Regular GST Registration

In Regular Registration, the business person has to pay the GST based on the GST rate applicable to the nature of goods that is involved in the business. The main advantage of the Regular GST registration is that the net effect of GST will be on the margin added by the seller for his purchases. Let us understand it by example:

For example: Mr. Ram deals in trading of cloth business, the GST rate on cloth and related products is 5%. Let us assume, Mr. Ram purchased the clothing material for an amount of Rs. 1,00,000 and paid 5% GST on the same i.e., 1,05,000. For selling this clothing material he has kept his margin as 10% and he successfully sold all this clothing material at 1,10,000. Now he has to pay GST on this sale amount i.e., 1,10,000 * 5% = Rs. 5500. But wait, he has already paid Rs.5000 GST at the time of purchase, hence he will not pay the total GST of Rs. 5500 on his sale, he will utilize the GST paid at the time of purchase which is called as Input Tax Credit(ITC) and has to pay only Rs.500 in effect.

Composite GST Registration

In composite GST Registration, the business person has to pay just fixed 1% GST on the sales that is done for a particular period and can avoid all the complications regarding Input Tax Credit(ITC). The Composite GST registration is applicable only till the turnover of Rs. 1.5 Crores after which he has to mandatorily apply for the Regular GST Registration.

In the above example that we have taken, in case of the Composite GST registration, Mr. Ram on the turnover of Rs. 1,10,000 that he has made, he can simply pay 1% on turnover i.e., 1% on 1,10,000 i.e., Rs. 1100. And he can forget about thinking about taking care of the Input Tax Credit and other complications.

But wait, as explained above, in the Regular GST registration Mr. Ram has paid only Rs. 500 as net GST and here in Composition GST Registration, same Mr. Ram is paying Rs. 1100 as the GST on sales and he has already sacrificed the GST of Rs.500 paid at the time of Purchasing the Cloth material which aggregated to Rs. 1600. Isn’t it a poor decision to opt Composite GST Registration?
Yes, choosing wrong GST registration will become expensive option. It has to be done by proper consultation with a Chartered Accountant to avoid losing your profit and ending up paying more taxes.