Business
GST Composition vs Regular GST
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1–6% flat turnover tax vs full input-output GST filing — which suits your business size and type?
What Composition Scheme and Regular GST Actually Mean
Composition Scheme. A simplified levy for small taxpayers. Instead of charging GST on each invoice and claiming input credit, you pay a small percentage of turnover and file far less. The trade is that you cannot collect tax from your customers and cannot claim input tax credit.
Regular GST. The standard regime. You charge GST at the applicable rate on each supply, claim credit for the GST you paid on inputs, and file the regular monthly and annual returns.
This is usually presented as a compliance-versus-paperwork choice, which understates it. The decision is really about who your customers are. A composition supplier cannot pass on any credit, so a business customer buying from you gets nothing to offset — and will often prefer a regular supplier for that reason alone. If you sell to consumers, that objection disappears entirely.
Key Differences
| Feature | GST Composition Scheme | Regular GST |
|---|---|---|
| Eligibility | Turnover < ₹1.5 crore | Any turnover |
| Tax rate | 1–6% on turnover (no ITC) | 5–28% on value-add (with ITC) |
| Filing | Quarterly GSTR-4 | Monthly GSTR-1 + GSTR-3B |
| ITC | Cannot claim | Full ITC available |
| Interstate supply | Not allowed | Allowed |
| Can you collect GST from customers | No | Yes |
| Input tax credit | Not available | Available |
| Can your business customers claim credit | No | Yes |
| Inter-State outward supply | Not permitted | Permitted |
| Supply through an e-commerce operator collecting TCS | Not permitted | Permitted |
| Compliance burden | Substantially lower | Monthly and annual returns |
When to Choose Which
Choose GST Composition Scheme
- Small local business < ₹1.5 crore turnover
- Mostly B2C sales
- Low input tax credits available
- Simpler compliance is priority
Choose Regular GST
- Turnover > ₹1.5 crore
- B2B sales where buyers need GST invoice
- High input purchases (ITC offsets tax)
- Interstate sales or e-commerce
Worked Examples
Work through these against your own customer base rather than your turnover alone.
| Scenario | Composition Scheme | Regular GST |
|---|---|---|
| You sell to consumers | Works well — nobody is asking you for credit | You charge GST, which raises your price to a consumer who cannot reclaim it |
| You sell to GST-registered businesses | They get no credit, so you are effectively more expensive to them | They reclaim the tax, so the GST is cost-neutral for them |
| You want to sell in another state | Not permitted under the scheme | Permitted |
| You want to sell on a marketplace | Not permitted where the operator must collect tax at source | Permitted |
| Your inputs carry heavy GST | You bear it as a cost | You reclaim it |
Rows two and five together decide most real cases. If you sell business-to-business, or your inputs carry substantial GST that you would otherwise reclaim, the composition scheme’s saving on compliance is usually smaller than what you give up. If you sell to consumers from a single state and your inputs are light, it is a considerable simplification for very little cost.
Eligibility, Restrictions and Rates
Eligibility. Section 10 of the CGST Act permits a registered person whose aggregate turnover in the preceding financial year did not exceed ₹50 lakh to opt for the composition levy, and empowers the government to raise that limit by notification — which it has done for suppliers of goods. Because the applicable limit depends on the notification in force and on whether your state is a specified special-category state, confirm the current threshold for your own state on the GST portal before opting in. A composition supplier of goods may also supply services up to 10% of turnover or ₹5 lakh, whichever is higher.
The restrictions are the important part, and they are absolute. A composition taxable person shall not collect any tax from the recipient and is not entitled to any input tax credit. The scheme is not available to someone making inter-State outward supplies, to someone supplying through an e-commerce operator required to collect tax at source, to a manufacturer of notified goods, or to a casual or non-resident taxable person. These are statutory bars, not practical inconveniences — breaching them puts your registration at risk.
On the rates. Section 10 sets the levy as a percentage of turnover, expressed separately for central and state tax, with a higher rate for restaurant and food supply than for other suppliers, and a separate scheme for service providers. Rather than quote a combined figure that varies by category and by the notification in force, check the rate applying to your category on the GST portal. The structural point holds regardless: it is a small percentage of turnover with no credit, against the normal rate with credit.
Thresholds and rates under the composition levy are set by notification and differ by supplier category and by state. Confirm both on the GST portal before opting in.
Advantages and Limitations
Composition Scheme
Works for you when
- Substantially lower compliance and simpler returns
- A small percentage of turnover rather than invoice-level tax
- Well suited to consumer-facing businesses in a single state
- Less accounting infrastructure required
Watch out for
- No input tax credit — GST on your inputs is a straight cost
- You cannot collect tax, so business customers get no credit
- No inter-State outward supply
- Cannot sell through e-commerce operators collecting tax at source
Regular GST
Works for you when
- Input tax credit on purchases
- Your business customers can claim credit, so you stay competitive B2B
- Sell inter-State and on marketplaces without restriction
- No turnover ceiling
Watch out for
- Monthly and annual return filing
- Invoice-level compliance and reconciliation
- Requires proper accounting systems or a professional
- Credit mismatches with suppliers create real work
How to Decide
Answer these in order; the first two usually settle it.
- Who are your customers? Business customers want credit and cannot get it from a composition supplier. Consumers do not care. This is the single most decisive question.
- Do you sell outside your state, or on a marketplace? Either rules the composition scheme out entirely. They are statutory bars.
- How much GST do you pay on inputs? Under composition that becomes a cost you absorb. If your inputs are heavy, the credit you forgo may exceed the compliance you save.
- What is the real cost of compliance for you? Quantify it — professional fees, software, your own time. If it is modest, the regular regime’s flexibility is usually worth it.
- Where is your turnover heading? If you expect to cross the threshold or start selling inter-State, plan the transition rather than being forced out mid-year.
The composition scheme fits a specific shape of business well: consumer-facing, single state, light on taxable inputs, small. Outside that shape, the restrictions usually cost more than the simplification saves.
Frequently Asked Questions
Sources and Method
Eligibility and restrictions below are taken from the CGST Act itself. Rates and notified thresholds are set by notification and are not quoted here.
- Composition levy — section 10 of the Central Goods and Services Tax Act, 2017, as available on the CBIC tax information portal: turnover eligibility, the power to raise the threshold by notification, the services allowance of 10% of turnover or ₹5 lakh whichever is higher, the bar on collecting tax and on input tax credit, and the bars on inter-State outward supply, supply through e-commerce operators collecting tax at source, manufacture of notified goods, and casual or non-resident taxable persons.
- Applicable composition rates and the notified turnover threshold for your supplier category and state — confirm on the GST portal or the relevant CBIC rate notification.
- This page explains the structure of the choice. It is not a substitute for advice on your own registration.
Last reviewed 17 August 2026. This page is general information, not advice.
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