GST was introduced in 2017, and since then, business entities are expected to comply with it as per the GST Act. There is a Regular GST Scheme and a Composite GST Scheme, which are the significant points of this article.
Regular GST Scheme
In India, when a business entity earns a turnover of INR 20 lakhs or INR 40 lakhs for a supplier of services/goods, then the person should take mandatory registration under GST. This limit is set at INR 10 Lakhs/20 Lakhs in case of certain North Eastern and hilly states flagging the same as Special Category States, which include:
- Arunachal Pradesh,
- Manipur,
- Meghalaya,
- Mizoram,
- Nagaland,
- Sikkim,
- Tripura, and
- Uttar
The taxpayers who have chosen to pay GST under the Regular GST Scheme, then they should file returns on a monthly basis and they can also avail the benefits of ITC or Input Tax credit of the GST which was paid on the purchase of goods or services.
Composite GST Scheme
This scheme was created to benefit small businesses. However, this option can only be opted for by business entities or owners who are involved in the supply of goods and whose annual turnover does not exceed INR 1.5 Crores. This is INR 75 Lakhs in the case of Special Category States. Here, the supplier will be charged with:
- 1% of turnover by traders
- 2% of turnover by manufacturers;
- 5% of turnover for restaurants;
- 6% of turnover for service providers.
One point to be stressed is that the taxpayer should pay the GST out of their earnings and cannot collect it from the buyer or consumer, due to which they cannot issue a tax invoice. As the compliance level is minimum, the taxpayers are not required to maintain books of accounts as per the GST Act.
Difference between the Regular GST Scheme and the Composite GST Scheme
| PARTICULARS | REGULAR GST SCHEME | COMPOSITE GST SCHEME |
| Meaning | This is the standard scheme of GST, where the output tax is paid and the ITC (Input Tax Credit) can be claimed. | This is the scheme for small taxpayers, but here, the tax cannot be collected from consumers, as the GST is paid as a fixed percentage of the taxpayer’s turnover. |
| Filing of Returns | The returns to be filed by the taxpayer under the GST Act include the following: – GSTR 9 or GSTR 9C, which is Annual Return, – GSTR 3B, which is a monthly return, – GSTR 1, which is filed on a monthly or quarterly basis. |
The taxpayer shall file the following returns: – Form GSTR 4, which should be filed on an annual basis, – Form GSTR 9A, which is the annual return, – Form CMP-08, which is a Statement of Tax paid, should be filed on a quarterly basis. |
| Supply | Under the Regular GST Scheme, the supplier can make both intra and inter-supplies. | However, under the Composite GST Scheme, the inter-state supply cannot be done by the supplier. |
| Tax Collection | Here, tax shall be collected at the rates prescribed. | Under this scheme, GST cannot be collected by the supplier from the consumers. |
| Supply of Services | INR 20 Lakhs is the prescribed limit in case of a supply of services for opting for the Regular GST Scheme, and the GST Rate would depend on the particulars of the service being provided by the taxpayer to the consumer. | INR 50 Lakhs is the prescribed threshold limit with respect to services, and the tax rate applicable shall be 6% on the turnover. |
| Ineligibility | There is no exception or ineligibility specified. | The following persons cannot opt for a composite scheme: – Persons who have interstate supplies, – Supplier of non-taxable goods, – Supplier of goods through an e-commerce portal, – Producer of ice cream, tobacco, or pan masala, – An entity whose turnover has crossed the prescribed threshold limits, – A business entity who is having another branch or segment under the same PAN that has opted for the Regular GST Scheme. |
| Conditions coming under the Scheme | Once a taxable person is registered under the Regular GST Scheme as per the GST Act. No other business that comes under the same PAN of the business can opt for the Composition Scheme under GST, as the same is not allowed by the GST Act. | Certain conditions under this scheme include: – The taxpayer cannot claim ITC under this scheme. – Such a person cannot supply the exempted goods under the GST Act. – The dealer or person who has opted for this scheme can supply services to an extent of 10% of the turnover or Rs. 5 lakhs, whichever is higher. – A taxpayer who has opted for the composition scheme should specify the same along with the statement that he is not permitted to collect taxes on any bill of supply in bills, notices, and the signboards which are kept at the place of their business. – While paying GST under the Reverse Charge Mechanism, he should pay the same at normal tax rates. – If the taxpayer has different segments or entities under the same PAN, they should either opt for this scheme collectively or opt out of the scheme collectively. |
| Issues | A tax invoice shall be issued when the taxpayer collects GST from consumers for the supplies made to them. | A Bill of Supply shall be issued to the consumer, as the taxpayer cannot collect the GST from the consumer under this scheme. |
| Payment of GST | The GST shall be payable by the taxpayer by adjusting the ITC available to the taxpayer along with the GST payable under the Reverse Charge Mechanism (If Any). | Here, the GST shall be payable by the taxpayer out of his pockets or earnings as the same cannot be collected from the consumer. So, the tax payable shall include the GST on the supply made along with the GST payable as per the Reverse Charge Mechanism. |
| Restrictions dealing with SEZ | Under this scheme, no restriction is implied with regard to export or supply to SEZ and SEZ Developers. | However, under the Composite GST Scheme, a person cannot make any supplies to SEZ or SEZ Developers. |
| Conditions to Opt Out | A person can opt out of the GST Scheme at any point in time when such a person’s turnover is below the specified threshold limit. | Under this scheme, a person can opt out if their turnover exceeds INR 1.5 Crore or INR 75 Lakhs. But they can also opt for the regular GST Scheme at the start of a financial year. |
Hence, we can conclude that a businessperson should make a proper decision only after considering the scheme and all available options, so that an apt and advantageous decision can be made.
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