The regular GST scheme and the composition scheme are two different approaches to GST compliance, offering businesses flexibility based on their size and nature of operations. Here’s an overview of both:
- Regular GST Scheme:
- Applicability: Most businesses fall under the regular GST scheme. It is mandatory for businesses whose aggregate turnover exceeds the prescribed threshold limit.
- Tax Calculation: Under the regular scheme, businesses need to maintain detailed records of their purchases and sales. They are required to calculate and pay GST on the basis of the input tax credit available on purchases and the output tax on sales.
- Input Tax Credit (ITC): Businesses registered under the regular scheme can claim input tax credit on the GST paid on their purchases, reducing the overall tax liability.
- Compliance Requirements: Regular GST registrants need to file regular GST returns, including GSTR-1 (outward supplies), GSTR-2 (inward supplies), and GSTR-3 (monthly return summarizing outward and inward supplies).
- Composition Scheme:
- Applicability: The composition scheme is an optional and simplified scheme available for certain eligible businesses with a turnover below a prescribed threshold. Individuals selling goods and having annual turnover up to Rs 1.5 crore (Rs 75 lakh for special category States) in a financial year can opt for composition scheme under GST. In case of service providers (other than restaurants), this turnover threshold limit is fixed at Rs 50 lakh
- Threshold Limit: The threshold for opting into the composition scheme may vary by country. In some jurisdictions, it is designed for businesses with an annual turnover below a specified limit.
- Tax Calculation: Businesses under the composition scheme pay GST at a fixed percentage of their turnover. They are not allowed to collect GST from their customers separately. Instead, they include it in their product prices.
- Input Tax Credit (ITC): Businesses under the composition scheme cannot claim input tax credit on their purchases. This is a trade-off for the simplified compliance process.
- Quarterly Returns: Instead of regular monthly returns, businesses under the composition scheme typically file quarterly returns, such as GSTR-4.
Choosing between the regular GST scheme and the composition scheme depends on the specific circumstances of each business. Small businesses with a turnover below the threshold might find the composition scheme attractive due to its simplicity, while larger businesses usually opt for the regular scheme to take advantage of input tax credit benefits. It’s essential for businesses to carefully evaluate their eligibility and requirements before choosing a GST scheme, considering factors such as turnover, nature of transactions, and compliance capabilities.