Introduction
Since the implementation of the Goods and Services Tax (GST) in India, businesses have been evaluating which tax structure best suits their operations — the GST Composition Scheme or the Normal GST Scheme. Both schemes have unique advantages, compliance requirements, tax rates, and eligibility rules.
For small and medium businesses, choosing the right option can significantly impact profit margins, compliance burden, cash flow, and overall business growth.
In this comprehensive blog, we will break down everything you need to know about GST Composition Scheme vs Normal GST Scheme, helping you make an informed decision for your Indian business.
Table of Contents
What is GST Composition Scheme?
What is Normal GST Scheme?
Eligibility Criteria Comparison
Tax Rate Comparison
Compliance Requirements
Billing Format Difference
ITC (Input Tax Credit) Comparison
Advantages & Disadvantages
Key Differences at a Glance
Which Scheme Should You Choose?
Common Mistakes Businesses Make
Latest Updates (2024–2025)
Frequently Asked Questions
Conclusion
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)
| Category | GST Rate |
|---|---|
| Manufacturers | 1% |
| Traders | 1% (0.5% SGST + 0.5% CGST) |
| Restaurants | 5% |
| Service Providers | 6% |
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
| Feature | Composition Scheme | Normal GST |
|---|---|---|
| Eligibility | Small businesses | Any business |
| Turnover Limit | Up to ₹1.5 Cr | No limit |
| Tax Rates | 1%–6% | 0%–28% |
| ITC | Not allowed | Allowed |
| Invoice Type | No GST collected | GST invoice |
| Filing | Quarterly | Monthly/Quarterly |
| Inter-state Supply | Not allowed | Allowed |
| E-commerce | Not allowed | Allowed |
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.
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