GST Composition Scheme Rate

Earlier, the Composition Scheme under GST was available to the suppliers of goods only. However, in 32nd GST Council Meeting, it was decided that the scheme shall be made available to service providers too.

Topics covered –

What is Composition Scheme for service providers under GST?

The Composition Scheme for service providers gives an option to the Assessee for rendering services. Taxpayers having aggregate annual turnover in preceding Previous year equals to or less than Rs. 50 lakh can opt for the scheme. Assessee have to pay tax at a nominal rate, i.e. 6% (3% CGST and 3% SGST). The scheme for service providers was made available from 1 April 2019.

What are the conditions for service providers under GST Composition Scheme?

Turnover of service supplier in the previous financial year must be equal to or less than 50 lakh.
The supplier should not be-
- Eligible to pay tax Under Section 10(1) of CGST Act, 2017.
- Supplying any service which are not covered under the GST Act.
- Engaged in making inter-state supplies.
- Supplying through an E-commerce operator (u/s 52).
- Casual taxable person or non-resident taxable person.
The supplier cannot-
- Charge and collect tax from the customer
- Claim Input Tax Credit (ITC)
- Supply ice cream and other edible ice, pan masala and tobacco products.
The supplier must-
- Issue a bill of supply instead of a Tax Invoice.
- Pay normal tax for Reverse charge supplies (RCM).

How to register under Composition Scheme for new service providers?

Following compliances according to Section 10 of CGST Act, 2017 and Sub rules (2), 3(A) and (5) of Rule 3 of CGST Rules, 2017, are to be followed.

Intimation regarding opting for Composition Scheme

Any service provider who applies for the registration under GST Composition Scheme for the first time have to file Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the Scheme.

Effective date

The intimation shall be considered after the grant of registration to an applicant. The option to pay tax under the scheme will be applicable from the 1st day of next month in which the intimation has been filed.

For example- if a registered taxpayer submits the form on 10th march, then, the Composition Scheme will apply from 1st April.

Furnishing details of Input Tax Credit (ITC)

A service provider is also required to furnish the statement in FORM GST ITC-03 for details of ITC relating to inputs lying in stock, inputs contained in semi-finished or finished goods within 180 days from the day of commencement of composition levy.

How registered service provider will switch from normal scheme to composition scheme?

Switching from normal scheme to the composition scheme by the Registered person-

Intimation in FORM GST CMP-02 must be filled.
Later, a statement in FORM GST ITC-3 containing details of ITC relating to inputs lying in stock, inputs containing in semi-finished or finished goods is to be submitted to the GST portal within 60 days of commencement of the relevant financial year.

What are the Advantages & Disadvantages to service providers for opting Composition Scheme?

Benefits to service providers are as follows-

Tax Rate

Lower tax rate of 6% from customers is to be charged, as against the higher rates of 12 and 18 percent for most services under GST.

Tax Returns

Service provider under the scheme have to file only one return i.e. Annual return in GSTR4 and a quarterly statement in GST CMP 08 (along with simple declaration).

Simplified Compliances

Compliances are simplified in comparison to the regular scheme, as there is no need to maintain books, returns, issue invoices etc.

Disadvantages to service providers are as follows

No Input Tax Credit (ITC)

Taxpayer bears the liability himself as the service provider cannot charge or collect tax from the customer.

Limited territory of business.

In case of any Query related to GST Composition Scheme for Service provider, then contact Manthan Experts for immediate relief.