GST Composition Scheme vs. Regular Scheme: Which is Better?
Introduction
When it comes to GST compliance in India, selecting the right scheme is more than a formality—it’s a strategic decision that directly impacts your tax liability, cash flow, and business scalability. The Goods and Services Tax (GST) system offers two main schemes:
- The Composition Scheme, ideal for small businesses seeking simplified compliance.
- The Regular Scheme, designed for businesses with broader operations and growth ambitions.
In this blog, we offer a detailed comparison of both schemes—covering eligibility, tax rates, compliance needs, real-world examples, and more—to help you choose the best fit for your business in 2025.
✅ Disclaimer: This article is for informational purposes only. For personalized advice, consult a certified GST practitioner or tax consultant.
1. What is the GST Composition Scheme?
The GST Composition Scheme is a simplified tax scheme for small taxpayers who wish to pay GST at a fixed rate on turnover and reduce compliance burdens.
✅ Eligibility Criteria
- Annual Turnover Limit:
- ₹1.5 crore (for most states)
- ₹75 lakhs (for North-Eastern and hill states)
- Who Can Opt In:
- Manufacturers, traders, and restaurant services.
- Who Cannot Opt In:
- Interstate sellers
- Service providers (except restaurants and notified service providers under Notification No. 2/2019-Central Tax (Rate))
📌 Must opt in by filing Form CMP-02 before the start of the financial year.
✅ Benefits of the Composition Scheme
- Lower Tax Rates:
- 1% for manufacturers & traders
- 5% for restaurant services
- 6% for notified service providers
- Simplified Return Filing:
- Quarterly payments via Form CMP-08
- Annual return via GSTR-4
- Ease of Compliance:
- No invoice-wise tracking or reconciliation needed
❌ Limitations of the Composition Scheme
- No Input Tax Credit (ITC):
- Tax paid on inputs cannot be claimed, increasing effective costs.
- Only Intra-State Sales Allowed
- Switching Required Upon Growth:
- Exceeding the turnover cap mandates a switch to the Regular Scheme using Form CMP-04.
2. What is the GST Regular Scheme?
The Regular GST Scheme is the standard model for all registered taxpayers who are either ineligible for or choose not to opt into the Composition Scheme.
✅ Eligibility Criteria
- Mandatory for Businesses With:
- ₹40 lakhs turnover for goods
- ₹20 lakhs turnover for services
- Voluntary Registration:
- Smaller businesses may also opt in to gain credibility and access to ITC.
✅ Benefits of the Regular Scheme
- Input Tax Credit (ITC):
- Claim GST paid on purchases, reducing net tax liability.
- No Geographical Limitations:
- Engage in interstate sales or export of goods/services.
- Scalability:
- No upper turnover limit; suitable for fast-growing businesses.
❌ Limitations of the Regular Scheme
- Higher Compliance Burden:
- Monthly GSTR-1 & GSTR-3B filings
- Annual return filing (GSTR-9)
- Complex Tax Calculations:
- Requires invoice-level accuracy and regular reconciliations
- Higher Tax Rates:
- Standard GST rates (e.g., 5%, 12%, 18%, 28%) depending on goods/services
✅ Use Oxyzo’s GST Calculator to simplify your monthly tax computations.
3. Composition vs Regular Scheme: Side-by-Side Comparison
| Feature | Composition Scheme | Regular Scheme |
|---|---|---|
| Eligibility | Up to ₹1.5 Cr turnover (₹75L in NE states) | No upper limit; mandatory above ₹40L (goods) / ₹20L (services) |
| Tax Rate | 1% / 5% / 6% based on business type | Standard GST rates (5% to 28%) |
| Input Tax Credit (ITC) | ❌ Not allowed | ✅ Allowed |
| Sales Type | Only intra-state transactions | Interstate and export allowed |
| Return Filing | GSTR-4 annually + CMP-08 quarterly | GSTR-1, GSTR-3B monthly + GSTR-9 annually |
| Compliance | Minimal documentation and filing | High; requires invoice-level tracking |
| Growth Flexibility | Limited; switch required after ₹1.5 Cr | Unlimited scalability |
4. Real-World Business Scenarios
🏪 Scenario 1: Small Retail Shop
- Turnover: ₹50 lakhs
- Nature: Selling goods within the state
- Recommended Scheme: Composition
- Why: Lower tax rate, simplified compliance, no interstate sales.
🏭 Scenario 2: Mid-Sized Manufacturing Unit
- Turnover: ₹2 crores
- Nature: Sells within and outside state
- Recommended Scheme: Regular
- Why: Access to ITC, needs interstate operations.
👩💼 Scenario 3: Service Provider (Consultant)
- Turnover: ₹30 lakhs
- Nature: Provides consultancy PAN-India
- Recommended Scheme: Regular
- Why: Service providers (except notified ones) aren’t eligible for Composition Scheme.
5. How to Switch Between GST Schemes
| Action | Form | Deadline |
|---|---|---|
| Opt for Composition Scheme | CMP-02 | Before April 1 of the financial year |
| Exit Composition Scheme | CMP-04 | Within 7 days of crossing eligibility limit |
| File Annual Return (Composition Scheme) | GSTR-4 | By April 30 of the following financial year |
📌 If you switch mid-year, regular returns become applicable from the month of switch.
✅ Checklist: Which GST Scheme is Right for You?
Ask yourself:
- Is your turnover under ₹1.5 crore?
- Are your operations confined within one state?
- Can you operate without Input Tax Credit?
- Do you prefer less paperwork and compliance?
👉 If yes to most: Composition Scheme
👉 If no to most: Regular Scheme
Conclusion
Choosing between the GST Composition Scheme and the Regular Scheme depends on your business size, nature of operations, growth plans, and compliance capacity.
- ✅ Opt for Composition Scheme if you are a small, intra-state trader or manufacturer aiming to reduce compliance burden.
- ✅ Choose the Regular Scheme if you’re a growing enterprise, service provider, or interstate operator looking to scale.
Use tools like Oxyzo’s GST Calculator and always consult with a tax advisor to tailor GST compliance to your unique business needs.
For more detailed insights on GST, you may refer to GST Explained: Goods and Services Tax in India.
For further information on GST regulations and compliance, you can also visit the official CBIC GST portal.