GST Composition Scheme vs Regular Scheme: Which Should You Choose?
The Composition Scheme is for small businesses with turnover up to ₹1.5 crore (₹75 lakh in some states) who want simple quarterly filing and a flat tax rate of 1% (traders/manufacturers) or 5% (restaurants) — but they cannot claim input tax credit or sell inter-state. The Regular Scheme suits businesses that sell inter-state, sell to other GST-registered businesses, or want to claim ITC on purchases.
Key differences
| Factor | Composition Scheme | Regular Scheme |
|---|---|---|
| Eligibility (turnover) | Up to ₹1.5 crore | Any turnover above threshold |
| Tax rate | 1% (traders), 2% (manufacturers), 5% (restaurants) | 5% / 12% / 18% / 28% by HSN |
| Input Tax Credit | Not allowed | Allowed |
| Inter-state sales | Not allowed | Allowed |
| Returns | Quarterly (CMP-08) + annual (GSTR-4) | Monthly/quarterly (GSTR-1, 3B) + annual (GSTR-9) |
| Tax invoice | Bill of Supply (no GST shown) | Tax invoice with GST shown |
Who should opt for Composition
Small retailers, local manufacturers and restaurants selling mainly to end consumers within one state, with turnover comfortably under ₹1.5 crore, who want to minimise compliance and don't need to pass on ITC to customers.
Who should stay Regular
Any business selling to other GST-registered businesses (B2B), selling across state lines, selling on e-commerce marketplaces (composition dealers generally cannot), or importing/exporting — all of these require the Regular Scheme.
Switching between schemes
You can opt into Composition at the start of a financial year by filing Form CMP-02 before the deadline (usually 31 March). You must exit immediately if turnover crosses ₹1.5 crore or you start inter-state/e-commerce sales, by filing Form CMP-04 within 7 days.
See our Complete Guide to GST Registration or get help from our GST registration & filing service.