rs. 75 lakh. A composition dealer may also provide services under the CGST (Amendment) Act, 20181, up to the greater of their revenue or Rs. 5 lakhs. This modification will take effect on February 1st, 2019. Additionally, the GST Council suggested raising this cap for service providers on January 10, 2019, at its 32nd meeting. Turnover should be calculated considering all firms registered with the same PAN.

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Small enterprises will profit from the introduction of the composite GST plan. The seller must be charged 1% of turnover for dealers, 2% for manufacturers, 5% for restaurants, and 6% for other service providers for any firm with a maximum annual revenue of Rs. 1.5 crore.

The dealer can only produce tax invoices if he can pay the tax out of his own money. The plan only requires little compliance, and taxpayers are not required to keep their account books current.

What Is the Difference Between Regular GST Scheme And Composite GST Scheme?

The difference between them is pointed out in the tabular form.

ParticularsRegular GST schemeComposite GST scheme
MeaningThe standard GST payment plan is used for the payment of output taxes. The applicable Input Tax Credit is also taken into account.For all small taxpayers, the composite GST plan is a simple one. They can pay GST at a fixed rate and avoid the complicated GST compliance under this
Filing of ReturnsThe following returns are to be filed: ·        Annual return: Form GSTR-9 or GSTR- 9C. ·        Monthly basis: GSTR 3B ·        Monthly or quarterly basis: GSTR- 1.The following returns are to be filed: ·        Form GSTR-4annually as decided in the 32nd council meeting. ·        Form GSTR -9A for annual return. ·        Statement of tax paid every quarter: FORM CMP – 08
SupplyUnder the regular GST, the supply can be inter and intra-state.Under the composite GST, the supply can be only intra-state.
Tax CollectionThe regular GST scheme permits tax collection at the prescribed rates.In the composite GST scheme, tax collection is not permitted.
Supply ServicesRs 20 lakhs/40 lakhs depending on the state and the nature of the business, refer to GST registration threshold.Supplier of goods/Restaurants- Rs 1.5 crore (Specified states-75 lakhs)Service providers- Rs 50 lakhs  
Not eligible to opt for the schemeThere are no exceptions.The following cannot opt the scheme: ·        Persons carrying interstate supplies. ·        Supplier of non- taxable goods. ·        Supply of goods via e-commerce portal. ·        Producer of ice- creams, tobacco or pan masala. ·        A business whose turnover exceeds the prescribed limits.
Specified Condition of SchemeOnce a taxable person is registered in the regular GST scheme, no business under the same PAN can be registered under the composition scheme.The specific conditions are: ·        No dealer under this scheme can claim Input Tax Credit. ·        GST exempted goods cannot be supplied by the dealer. ·        The taxpayer under this scheme has to mention that he is a composition taxable person and is not permitted to collect taxes on every bill, notice and signboard at their place of business. ·        Tax will be paid at average rates under the reverse charge mechanism. ·        If there are different segments of businesses under the same PAN name, they must either register them collectively under this scheme or opt out of it.
What to issueTax InvoiceBill of Supply
GST PaymentThe GST is payable as follows: ·        Output GST – Input GST + Tax on reverse charge.The GST is payable out of pocket for the supplies as: ·        GST on supplies made + Tax on reverse charge.
MeritsThe following are the merits of a traditional GST scheme: ·        It has an unlimited territory of business. ·        Availability of Credit of Input Tax paid. ·        It can sell via an e-commerce portal.The following are the merits of the composite GST scheme: ·        It has less compliance. ·        It has limited tax liability. ·        It does not require maintaining account books. ·        It has high liquidity because the taxes are at a lower rate.
DemeritsThe following are the demerits of the regular GST scheme: ·        It has more compliance, i.e., several returns are to be filed. ·        Less liquidity to avoid high amounts of tax in the e- ledgers & a person can avail input only when the supplier has filed the return. ·        Detailed account books to be maintained.The following are the demerits of the composite GST scheme: ·        It has a limited territory business, as it does not allow interstate transactions. ·        No input tax credit available to the dealers. ·        The taxpayer cannot supply exempted goods or goods via the e-commerce portal.  
Restriction on SEZThere are no restrictions on export or supply to SEZ & SEZ developers.The person cannot make any supplies to SEZ or its developers.
Condition To Opt OutAny person can opt out of the regular GST scheme at any time.In a composite GST scheme, if the turnover of a taxpayer is below Rs. 1.5 crores (in the case of north-eastern states & Himachal Pradesh, 75 lakhs) can opt-out at the start of the financial year.

