Difference Between Composition Scheme and Regular GST Scheme (2026)
When applying for GST registration, small business owners in India are faced with a crucial decision: Should I register under the Regular GST Scheme or the Composition Scheme?
The government introduced the Composition Scheme to bring relief to small taxpayers by drastically reducing their compliance burden. However, it comes with strict limitations regarding invoicing and Input Tax Credit (ITC). Let's compare the two schemes side-by-side.
What is the Regular GST Scheme?
The Regular GST Scheme is the standard tax structure. Any business, regardless of turnover, can opt for it. Under this scheme, a business charges GST (like 5%, 12%, 18%, or 28%) directly from their customers via a Tax Invoice and deposits it to the government.
Crucially, businesses under this scheme can claim Input Tax Credit (ITC) on all business purchases, thereby only paying tax on the "value added."
What is the Composition Scheme?
The Composition Scheme is a simplified GST scheme intended for MSMEs. Under this scheme, businesses do not charge GST from their customers. Instead, they pay a very low, fixed percentage of their total turnover directly to the government out of their own pocket.
To be eligible for the Composition Scheme, the business's Aggregate Annual Turnover must be less than ₹ 1.5 Crores (₹ 75 Lakhs for special category states). For service providers, the limit is ₹ 50 Lakhs.
Key Differences: A Side-by-Side Comparison
| Feature | Regular GST Scheme | Composition Scheme |
|---|---|---|
| Turnover Limit | No Limit. Mandatory above ₹40L/₹20L. | Up to ₹ 1.5 Crores (Goods) / ₹ 50L (Services). |
| Tax Rates | Standard Rates (5%, 12%, 18%, 28%). | Fixed Rate (1% for Traders/Manufacturers, 5% for Restaurants, 6% for Service Providers). |
| Input Tax Credit (ITC) | Available. You can claim ITC on purchases. | Not Available. You cannot claim ITC. |
| Collecting Tax from Customers | Yes, you add GST to the invoice amount. | No, you cannot collect GST from customers. |
| Type of Bill Issued | Must issue a Tax Invoice. | Must issue a Bill of Supply. |
| Inter-state Sales | Allowed across India and global exports. | Not Allowed. You can only sell within your state. |
| E-commerce Sales | Allowed via Amazon, Flipkart, etc. | Not allowed to sell through e-commerce operators. |
Which Scheme Should You Choose?
Choose the Regular Scheme if:
- Your clients are B2B (other registered businesses) who want to claim ITC.
- You want to sell products inter-state or online via e-commerce.
- You have high input costs and want to claim ITC to lower your margins.
Choose the Composition Scheme if:
- You are a small B2C retailer (like a local grocery store or bakery) whose customers do not care about ITC.
- You want to avoid the hassle of filing 3 detailed returns every month. (Composition dealers file 1 simple return quarterly).
- You only sell within your home state.
Conclusion
Both schemes have their distinct advantages. The Regular scheme offers business expansion and tax credits, while the Composition scheme offers peace of mind and lesser paperwork.
No matter which scheme you fall under, generating the correct document is mandatory. If you are a Regular dealer, use our Free GST Invoice Generator to create accurate tax invoices. If you are a Composition dealer, you can simply remove the GST rates to generate a compliant "Bill of Supply."