Introduction
The Goods and Services Tax (GST) regime in India offers multiple registration schemes designed to cater to businesses of varying sizes and operational complexities. Understanding the differences between Regular, Composition, and QRMP (Quarterly Return Monthly Payment) schemes is crucial for entrepreneurs to optimize compliance costs, tax liabilities, and input tax credit benefits.
Choosing the wrong GST scheme can significantly impact your business profitability and compliance burden. For instance, a small retailer with purely local customers might pay unnecessary taxes under the Regular scheme, while a B2B service provider in the Composition scheme would lose clients who require GST invoices for input tax credit claims.
This comprehensive guide breaks down each scheme's nuances, helping you make an informed decision based on your turnover, customer base, and compliance capacity. We'll explore real-world scenarios, common pitfalls, and strategic recommendations to ensure you select the scheme that aligns perfectly with your business model.
Key Differences Explained
Tax Rate Structure
The Regular GST scheme follows the standard tax slab system (0%, 5%, 12%, 18%, and 28%) based on HSN classification of goods and services. This means a restaurant pays 5% GST, while electronics attract 18% or 28%.
The Composition scheme offers a flat tax rate regardless of product category: 1% for traders (0.5% CGST + 0.5% SGST), 5% for restaurants, and 6% for service providers. This simplicity eliminates HSN classification headaches but comes at the cost of input tax credit.
QRMP isn't a separate tax scheme but a filing convenience for regular taxpayers, so tax rates remain standard. The benefit is quarterly GSTR-1 filing instead of monthly, reducing paperwork for small regular taxpayers.
Input Tax Credit (ITC) Implications
Input Tax Credit is the cornerstone of GST's value chain mechanism. Under the Regular scheme and QRMP, businesses can claim ITC on purchases, effectively paying tax only on the value they add. For example, if you buy raw materials worth ₹1,00,000 with ₹18,000 GST and sell finished goods for ₹1,50,000 with ₹27,000 GST, you only pay ₹9,000 (₹27,000 - ₹18,000).
Composition dealers cannot claim ITC and cannot collect GST from customers separately. This means the tax paid on purchases becomes a cost. For a composition trader with ₹50 lakhs turnover at 1% tax rate, if they paid ₹2 lakhs GST on purchases, that ₹2 lakhs is a sunk cost without any offset benefit.
Geographic and Platform Restrictions
Regular scheme and QRMP allow unrestricted inter-state sales and e-commerce platform participation. This is critical for businesses targeting pan-India customers or selling through Amazon, Flipkart, or their own websites.
Composition scheme restricts businesses to intra-state sales only and prohibits e-commerce sales entirely. A composition dealer cannot sell on Amazon or even through Swiggy/Zomato if they are classified as e-commerce operators. This limitation makes composition unsuitable for digital-first businesses.
When to Choose Each Option
Choose Regular Scheme When:
- •Your customers are primarily B2B requiring ITC
- •You sell across state borders
- •E-commerce is a significant sales channel
- •Your turnover exceeds ₹1.5 crores
- •You have significant input tax credits to claim
Choose Composition When:
- •You sell only to end consumers (B2C)
- •All sales are within your state
- •Your turnover is below ₹1.5 crores
- •You want minimal compliance burden
- •Input tax credit is not significant for your business
Choose QRMP When:
- •You're already under Regular scheme
- •You have limited B2B invoices monthly
- •Quarterly filing reduces your compliance burden
- •You prefer monthly tax payments for cash flow
- •You want ITC benefits with easier filing
Pros and Cons Deep Dive
Regular Scheme
Advantages
- ✓ Full input tax credit on purchases
- ✓ No turnover restrictions
- ✓ Can sell inter-state and through e-commerce
- ✓ Can issue tax invoices to B2B customers
- ✓ No restrictions on business expansion
Disadvantages
- ✗ Monthly GSTR-1 and GSTR-3B filing required
- ✗ Higher compliance costs (accountant fees)
- ✗ More complex record-keeping requirements
- ✗ Must classify goods/services under correct HSN
- ✗ Higher penalty risk for non-compliance
Composition Scheme
Advantages
- ✓ Lower tax rates (1%, 5%, or 6%)
- ✓ Quarterly returns (CMP-08, GSTR-4)
- ✓ Simplified compliance and record-keeping
- ✓ No HSN classification required
- ✓ Reduced compliance costs
Disadvantages
- ✗ No input tax credit allowed
- ✗ Cannot make inter-state sales
- ✗ Cannot sell through e-commerce platforms
- ✗ Cannot issue tax invoices (Bill of Supply only)
- ✗ Must pay tax even on exempt goods
Compliance Requirements Comparison
| Compliance Aspect | Regular | Composition | QRMP |
|---|---|---|---|
| Return Filing Frequency | Monthly (GSTR-1, GSTR-3B) | Quarterly (CMP-08, Annual GSTR-4) | Quarterly GSTR-1, Monthly GSTR-3B |
| Invoice Details | Full invoice-wise reporting | Summary only (no invoice details) | Invoice Furnishing Facility (IFF) for B2B |
| Payment Deadline | 20th of next month | 18th of month after quarter | 25th of next month (quarterly GSTR-3B) |
| Annual Return | GSTR-9 (mandatory if turnover > ₹2 Cr) | GSTR-4 (annual) | Same as Regular |
Cost Comparison Analysis
Scenario: Retail Business with ₹50 Lakhs Turnover
Regular Scheme:
- • Purchases: ₹35,00,000 with GST paid: ₹4,20,000 (12% avg)
- • Sales GST collected: ₹6,00,000 (12% on ₹50L)
- • Net GST payable: ₹1,80,000 (after ITC)
- • Compliance cost: ₹24,000/year (accountant fees)
- • Total outflow: ₹2,04,000
Composition Scheme:
- • Purchases: ₹35,00,000 with GST paid: ₹4,20,000 (no ITC)
- • GST on turnover: ₹50,000 (1% of ₹50L)
- • Compliance cost: ₹12,000/year
- • Total outflow: ₹4,82,000
In this scenario, Regular scheme saves ₹2,78,000 annually due to ITC benefits!
