Regular vs Composition Scheme in GST: Which One to Choose

Choose the regular scheme if you sell to other businesses, sell across State borders, or sell online to buyers in other States. Choose composition only if you sell goods within your State, mostly to final consumers, and your turnover is under Rs 1.5 crore. Composition means a flat 1% for traders, with no input tax credit.

What is the real difference?

In the regular scheme you add GST to your price, collect it from the buyer, subtract the GST you paid on purchases (input tax credit) and pay the balance. The tax passes through you. In the composition scheme under section 10 of the CGST Act, you pay a small percentage of your sales from your own pocket. You collect nothing from the buyer and get no credit for the GST inside your purchase bills.

Why does the law offer this? To spare very small shopkeepers the invoice-level paperwork. The price is that you sit outside the credit chain.

Regular vs composition at a glance

Aggregate turnover means all your sales under one PAN across India, taxable or exempt. If you hold more than one GSTIN on the same PAN, all of them must be in composition or none.

Who cannot take composition?

• Anyone making inter-State outward supplies of goods or services
• Anyone supplying goods that are not taxable under GST
• Makers of notified goods such as ice cream, pan masala and tobacco
• A casual taxable person or a non-resident taxable person
• A goods dealer whose services cross 10% of the previous year's turnover in the State or Rs 5 lakh, whichever is higher

Can a composition dealer sell on Amazon, Flipkart or Meesho?

Many websites still say no. That was the law till 30 September 2023. From 1 October 2023 the bar in section 10 covers only services supplied through an e-commerce operator, and Notification 36/2023-Central Tax lays down the procedure for goods: the operator must not allow any inter-State supply by a composition dealer, and it still collects TCS (tax collected at source) on the sales.

So the law permits it, within your State. Is it practical? An online order can come from anywhere, and you would have to refuse every buyer outside your State. Whether a marketplace accepts composition sellers at all is its own policy, which we have not checked. For most online sellers the regular scheme is the workable choice. How TCS works is explained in TCS on e-commerce sellers.

A worked example

Kiran runs a kitchenware shop in Indore. In a year she buys goods for Rs 45,00,000 plus 18% GST of Rs 8,10,000, and sells them for Rs 70,80,000 at the counter, tax included.

Regular: of the Rs 70,80,000, Rs 10,80,000 is GST. She sets off Rs 8,10,000 of credit and pays Rs 2,70,000. After paying suppliers Rs 53,10,000 she keeps Rs 15,00,000.

Composition: she charges the same shelf prices on a bill of supply and pays 1% of Rs 70,80,000, which is Rs 70,800. After suppliers she keeps Rs 16,99,200. That is Rs 1,99,200 more, with five filings a year.

Now change one fact. Her buyers are hotels that claim credit. They will not pay her the Rs 10,80,000 of tax they can no longer recover, so her sales drop to Rs 60,00,000. After Rs 60,000 of composition tax and Rs 53,10,000 to suppliers, she keeps Rs 6,30,000. Same shop, less than half the income.

The mistake people usually make

They pick composition for the 1% rate and look at nothing else. Then one of three things happens. A customer from the next State places an order. A business buyer asks for a tax invoice. Or the dealer keeps charging GST on bills out of habit. Each breaks the scheme. Under section 10 the option lapses the day you cross the turnover limit, and a person who was never eligible can be asked for the full tax plus a penalty.

Ask one question first: who are my buyers, and where are they? If the answer includes businesses or other States, go regular. A small regular taxpayer can still file quarterly under the QRMP scheme.

How do you opt in or switch?

A new applicant ticks the composition option in Part B of the registration form. An existing regular taxpayer files Form GST CMP-02 on the portal before the financial year starts, then Form GST ITC-03 within 60 days to reverse credit on stock. To leave, file Form GST CMP-04 within 7 days of becoming ineligible. The option carries on year to year without renewal.

Frequently asked questions

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