If yes, which scheme will you choose?
Contents:
- Regular Scheme – Meaning
- Composition Scheme – Meaning
- Difference between the two
- Conclusion
Currently, two schemes are available for registration: Regular and Composition.
Regular Scheme – Meaning
This is the basic registration of a business under GST, available to all businesses. It may or may not be mandatory to register under this scheme, depending upon your turnover. Click here to better understand what is GST and when it is mandatory to register under GST. Once Threshold limit of Rs 20 lakhs in Service turnover or 40L in Products turnover crosses the GST registration is required.
Under this system, taxpayers pay tax according to tax rates on the various goods and services they are selling. While paying the tax they can claim Input Tax Credit (ITC) which they receive while making business purchases. Click here to better understand ITC.
Composition Scheme – Meaning
While registering for GST, you can optionally opt for the composition scheme, which is available for select taxpayers. Following are a few examples of such businesses
- Businesses making only Intra-state or within-the-state transactions.
- Entities not producing Ice-cream, tobacco, alcoholic beverages, etc.
- Businesses not being E-Commerce Operators
- Businesses with turnover below 1.5 crores or 75 lacs depending upon the state
Click here to know if you are eligible for the Composition scheme.
Composition taxpayers pay tax at a fixed rate of their total turnover. For example manufacturers under the Composition Scheme pay tax at 1% of their turnover.
Finally, Composition taxpayers cannot claim any ITC on their purchases.
Difference between the two
Let us understand the difference between them one by one:
| S.no. | Basis | Regular Scheme | Composition Scheme |
| 1 | Input Tax Credit (ITC) | Regular taxpayers can claim ITC on their expenses | Composition taxpayers cannot claim ITC on their expenses |
| 2 | Eligibility | Any business can opt for the regular scheme | There are several restraints such as |
| If you wanted to know about registration process under regular scheme clink on below link :https://www.youtube.com/watch?v=bOKHBZlpZjk&t=223s | a. Limit on business turnover (1.5 Cr/75 lacs depending on your states) | ||
| b. Restrictions on the products or services you can sell, e.g. you can’t be a manufacturer of ice cream, tobacco, etc. | |||
| c. Can’t do inter-state business and so on | |||
| 3 | Rate of tax | There is a high rate of tax,e.g. 12%,18% depending on the goods or service you are providing | Tax rate is very low, fixed upon total turnover of the business, 1%, 2%, etc. |
| 4 | Maintenance of records | They mandatorily need to maintain detailed business records | They need not keep detailed records of their transactions |
| 5 | Returns | They have to file GSTR 1 either monthly or quarterly depending on turnover, as well as GSTR3B Every month | They just need to file GSTR4 and CMP-08 quarterly |
Conclusion
When should you register under the Regular Scheme?
To conclude, if your business has a high sales volume and you don’t mind filing returns every month, you definitely should opt for the regular scheme, the biggest benefit being ITC. For example, if your total tax payable comes out to be Rs. 1 lacs and your eligible ITC is Rs. 80 thousand, you just have to pay Rs. 20 thousand as tax.
When should you register under the composition scheme?
If you satisfy all the conditions of the scheme and don’t want the hassle of filing monthly returns, maintaining detailed records of the business, and losing all your ITC doesn’t bother you, you should opt for composition. Even if you are already registered under the regular scheme, you can still opt for it if you are eligible. But remember, you cannot opt for composition for only one of your businesses, as all the businesses registered under your PAN will also have to be registered under composition. And even if one of your businesses is ineligible, all of your businesses are automatically disqualified for this scheme.