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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 Update as on 27 Jul 2019

The due date to opt into the composition scheme for FY 2019-20 for eligible service providers is 30 Sept 2019

 

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’.

 

Latest Update on 5th April 2019

Circular 97/2019 dated 5th April 2019 has extended the time limit to opt into Composition scheme for service providers in CMP-2 up to 30th April 2019

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 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. 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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