GST composition scheme or the regular scheme?
The composition scheme charges a flat 1% of turnover for traders and manufacturers and 5% for restaurants, with no input credit and no GST charged to customers, and reduces filings from monthly to quarterly. The regular scheme charges the normal rate, allows input credit, and lets your customers claim credit on your invoices. The deciding question is who your customers are: composition is usually cheaper if you sell to consumers, and the wrong choice at any turnover if you sell to registered businesses.
बिंदुवार तुलना
| मानदंड | CompositionFlat rate on turnover, no input credit. | RegularNormal rates, full input credit. |
|---|---|---|
| Turnover limit | ₹1.5 crore goods, ₹50 lakh services | No limit |
| Tax rate | 1% traders and manufacturers, 5% restaurants | The applicable rate on each supply |
| Input credit on purchases | None, on anything | Full, subject to GSTR-2B |
| Can charge GST to customers | No — tax comes out of your margin | Yes |
| Customer can claim credit | No | Yes |
| Returns | CMP-08 quarterly, GSTR-4 annually | GSTR-1 and GSTR-3B monthly, or quarterly under QRMP |
| Invoice type | Bill of supply | Tax invoice |
| Interstate outward supply | Not permitted | Permitted |
| E-commerce selling | Not permitted | Permitted |
| Who bears the tax | You, out of margin | The customer, on top of your price |
| Reverse charge liability | Still applies, paid at normal rates | Still applies |
| Annual return | GSTR-4 | GSTR-9 above ₹2 crore turnover |
कुछ पंक्तियों पर टिप्पणी
Input credit on purchases. This is the real cost of composition. A business with substantial purchases often forgoes more credit than the lower rate saves.
Customer can claim credit. For a B2B seller this ends the commercial relationship, not the tax conversation.
Who bears the tax. On a 10% net margin, a 1% turnover tax is a tenth of the profit. That is the comparison, not 1% against zero.
Reverse charge liability. Composition does not exempt you from reverse charge — and because there is no input credit, the reverse charge paid is a pure cost rather than a timing difference.
सिफ़ारिश
किसे क्या चुनना चाहिए
नीचे स्थिति के अनुसार स्पष्ट उत्तर हैं। जहाँ उत्तर पलटता है, वह भी लिखा है।
यदि
A retailer or restaurant selling to consumers
Composition
Your customers cannot claim credit anyway, so giving it up costs nothing commercially — and 1% of turnover with four filings a year is genuinely cheaper than the regular scheme.
यदि
A wholesaler or supplier selling to registered businesses
Regular, at any turnover
Your customers lose input credit on every invoice you issue. They will notice, and they will price it in or move.
यदि
A business with large input credit relative to margin
Regular
Composition forgoes all input credit. Where purchases are substantial the credit given up exceeds the rate saved, and composition costs more.
यदि
Anyone selling interstate or on a marketplace
Regular — composition is not available
Either activity ends eligibility outright, and continuing in the scheme means the tax is recomputed at full rates for the whole period.
Work out the arithmetic on your own numbers
The comparison is the flat rate on turnover against the normal rate less input credit. A trader with ₹80 lakh of turnover pays ₹80,000 under composition. Under the regular scheme they charge GST and claim credit, and what they actually part with depends entirely on how much credit their purchases carry.
For a retailer buying from unregistered suppliers with thin credit, composition wins comfortably. For a business whose purchases carry substantial GST, it does not.
The customer question overrides the arithmetic
A composition dealer issues a bill of supply and charges no GST, which means the buyer gets no input credit. To a consumer that is invisible. To a registered business it is a real cost, and they compare suppliers on landed cost after credit.
This is why the customer question comes first. A B2B supplier who chooses composition to save on filings has made a tax decision that is really a pricing decision, and they usually discover it when a customer asks why the invoice carries no GST.
What composition does to your pricing
A composition dealer cannot add GST to an invoice, so the 1% is not passed on — it comes out of margin. On a 10% net margin, a 1% turnover tax is a tenth of the profit, and that is the number to compare against the regular scheme rather than against zero.
The regular scheme charges GST on top of your price, so the tax is the customer's cost rather than yours; what you actually part with is the difference between output tax and input credit. For a business with meaningful purchases that net figure can be smaller than 1% of turnover, which is the case people miss because the headline rates suggest otherwise.
The filing saving is real, and it is the second reason
Four filings a year against twelve, with no invoice-level upload and no monthly GSTR-2B reconciliation, is a genuine reduction in work for a small retailer who does their own compliance. For a business at ₹60 or ₹70 lakh of turnover selling to consumers, that saving is a real part of the case.
It is the second reason and not the first. If the customer question points to the regular scheme, no amount of filing convenience makes composition the right answer — the lost credit shows up in your customers' pricing long before the filing calendar shows up in yours.
Eligibility can end mid-year
Crossing ₹1.5 crore, making a single interstate outward supply, or listing on a marketplace all end eligibility from that day — not from the year end. The move to the regular scheme changes invoicing, filing and pricing at once.
Continuing to pay at the composition rate while ineligible means the tax is recomputed at full rates for the entire period, with no input credit available to set against it, plus interest and penalty. That is the expensive failure in this area, and it is almost always accidental.
इस निर्णय में आम ग़लतियाँ
- Choosing composition while selling to registered businesses, who then get no credit
- Issuing a tax invoice instead of a bill of supply, which implies tax was collected
- Making one interstate sale and staying in the scheme
- Listing on a marketplace, which ends eligibility immediately
- Trying to claim input credit, of which the scheme allows none on anything
- Watching turnover only at year end, when eligibility ends the day the limit is crossed