Composition or regular GST?
Choose between the composition scheme and regular GST from who your customers are and what you buy.
6 min read
Once you register for GST, you choose how: as a regular taxpayer, or under the composition scheme. It is a trade between simplicity and flexibility, and the right answer depends mostly on who your customers are.
Regular GST
You charge GST on every sale, at the rate for what you sell, on a tax invoice. You claim back the GST you pay on purchases as input tax credit. You pay the difference, and file returns monthly — or quarterly under QRMP, with a monthly payment.
The composition scheme
Built for smaller businesses that want less paperwork. Instead of charging GST on each sale, you pay a small flat percentage of your turnover, and file far fewer returns: a quarterly payment and one annual return.
The catch:
- You cannot charge GST to your customers. You issue a bill of supply, not a tax invoice.
- You cannot claim input tax credit on anything you buy.
- Your business customers cannot claim credit on what they buy from you — because you did not charge them GST.
- Only businesses under a turnover limit can opt in, and some kinds of business are excluded altogether.
The turnover limit and the flat rate depend on what you do — trading, manufacturing, restaurant, or services — and have changed over the years. Check the current figures on the GST portal before you choose. This lesson does not quote them, so it cannot go out of date.
How to choose
| If… | Lean towards |
|---|---|
| Your customers are mostly households (a shop, a café, a salon) | Composition — they cannot claim GST back anyway |
| Your customers are mostly businesses | Regular — they will want a tax invoice and the credit |
| You buy a lot of stock or equipment that carries GST | Regular — composition loses you that credit |
| You have little in purchases and want the least paperwork | Composition |
What it looks like in practice
A neighbourhood bakery selling to families is often better on composition: its customers do not need tax invoices, and the paperwork stays light.
A small manufacturer supplying parts to factories is almost always better on regular GST: its buyers will insist on a tax invoice, and the GST on its raw material is credit worth claiming.
You can move between them, but not on a whim — opting in and out is done at set times with a form on the portal. Make the choice with a year's view, not a month's.
The paperwork, side by side
Under composition: one tax payment a quarter (CMP-08) and an annual return (GSTR-4). Under regular GST: a sales return and a summary return every month, or every quarter under QRMP with a payment each month. The next lesson walks through those returns.
Use the GST calculator below to see what the same sale looks like with GST added, and how much of a GST-inclusive price is tax.