Scenario: Service Business with ₹40 Lakhs Turnover
Regular Scheme:
- • Purchases (office expenses): ₹5,00,000 with GST: ₹90,000
- • Output GST: ₹7,20,000 (18% on ₹40L)
- • Net GST payable: ₹6,30,000
- • Total tax outflow: ₹6,30,000
Composition Scheme (6% for services):
- • Output tax: ₹2,40,000 (6% of ₹40L)
- • No ITC on purchases
- • Total tax outflow: ₹2,40,000
Here, Composition saves ₹3,90,000 annually! The key is low input purchases relative to revenue.
Practical Examples and Scenarios
Scenario 1: Kirana Store Owner
Ramesh runs a kirana store in Pune with ₹80 lakhs annual turnover. All sales are to local consumers. He purchases stock from wholesalers within Maharashtra.
Recommendation: Composition scheme is ideal. His customers don't need GST invoices (they're end consumers), and the 1% flat rate with no ITC is manageable since his margins are typically 15-20%. Quarterly filing reduces his compliance burden significantly.
Scenario 2: Software Development Agency
TechStart Solutions provides software development services with ₹1.2 crore turnover. They have clients across India and need to hire contractors who are GST registered.
Recommendation: Regular scheme is mandatory due to inter-state services. Additionally, they need ITC on contractor payments and software tools. QRMP can reduce their filing frequency since B2B invoices are limited but high value.
Scenario 3: E-commerce Seller
FashionHub sells clothing through Amazon and their own website with ₹60 lakhs turnover.
Recommendation: Regular scheme is mandatory since composition prohibits e-commerce sales. They should also register for QRMP to ease compliance if their B2B sales are minimal.
Common Mistakes to Avoid
1. Ignoring ITC Impact
Many businesses choose composition solely for lower rates without calculating the ITC they forfeit. Always compare net tax outflow, not just headline rates. A business with high input GST should never opt for composition.
2. Exceeding Turnover Limits
If your turnover crosses ₹1.5 crores (₹75L for NE states), you must switch to Regular scheme from the next quarter. Failing to do so attracts penalties and denial of composition benefits retroactively.
3. E-commerce Confusion
Selling through Amazon, Flipkart, or even Swiggy (for restaurants) is prohibited under composition. Many small businesses unknowingly violate this, risking penalties and loss of composition status.
4. Wrong Invoice Type
Composition dealers must issue "Bill of Supply" not "Tax Invoice." Charging GST separately or issuing tax invoices is a violation. Ensure your billing software is configured correctly.
5. Missing QRMP Opt-in
Many eligible regular taxpayers don't opt for QRMP, filing monthly GSTR-1 unnecessarily. QRMP can significantly reduce compliance burden with no downside for eligible businesses.
6. Incorrect HSN Classification
Under regular scheme, wrong HSN codes lead to incorrect tax rates and potential disputes. Invest time in proper classification or consult a professional to avoid future complications.
Conclusion and Recommendations
Selecting the right GST scheme is a strategic business decision with significant financial and operational implications. The Regular scheme offers maximum flexibility and ITC benefits, making it suitable for most established businesses, especially those with B2B sales, inter-state operations, or e-commerce presence.
The Composition scheme serves a specific niche: small, local, B2C businesses with minimal input GST costs. If you're a neighborhood retailer, local restaurant, or small service provider with purely local customers, composition can dramatically simplify your compliance life. However, always run the numbers—if your input GST is substantial, the ITC loss may outweigh the rate benefits.
QRMP is a valuable middle ground for small regular taxpayers who want ITC benefits with reduced filing frequency. It's particularly useful for businesses with limited B2B invoices but significant B2C sales.
Final Decision Framework:
- Calculate your annual input GST vs expected output GST under each scheme
- Assess your customer base—do they need ITC?
- Check your sales geography—any inter-state or e-commerce?
- Evaluate your compliance capacity and budget
- Consider future growth plans—will you scale beyond scheme limits?
When in doubt, consult a GST professional. The cost of professional advice is far less than the cost of choosing the wrong scheme.