Lower GST Rate Composition Scheme for Service Providers

The Government introduced the composition scheme to assist small taxpayers and reduce the compliance burden.  A dealer under a composition scheme is required to maintain fewer records/books of accounts and is not required to file monthly returns. Earlier, the scheme was available to only the suppliers of goods. However, in the 32nd GST Council Meeting, it has been announced that the scheme will now be available to service providers too. The scheme for service providers is available from  1 April 2019. The article details the conditions to opt into the scheme by service providers.

What is the Composition Scheme for Service Providers?

The composition scheme for service providers gives an option to taxpayers rendering services having aggregate annual turnover up to Rs. 50 lakh to pay tax at a nominal rate, subject to conditions. The following persons can opt into this scheme:

1. Supplier of services only (i.e., service providers)
2. Suppliers of goods and services (i.e., those suppliers who were not eligible for the composition scheme earlier)
   

Note: Suppliers of goods and restaurant service providers were earlier eligible under the composition scheme.

Registration into Composition levy by Service providers

The composition scheme rules apply to the scheme notified under notification number 2/2019 dated 7th March 2019. Hence, the method for opting into the scheme for service providers remains similar to that of an existing composition taxpayer. However, such taxpayers must particularly tick mark Sl. no.5(iii) i.e., ‘any other supplier eligible for composition levy.

The rest of the fields needs to be filled like any other composition scheme dealer.

Merits and Demerits of composition scheme:

Merits	Demerits
Fewer compliances	Cannot claim the input tax credit
Reduced tax liability	Cannot charge or collect tax from the customer. So, a taxpayer bears the liability himself under the scheme.
Fewer details in books of accounts	Cannot carry out interstate transactions or Exports

Conditions to be fulfilled to be eligible under the  scheme

1. The supplier of service must have a turnover of less than Rs. 50 lakh in the previous financial year.
2. The supplier should not be supplying non-taxable goods.
3. The supplier should not be engaged in making inter-state supplies.
4. The supplier should not supply through an e-commerce operator.
5. The supplier should not be a casual taxable person or a non-resident taxable person.
6. The supplier must issue a bill of supply instead of a tax invoice. The supplier must mention the words ‘composition taxable person’ on the bill of supply.
7. The supplier cannot charge and collect tax from the customer.
8. The supplier cannot claim the input tax credit.
9. The supplier must pay normal tax for reverse charge supplies.
10. The supplier cannot be supplying ice cream and other edible ice, whether or not containing cocoa, pan masala and tobacco and manufactured tobacco substitutes.
    

The rate for composition service providers
For composition service providers, the applicable GST rate is 6% (being 3% CGST + 3% SGST)   For calculation of the aggregate annual turnover, the value of supply of exempt services by way of extending deposits, loans or advances where the income is represented by way of interest or discount, shall not be taken into account. Compliance by service providers under the composition scheme: The taxpayers would be required to file only one annual return with quarterly payment of taxes (along with a simple declaration).

Comparison between normal and composition scheme

Sl.No	Description	Normal taxpayer (Rate – 18%)	Composition taxpayer (Rate – 6%)
1	Sales  value	118000	118000
2	Sales value exclusive of taxes	100000	118000*
3	Output GST	18000	7080
4	Purchases	40000	40000
5	Input GST @ 18%	7200	7200
6	Total purchase value (6 = 4 + 5)	47200	47200
7	Net GST liability (7 = 3 – 5)	10800	7080
8	Gross Profit (8 = 1 – {6+7})	60,000	63,720

*Note: In a composition scheme, the dealer is unable to collect tax from the customer.

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