Two ways to be GST-registered
Small businesses in India can register under GST in one of two ways: the regular scheme, where you charge GST on sales and claim input tax credit on purchases, or the Composition Scheme, where you pay a small flat percentage of turnover as tax and skip most of the compliance. Choosing the right one depends on who your customers are, your margins, and how much paperwork you can absorb.
Who can opt for the Composition Scheme?
The scheme is designed for small taxpayers. Broadly:
- Traders, manufacturers and restaurants with aggregate turnover up to Rs. 1.5 crore in the previous financial year (a lower limit applies in some special-category states).
- Service providers have a separate composition option (under Section 10(2A)) with a turnover limit of Rs. 50 lakh.
The lower threshold for goods is Rs. 75 lakh in the notified special-category / north-eastern states. You are not eligible if you make inter-state outward supplies, supply through an e-commerce operator that collects TCS, or deal in goods that are outside GST (such as alcohol for human consumption).
Side-by-side comparison
| Composition Scheme | Regular Scheme | |
|---|---|---|
| Tax | Flat % of turnover (1% manufacturers/traders, 5% restaurants; 6% under the separate Section 10(2A) service-provider scheme) | Standard GST rate on each supply (5/12/18/28%) |
| Charge tax to customers? | No — you absorb it; issue a Bill of Supply, not a tax invoice | Yes — collected on the tax invoice |
| Input Tax Credit | Not allowed | Allowed on eligible purchases |
| Inter-state sales | Not allowed (outward) | Allowed |
| Returns | CMP-08 quarterly + GSTR-4 annually | GSTR-1 + GSTR-3B (monthly or quarterly) |
| Best for | B2C local businesses with simple operations | B2B sellers, exporters, anyone whose buyers need ITC |
The trade-offs that actually matter
Your customers and ITC. This is the deciding factor. If you sell mostly to other businesses, they will want a tax invoice so they can claim input credit — a composition dealer cannot give them that, which makes you less attractive as a supplier. If you sell directly to consumers who do not claim ITC, this matters far less.
Compliance load. Composition is dramatically lighter — one quarterly challan and one annual return, versus monthly GSTR-1 and GSTR-3B filings under the regular scheme.
Your margins and purchases. Composition tax is on your turnover, regardless of your input costs, and you forfeit ITC. If you buy a lot of taxable inputs, the lost credit can outweigh the lower rate.
Rule of thumb: choose Composition if you are a small, local, B2C business that values simplicity. Choose Regular if your buyers need input credit, you sell across states, or you export.
What composition dealers must remember
- Issue a Bill of Supply (not a tax invoice) and do not collect GST from customers.
- Display "composition taxable person" on signboards and bills of supply, as required.
- Pay tax quarterly via CMP-08 and file GSTR-4 annually.
- You generally cannot claim ITC — the flat rate is your full GST cost.
How ReadyBooks.ai helps
Whichever scheme you are on, ReadyBooks.ai keeps the paperwork correct — Bills of Supply for composition dealers, full tax invoices with CGST/SGST/IGST splits for regular taxpayers, and a GST dashboard that tracks exactly what you owe. If you switch schemes as you grow, your invoicing and reports adapt without a rebuild.
Turnover limits and composition rates are revised periodically. Confirm the current figures on the GST portal or with your chartered accountant before opting in.