1. What is GST Composition Scheme?

The GST Composition Scheme is a simplified tax scheme designed for small taxpayers to reduce compliance and administrative burden. Instead of paying tax on every sale and purchase, businesses pay tax at a fixed rate based on their turnover.

Key Features

• Lower tax rates

• Quarterly return filing

• No detailed record-keeping

• Ideal for small businesses with limited operations

• Cannot charge GST on invoices

• Cannot claim input tax credit (ITC)

The Composition Scheme focuses on ease of doing business, allowing small traders and manufacturers to avoid complex GST procedures.

2. What is the Normal GST Scheme?

The Normal GST Scheme, also called the regular GST scheme, is meant for businesses that:

• Have higher turnovers

• Require ITC benefits

• Deal with inter-state transactions

• Operate in e-commerce platforms

• Work with B2B clients

Under this scheme, businesses must charge GST on their invoices and pay GST based on value addition, not total turnover.

Key Features

• No turnover limit

• Can claim ITC

• Monthly or quarterly return filing (depending on category)

• Full compliance with GST laws

• Suitable for medium to large businesses

3. Eligibility Criteria Comparison

GST Composition Scheme Eligibility

A business can opt for Composition Scheme if:

• Annual turnover ≤ ₹1.5 crore for most states

• Annual turnover ≤ ₹75 lakh for special category states

• Service providers (other than restaurant services) turnover ≤ ₹50 lakh

Not Eligible

• E-commerce sellers

• Inter-state suppliers

• Businesses supplying non-taxable goods

• Casual taxable persons

• Input service distributors (ISD)

Normal GST Scheme Eligibility

Available to:

• Businesses of any turnover

• E-commerce sellers

• Inter-state suppliers

• Businesses exporting goods/services

• Businesses requiring ITC

4. Tax Rate Comparison

GST Composition Scheme Tax Rates (2025)

Normal GST Scheme Tax Rates

GST rates vary from 0%, 5%, 12%, 18%, and 28% based on goods/services.

5. Compliance Requirements

Composition Scheme Compliance

• Quarterly GST CMP-08 filing

• One annual return (GSTR-4)

• No elaborate bookkeeping

• Simple tax calculation on turnover

Normal GST Scheme Compliance

• Monthly GSTR-1 and GSTR-3B

• Annual return & reconciliation

• Maintenance of purchase & sales registers

• E-invoicing (mandatory above threshold)

• E-way bills for movement of goods

6. Billing Format Difference

Composition Scheme Invoice Must Include:

• Cannot charge GST

• Must include the phrase:
  “Composition taxable person. Not eligible to collect tax on supplies.”

Normal Scheme Invoice Includes:

• GSTIN

• HSN/SAC codes

• GST rate

• Taxable value

• CGST/SGST/IGST

• Total invoice value

7. Input Tax Credit (ITC) Comparison

✔ Normal GST Scheme: ITC Available

Businesses can claim credit for:

• Purchases

• Raw materials

• Expenses with GST

• Services availed

✘ Composition Scheme: ITC Not Available

This means businesses under this scheme may face:

• Increased cost

• Lower price competitiveness for B2B sales

8. Advantages & Disadvantages

Advantages of GST Composition Scheme

✔ Lower tax rates
✔ Minimal paperwork
✔ No monthly returns
✔ Easy bookkeeping
✔ Reduced compliance cost

Disadvantages

✘ No ITC
✘ No inter-state supply
✘ Cannot sell online (e-commerce)
✘ Cannot issue GST invoice
✘ Lower credibility in B2B market

Advantages of Normal GST Scheme

✔ ITC available
✔ Inter-state supply allowed
✔ E-commerce allowed
✔ GST invoices enhance trust
✔ Suitable for fast-growing businesses

Disadvantages

✘ Higher compliance burden
✘ Monthly filings
✘ Need for detailed record-keeping
✘ Cost of hiring accountants/consultants

9. Key Differences at a Glance

10. Which Scheme Should You Choose?

Your choice depends on:

Choose Composition Scheme if:

• Your turnover ≤ ₹1.5 crore

• You deal primarily in B2C

• You want minimal compliance

• Your profit margins are small

• You do not need ITC

Choose Normal GST Scheme if:

• You operate in B2B market

• You need ITC

• Your turnover > ₹1.5 crore

• You want to sell online

• You operate in multiple states

11. Common Mistakes Businesses Make

❌ Opting for Composition to “save” tax but losing more due to no ITC
❌ Doing inter-state supply while under Composition
❌ Assuming Composition applies automatically
❌ Not switching to Normal GST after crossing turnover limit
❌ Not updating customers about scheme change

12. Latest Updates (2024–2025)

✔ Threshold of ₹1.5 crore remains unchanged
✔ Service providers allowed up to ₹50 lakh turnover
✔ Strict penalties for misuse of Composition scheme
✔ GST audits eased for small businesses
✔ Increased focus on e-invoicing and fraud detection

13. Frequently Asked Questions

1. Can a composition dealer sell outside the state?

No. Inter-state supply is strictly prohibited.

2. Can composition dealers issue GST invoices?

No. They can issue only Bill of Supply.

3. Can I switch from Composition to Normal GST anytime?

Yes, but you must file the required forms during the transition.

4. Is the Composition Scheme good for service providers?

Yes, if turnover ≤ ₹50 lakh.

5. Do Composition Dealers need to maintain records?

Yes, but the requirements are minimal compared to regular GST.

14. Conclusion

Choosing between the GST Composition Scheme and the Normal GST Scheme depends entirely on your business nature, turnover, customer base, growth prospects, and compliance capacity.

The Composition Scheme is perfect for small B2C businesses wanting simplicity.
The Normal Scheme is ideal for growing businesses needing ITC and wide market reach.

Before deciding, evaluate:

• Cost impact

• Supplier and customer requirements

• Growth potential

• Legal restrictions

A well-informed decision will help you stay compliant, reduce tax liabilities, and support healthy business expansion.