Differences Between Regular and Composition GST Schemes
Differences Between Regular and Composition GST Schemes
Goods and Services Tax (GST) is an indirect tax levied on the supply of goods and services in India. Businesses with an annual turnover above a certain threshold are required to register for GST and comply with its regulations. There are two main GST schemes in India: the regular GST scheme and the composition GST scheme. Each scheme has its own set of rules and benefits, and it's essential for businesses to understand the differences between them in order to choose the right scheme for their operations.
Regular GST Scheme
The regular GST scheme is designed for businesses with a turnover above a specified threshold. Under this scheme, businesses are required to maintain detailed records of their transactions, file regular returns, and pay GST at the applicable rates on their supplies. Businesses registered under the regular GST scheme can claim input tax credits on the GST paid on their purchases, which helps in reducing the overall tax liability.
Eligibility Criteria
Businesses with an annual turnover above Rs. 40 lakhs (Rs. 10 lakhs for North Eastern and hill states) are required to register under the regular GST scheme. Certain businesses, such as e-commerce operators and businesses selling goods or services inter-state, are also required to register for GST, regardless of their turnover.
Tax Rates
Under the regular GST scheme, businesses are required to charge GST on their supplies at the applicable rates, which are determined based on the type of goods or services being supplied. The tax rates under the regular scheme can vary from 5% to 28%, with different rates for different goods and services.
Compliance Requirements
Businesses registered under the regular GST scheme are required to file monthly, quarterly, and annual returns, depending on the turnover of the business. They are also required to maintain detailed records of their transactions, including invoices, receipts, and accounts, to comply with the GST regulations.
Benefits
One of the key benefits of the regular GST scheme is the ability to claim input tax credits on the GST paid on purchases, which helps in reducing the overall tax liability. Businesses under the regular scheme can also avail of various tax deductions and exemptions available under the GST laws, which can help in reducing the tax burden.
Composition GST Scheme
The composition GST scheme is a simpler alternative to the regular scheme, designed for small businesses with a turnover below a certain threshold. Under this scheme, businesses are required to pay GST at a flat rate on their turnover and are not allowed to claim input tax credits on their purchases. The composition scheme aims to reduce the compliance burden on small businesses and make it easier for them to comply with GST regulations.
Eligibility Criteria
Businesses with an annual turnover below Rs. 1.5 crores are eligible to opt for the composition GST scheme. Certain businesses, such as service providers and e-commerce operators, are not eligible for the composition scheme and are required to register under the regular scheme.
Tax Rates
Businesses registered under the composition GST scheme are required to pay GST at a flat rate on their turnover. The GST rate for manufacturers and traders is 1%, while the rate for restaurants is 5%. Businesses under the composition scheme are not allowed to charge GST on their supplies and are not eligible to claim input tax credits.
Compliance Requirements
Businesses under the composition GST scheme are required to file quarterly returns, instead of monthly or quarterly returns required under the regular scheme. They are also not required to maintain detailed records of their transactions, as they are not allowed to claim input tax credits. However, businesses under the composition scheme are required to provide a bill of supply instead of a tax invoice to their customers.
Benefits
One of the key benefits of the composition GST scheme is the reduced compliance burden on small businesses. Businesses under the composition scheme are not required to maintain detailed records or file as many returns as businesses under the regular scheme. The flat rate of tax under the composition scheme also simplifies the tax calculation process for small businesses.
Comparison
When deciding between the regular and composition GST schemes, businesses need to consider their turnover, the nature of their operations, and the compliance burden they are willing to undertake. The regular GST scheme is suitable for businesses with a turnover above Rs. 40 lakhs who want to claim input tax credits and avail of various tax deductions. On the other hand, the composition GST scheme is more suitable for small businesses with a turnover below Rs. 1.5 crores who want to reduce their compliance burden and simplify their tax calculations.
It's essential for businesses to carefully evaluate their options and choose the GST scheme that best fits their operations and business goals. Consulting with a tax professional or GST advisor can help businesses make an informed decision and ensure compliance with the GST regulations in India.
In conclusion, the regular and composition GST schemes in India offer businesses different options for complying with the GST regulations. Understanding the differences between these two schemes is crucial for businesses to make the right choice and manage their tax obligations effectively. By choosing the appropriate GST scheme, businesses can streamline their tax compliance process, reduce their tax liability, and focus on growing their operations in the competitive business environment of India.