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Lower GST Rate Composition Scheme for Service Providers

Updated on:  

08 min read

The Government introduced the composition scheme to assist small taxpayers and reduce the compliance burden.  A dealer under composition scheme is required to maintain fewer records/books of accounts and 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 out the conditions to opt into the scheme by service providers.

Latest Updates:

28th May 2021
As per the outcome of the 43rd GST Council meeting and CBIC notification,
(1) Interest relief has been provided for filing of CMP-08 for Jan-March 2021 quarter as per which, for any delay, interest is not charged until 3rd May, whereas 9% of reduced interest will be charged if filing is done thereafter until 17th June, and 18% later on.
(2) The due date to file GSTR-4 for FY 2020-21 is extended up to 31st July 2021.
(3) The maximum late fee for GSTR-4 that can be charged will be restricted to Rs.500 per return for nil filing and Rs. 2000 for other than nil filing.

1st May 2021
(1) The due date to file GSTR-4 for FY 2020-21 was extended from 30th April 2021 to 31st May 2021.
(2) Form CMP-08 that was due by 18th April 2021 for January-March 2021 has been given a relaxation in the interest charges. No interest for filing on or before 8th May, interest reduced to 9% between 9th May and 23rd May, but charged at 18% thereafter.
(3) The time limit to file ITC-03 by newly opted composition taxable persons for FY 2021-22 is extended up to 31st May 2021.

21st September 2020
The late fee has been reduced on filing pending Form GSTR-4 (Quarterly Return). The taxpayer is not required to pay the late fee if the tax liability is ‘NIL’. For other cases, the late fee has been restricted to Rs.500.

However, the pending GSTR-4 (quarterly) related to FY 2017-18 and 2018-19 has to be filed on or before 31.10.2020.

31st August 2020
The due date for furnishing Form GSTR-4 for the FY 2019-20 from 31st August 2020 to 31st October 2020.

21st July 2020
The facility to file GSTR-4 (Annual Return) is now available on GST portal.

13th July 2020
The due date to file GSTR-4 (Annual Return) has been extended to 31st August 2020 from 15th July 2020.

3rd April 2020
1. The time limit to opt into the composition scheme for the FY 2020-21 in form CMP-02 has been extended up to 30th June 2020. It applies for both taxpayers registered under section 10 of the CGST Act as well as the taxpayers opting for the scheme notified via CGST (Rate) notification no. 2/2019 dated 7th March 2019.
2. The time limit to file form ITC-03 has accordingly been extended till 31st July 2020.
3. The dealers can submit challan-cum-statement in form CMP-08 for the January-March 2020 quarter by 7th July 2020.
4. The time limit to file GSTR-4 annual returns for the FY 2019-20 by the composition dealers has been extended till 15th July 2020.

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 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’.

a screenshot of gst composition form

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

Merits and Demerits of composition scheme:

MeritsDemerits
Fewer compliancesCannot claim the input tax credit
Reduced tax liabilityCannot charge or collect tax from the customer. So, a taxpayer bears the liability himself under the scheme.
Fewer details in books of accountsCannot 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 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.

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

Illustration:

Sl.NoDescriptionNormal taxpayer (Rate – 18%)
Composition taxpayer (Rate – 6%)
1Sales  value118000118000
2Sales value exclusive of taxes
100000118000*
3Output GST
180007080
4Purchases4000040000
5Input GST @ 18%72007200
6Total purchase value (6 = 4 + 5)4720047200
7Net GST liability (7 = 3 – 5)108007080
8Gross Profit (8 = 1 – {6+7})60,00063,720

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

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