Converting Between Regular and Composition Scheme in GST

Businesses registered under GST in India have the option to choose between the Regular Scheme and the Composition Scheme based on their turnover and compliance needs. However, business circumstances may change, requiring a transition between these schemes. This blog post explains the process, eligibility, and implications of converting from Regular to Composition and vice versa.

1. What is the Difference Between Regular and Composition Schemes?

FeatureRegular SchemeComposition Scheme
Tax RateAs per applicable GST slab (5%, 12%, 18%, 28%)Lower fixed rate (1% for traders, 5% for restaurants, 6% for services, 2% for manufacturers)
Input Tax Credit (ITC)AllowedNot allowed
Filing of ReturnsMonthly/quarterly (GSTR-1, GSTR-3B)Quarterly (CMP-08) & Annual (GSTR-4)
Interstate SupplyAllowedNot allowed
E-Way Bill RequirementMandatoryRequired for inter-state purchase

2. Converting from Regular to Composition Scheme

Eligibility for Switching to Composition Scheme

A registered taxpayer can opt for the Composition Scheme if:

  • Aggregate turnover is below ₹1.5 crore (₹75 lakh for North-Eastern states).

  • The business does not engage in inter-state supply of goods or services.

  • The business does not deal in exempted goods.

  • The business is not an e-commerce operator supplying goods.

Steps to Convert from Regular to Composition Scheme

  1. Log in to the GST Portal.

  2. Navigate to ‘Services’ → ‘Registration’ → ‘Application to opt for Composition Levy’.

  3. Fill in the required details and submit the form GST CMP-02.

  4. File GST ITC-03 within 60 days to reverse any Input Tax Credit (ITC) claimed earlier.

  5. The new Composition Scheme applies from the beginning of the next financial year.

Implications of the Conversion

  • The taxpayer cannot charge GST separately on invoices.

  • No Input Tax Credit (ITC) can be claimed.

  • Filing requirement changes from monthly GSTR-1 & GSTR-3B to quarterly CMP-08 and annual GSTR-4.

3. Converting from Composition Scheme to Regular Scheme

Eligibility for Switching to Regular Scheme

A Composition Scheme taxpayer must switch to the Regular Scheme if:

  • Annual turnover exceeds ₹1.5 crore (₹75 lakh for North-Eastern states).

  • The business wants to supply goods/services inter-state.

  • The business wants to claim Input Tax Credit (ITC).

  • The taxpayer registers as an e-commerce operator.

Steps to Convert from Composition to Regular Scheme

  1. Log in to the GST Portal.

  2. Go to ‘Services’ → ‘Registration’ → ‘Application for Withdrawal from Composition Levy’.

  3. File GST CMP-04 to opt out of the Composition Scheme.

  4. File GST ITC-01 within 30 days to claim ITC on stock held.

  5. Start filing monthly GSTR-1 and GSTR-3B instead of quarterly CMP-08.

Implications of the Conversion

  • The taxpayer must start collecting and charging GST from customers.

  • ITC can be claimed on purchases.

  • Compliance requirements increase due to monthly return filing.

4. Key Deadlines for Conversion

  • Opting for Composition Scheme (GST CMP-02) – Must be filed before 31st March to be applicable for the next financial year.

  • Opting out of Composition Scheme (GST CMP-04) – Must be filed immediately after crossing the turnover limit.

  • ITC Reversal (GST ITC-03) – Within 60 days of switching to Composition Scheme.

  • ITC Claim (GST ITC-01) – Within 30 days of switching to the Regular Scheme.

Conclusion

Switching between Regular and Composition schemes requires careful planning to ensure compliance with GST rules. Businesses should evaluate their turnover, compliance burden, and tax benefits before making a switch. Proper documentation and timely filing of required forms are crucial to avoid penalties and ensure smooth operations.

For any GST-related queries, feel free to ask in the comments!

Comments

Post a Comment

Popular posts from this blog

GST Registration for Non-Resident Taxable Persons in India

India's Goods and Services Tax (GST) system aims to create a single, unified tax structure to streamline the collection of taxes on goods and services. While most businesses in India are required to register for GST if they meet specific thresholds, there are unique provisions for Non-Resident Taxable Persons (NRTPs) under the GST framework. These provisions cater to businesses or individuals located outside India but engaged in the supply of goods and services in India. In this blog post, we will explore what constitutes a Non-Resident Taxable Person (NRTP) , their GST registration requirements, and the relevant provisions that businesses need to follow to ensure compliance under GST in India. Who is a Non-Resident Taxable Person (NRTP)? A Non-Resident Taxable Person is defined under Section 2(77) of the Central Goods and Services Tax (CGST) Act, 2017 , as a person who: Is not a resident of India , Supplies goods or services in India , either directly or indirectly, or Engage...
Read more
  Eligibility Criteria for the Composition Scheme To be eligible for the GST Composition Scheme, businesses must meet the following criteria: Turnover Limit : The business must have a turnover of up to ₹1.5 crore (₹75 lakhs for special category states). Type of Business : The business should be a  manufacturer ,  trader , or  restaurant  (not providing services like consulting or professional services). No Inter-State Supply : The business must not be involved in inter-state sales, i.e., selling goods across state borders. No E-Commerce : Initially, businesses involved in  e-commerce  were not eligible for the Composition Scheme. However, there are provisions that allow certain e-commerce businesses to opt for it, which we will discuss next.
Read more
tell me about gst registration requirments for interstate service providers (is there any threshold of Rs. 10 lac)
Read more