What is the difference between regular and composition scheme registration?
Difference Between Regular and Composition Scheme Registration in GST
The Regular Scheme and the Composition Scheme under GST are two frameworks designed to cater to different types of taxpayers based on their nature of business and compliance needs. Below is a detailed comparison:
| Aspect | Regular Scheme | Composition Scheme |
|---|---|---|
| Legal Provision | Section 22 and Section 24 of the CGST Act, 2017 | Section 10 of the CGST Act, 2017 |
| Eligibility | Open to all taxpayers meeting registration criteria | Available only to small taxpayers with turnover up to ₹1.5 crore (₹75 lakhs for special category states) |
| Tax Rate | Standard GST rates (e.g., 5%, 12%, 18%, 28%) as per goods/services | Lower fixed rates: – 1% for manufacturers and traders – 5% for restaurants – 6% for service providers (introduced in 2019) |
| Input Tax Credit (ITC) | Available for GST paid on purchases | Not available |
| Turnover Limits | No upper limit (mandatory registration beyond threshold) | Restricted to businesses with turnover below prescribed limits |
| Invoice Type | GST-compliant invoice with tax breakup | “Bill of Supply” without tax breakup |
| Filing of Returns | – Monthly GSTR-1 – Monthly/quarterly GSTR-3B – Annual GSTR-9 | Quarterly CMP-08 Annual GSTR-4 |
| Compliance Burden | Higher compliance due to frequent return filing | Lower compliance due to quarterly filing |
| Interstate Supply | Allowed | Not allowed |
| Tax Liability | Based on value addition (tax on each stage of the supply chain) | Based on the turnover of the business |
| Restrictions | None specific | Not available for service providers (except specified cases), e-commerce operators, or businesses with inter-state supplies |
Legal Provisions Governing the Schemes
- Regular Scheme:
- Section 22 of the CGST Act, 2017: Registration for businesses exceeding turnover thresholds.
- Section 24 of the CGST Act, 2017: Mandatory registration for certain categories (e.g., inter-state suppliers, e-commerce operators).
- Associated compliance rules under Rules 8-26 of CGST Rules, 2017.
- Composition Scheme:
- Section 10 of the CGST Act, 2017: Provides an optional scheme for small taxpayers.
- Rule 5 of CGST Rules, 2017: Details eligibility and conditions for composition levy.
- Composition taxpayers must prominently display “Composition Taxpayer” at their place of business.
Constitutional Provisions
GST laws derive their authority from the Constitution (101st Amendment) Act, 2016, which introduced key articles:
- Article 246A: Empowers both Parliament and State Legislatures to make laws on GST.
- Article 269A: Deals with the apportionment of GST revenue from inter-state supplies.
- Article 279A: Establishes the GST Council, which frames policies like the composition scheme.
Landmark Cases
- Mohit Minerals Pvt. Ltd. v. Union of India (2022):
- Focused on whether taxpayers under the regular scheme could opt for the composition scheme retrospectively.
- The court clarified that retrospective application is not permissible.
- *AAR Rulings on Composition Scheme (Various Cases):
- Clarified ambiguities around the eligibility criteria for service providers under the composition scheme.
- Example: Clay Craft India Pvt. Ltd. (2020) clarified applicability of the scheme to small service providers.
- Rajendra Singh Rathore v. State of Rajasthan (2019):
- Addressed issues of compliance defaults under the composition scheme and their penalties.
- Highlighted the need for proper record-keeping by composition taxpayers.
- Gulbarga Jewellers v. State of Karnataka (2021):
- Dispute over eligibility criteria under the composition scheme for manufacturers of exempt goods.
- Reinforced strict adherence to conditions laid under Section 10 of the CGST Act.
Choosing Between Regular and Composition Schemes
- Regular Scheme: Suitable for medium to large businesses or those dealing in inter-state trade and requiring ITC.
- Composition Scheme: Ideal for small businesses seeking lower compliance and lower tax rates.
Proper evaluation of turnover, compliance capability, and business nature is essential for selecting the appropriate scheme. Non-compliance with the provisions can lead to penalties under Section 122 of the CGST Act.