Conclusion

There are significant differences between the Regular GST Scheme and the Composite GST Scheme regarding eligibility, compliance needs, and tax obligations. Businesses with more significant turnovers should choose the Regular Scheme, which calls for meticulous record-keeping, frequent GST return filing, and the possibility of collecting input tax credits. The Composite Scheme, on the other hand, is designed to serve smaller enterprises with laxer compliance standards and permits easier record-keeping and quarterly return submissions but disallows input tax credit claims. While the Composite Scheme imposes a fixed percentage of turnover, the tax obligation under the Regular Scheme is based on the current GST rates. To select the best GST plan, businesses must assess their eligibility and requirements adequately.

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FAQ

Who is eligible for regular GST?

A company must register as a regular taxable entity under GST rules if its annual turnover exceeds Rs. 40 lacs. This article examines the threshold limit, required documents, GST registration eligibility, and more.

What are the criteria for regular GST?

Suppose a business’s annual turnover exceeds the corresponding threshold limit of Rs. 40 lahks, Rs. 20 lahks, or Rs. 10 lahks, as applicable. In that case, they must register as average taxable individuals under the Goods and Services Tax (GST). It is known as GST registration. For some businesses, GST registration is necessary.

How do I know if my GST is regular or composite?

Using the GST search tool, you can determine whether a taxpayer selected a composition plan. Any GSTIN can be entered, and the ‘Taxpayer Type’ column in the results will show whether the taxpayer is standard or has chosen the composition scheme.

What is the regular GST registration limit?

Persons providing services must register if their aggregate turnover exceeds Rs.20 lakh (for normal category states) and Rs.10 lakh (for particular category states).

Can an average person have a GST number?

The following people and businesses must register for GST: people registered for tax services before implementing the GST law. A non-resident taxpayer and a transient taxpayer. People who use the reverse charge system to pay their taxes.

What is a composite scheme in GST?

A composition scheme is a scheme for payment of GST to small taxpayers. Whose aggregate turnover in the preceding financial year did not cross Rs. 75 lakhs.

Can I convert composite GST to regular?

The following documents are typically required to convert from the Composite Scheme to the regular taxpayer scheme under GST: GST registration certificate obtained under the Composite Scheme. PAN card of the business entity. Bank account details of the business entity, including bank statements and cancelled cheques.

Who is eligible for composite GST?

The composition levy is an alternative tax levy method designed for small taxpayers whose turnover is up to Rs. 75 lakhs ( Rs. 50 lakhs in the case of a few States). The composition scheme aims to bring simplicity and reduce compliance costs for small taxpayers.

What are the disadvantages of the composition scheme under GST?

 A limited territory of business.  No Input Tax Credit was available to composition dealers.  The taxpayer cannot supply non-taxable goods under GST, such as alcohol and goods, through an e-commerce portal.

What are the benefits of the GST structure scheme?

What are the benefits of the composition scheme in GST? The new tax rate structure reduces liability for taxpayers. Taxpayers now need to file fewer returns and side-step the need to provide tax invoices. Reduced tax liability via the fixed rate translates to higher levels of liquidity for the business.

What is the regular scheme in GST?

Regular GST is one type of registration under GST. Every supplier of goods or services must obtain registration in the state or union territory from where he makes the taxable supply if his aggregate turnover exceeds the specified threshold limit in a financial year.

Read our article:What are the Key Features of Composition Scheme under GST?

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References

  1. https://www.sebi.gov.in/sebiweb/home/HomeAction.do?doListing=yes&sid=1&ssid=5&smid=0

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