With the rollout of the Goods and Services Tax (GST) in India, businesses have been offered multiple routes to stay compliant, depending on their size, scale, and operations. Two such options are the Regular GST Registration and the Composition Scheme. Understanding the difference between the two is critical for small businesses and startups to manage compliance, tax burden, and operational simplicity.

1. What is Regular GST Registration?

Under regular GST registration, businesses are required to:

• Charge GST on outward supplies
• Claim Input Tax Credit (ITC) on purchases
• File monthly/quarterly and annual returns

Eligibility:

• Mandatory for businesses with turnover above ₹40 lakh (₹20 lakh for services)
• Businesses making inter-state supplies
• E-commerce sellers
• Businesses opting to claim ITC

2. What is the Composition Scheme?

The Composition Scheme is a simplified compliance scheme under GST for small taxpayers.

Eligibility:

• Manufacturers, traders, and restaurant owners (not serving alcohol)
• Turnover up to ₹1.5 crore (₹75 lakh for some NE states)
• Service providers (up to ₹50 lakh under special composition scheme)

Under this scheme:

• A fixed percentage of turnover is paid as tax
• Cannot claim Input Tax Credit
• Cannot issue tax invoice (only bill of supply)
• Cannot collect GST from customers

3. Comparison Table: Regular GST vs Composition Scheme

4. Pros and Cons of Regular GST Registration

✅ Pros:

• Eligible for Input Tax Credit
• Can make inter-state and e-commerce supplies
• Can issue proper tax invoices
• Better compliance record for B2B clients

❌ Cons:

• Monthly/quarterly compliance burden
• Complex GST return filing
• Higher tax liability for low-margin businesses

5. Pros and Cons of Composition Scheme

✅ Pros:

• Low tax rates (as low as 1%)
• Simplified compliance (quarterly returns)
• No need to maintain detailed records
• Suitable for small businesses with local operations

❌ Cons:

• Cannot collect GST (out-of-pocket tax payment)
• No Input Tax Credit
• Cannot sell interstate or on e-commerce platforms
• Limited to certain business types

6. Who Should Opt for Composition Scheme?

Composition Scheme is ideal for:

• Small traders and manufacturers with local clientele
• Small restaurants not serving alcohol
• Local service providers with low annual turnover (under ₹50 lakh)
• Businesses with low purchase of taxable inputs (minimal need for ITC)

Real-World Example:

Rita’s Boutique, a women’s clothing store operating in a Tier-2 city with ₹30 lakh annual turnover and local customers, opted for the Composition Scheme. She pays just 1% tax on turnover and avoids the complexity of monthly filings and invoice management.

7. Who Should Opt for Regular GST?

Regular GST is better for:

• Businesses dealing with B2B clients who want tax invoices
• Those with turnover exceeding ₹1.5 crore
• Those operating in multiple states
• Businesses that make imports or exports
• Those selling via online platforms like Amazon or Flipkart

8. How to Switch Between the Two?

• Switch from Composition to Regular: File CMP-04 before end of financial year or on exceeding turnover limit
• Switch from Regular to Composition: File CMP-02 at the beginning of the financial year

Note: Once you opt-in, you must remain in the scheme for the entire financial year unless turnover exceeds the threshold.

9. Conclusion

Choosing between Regular GST and Composition Scheme depends on the size of your business, nature of supplies, turnover, and clientele. The Composition Scheme is perfect for small, local businesses that want to avoid heavy compliance. Regular GST, while more complex, offers scalability, credit benefits, and nationwide flexibility.

Make your choice wisely—based on long-term growth and tax planning.

Need GST registration or compliance help? Contact us at bizconsulting.io for expert-led solutions customized for your business.

Tags: GST Composition Scheme India, GST for MSMEs, GST Registration Guide, Input Tax Credit, GST Return Filing, Small Business GST India