GST Composition Scheme for Service Providers

Composition scheme helps to ease the burden of GST compliance for small taxpayers. Those who are eligible for the scheme must maintain fewer records and file GST returns on a quarterly basis instead of monthly. Earlier, composition scheme was only available to the suplliers of goods, however, in the 32nd GST Council Meeting it was decided that servic eproviders can also opt for composition scheme.

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    GST Composition Scheme

    What is the Composition Scheme for Service Providers?

    A taxpayer who has an annual turnover of Rs 50 lakhs or less can opt for the service provider scheme. This scheme is applicable to service providers, as well as suppliers of goods and services who were previously ineligible for the composition scheme.

    Also Know – Differences Between Regular and Composite Schemes

    Registering for the Composition Levy

    The process for a service provider to register for the composition scheme is the same as that for an existing composition taxpayer. However, if a service provider chooses to pay the composition levy, they must check S.No.5 (iii) in CMP-02 (“any other supplier eligible for composition levy”). Other than that, they need to provide the same information as other composition dealers.

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    Pros and Cons of Composition Scheme

    Pros
    1. Lower compliance
    2. Lower tax burden
    3. Lesser records are to be maintained in the book of accounts
    Cons
    1. Cannot avail of input tax credit
    2. A composition scheme holder must bear the tax liability because they cannot collect tax from the recipient of goods or services.
    3. Cannot make interstate outward supplies or exports.

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    What are the Pre-Requisites for Opting for the Composition Scheme?

    1. The service provider must have an annual turnover which does not exceed Rs 50 lakhs.
    2. They must not supply or deal with non-taxable goods.
    3. They must not conduct any inter-state supplies.
    4. They must not be a casual taxable person or NRTP.
    5. The taxpayer must issue a bill of supply stating “composition taxable person” rather than a tax invoice.
    6. They cannot avail of input tax credits or collect tax from the customer.
    7. They cannot make a supplier through an e-commerce operator.

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    What is the GST Rate for Service Providers under the Composition Scheme?

    Service providers are subject to a GST rate of 6%. However, the value of the supply of exempt services, such as extending deposits, loans, or advances where the income is represented by interest or discount, will not be included in the calculation of the aggregate annual turnover.

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    Comparing the Regular and Composition Schemes

    Particulars Regular Taxpayer(Tax at 18%) Composite taxpayer(Tax at 6%)
    Sales value with tax 1,41,600 1,41,600
    Taxable value (In the composition scheme, tax cannot be collectedseparately) 1,20,000 1,41,600
    GST tax liability 21,600 8,496(1,41,600 x 6%)
    Purchase inward supply 50,000 50,000
    Input GST Credit at 18% 9,000 9,000
    Total Purchase Value 59,000 59,000
    Net GST Payable 12,600 (21,600 – 9,000) 8,496
    Gross Profit 70,000 (1,20,000 – 50,000) 74,104 (1,41,600-59,000 – 8,496)

    Conclusion

    The composition scheme for service providers is an initiative by the GST Council to ease the burden of compliance for small taxpayers. Under this scheme, service providers with an annual turnover of Rs 50 lakhs or less can opt for the composition levy, which is subject to a GST rate of 6%. This allows them to maintain fewer records and file GST Returns on a quarterly basis instead of monthly. With the recent decision to expand the scope of the scheme to include service providers, more businesses can benefit from this tax system. Overall, the composition scheme for service providers is a step towards a more streamlined and efficient GST framework, making it easier for small businesses to navigate the complex tax landscape.

    Frequently Asked Questions

    • Is Composition Scheme Available for Service Providers?
      Yes, the composition scheme is available for service providers with an annual turnover of up to ₹50 lakh. It allows them to pay GST at a reduced rate while simplifying compliance. This scheme is designed for small service providers to reduce their tax and filing burden.
    • What is the GST Rate for Composition Scheme Service Providers?
      Under the composition scheme, service providers must pay GST at a concessional rate of 6% (3% CGST + 3% SGST) on their turnover. This reduced rate applies only if the turnover does not exceed ₹50 lakh in the financial year.
    • Composition Scheme is Beneficial for Which Service Providers?
      The scheme benefits service providers like small consultants, freelancers, and repair professionals who have low turnover and minimal interstate transactions. It simplifies tax compliance and reduces tax rates, making it ideal for businesses serving local markets.
    • Can a Person Providing Services to Other States or Countries Opt for Composition Scheme?
      No, the composition scheme is not available to service providers making interstate or international supplies. It applies only to those providing services within the same state or union territory.
    • What is the Validity of the GST Composition Scheme for Service Providers?
      The scheme remains valid as long as the service provider meets eligibility criteria, including turnover below ₹50 lakh and no interstate or international supplies. Non-compliance may lead to disqualification.
    • What are the Filing Requirements Under the Composition Scheme for Service Providers?
      Service providers under the composition scheme must file CMP-08 quarterly to declare turnover and tax liability and GSTR-4 annually to report their annual summary. These simplified returns reduce compliance efforts.
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