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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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 collected separately) 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.

Rithesh Bajoriya
Rithesh Bajoriya
Chartered Accountant
MRN No.: 407339
City: Varanasi

As a Chartered Accountant with over 18 years of experience, I have honed my skills in the field and developed a genuine passion for writing. I specialize in crafting insightful content on topics such as GST, income tax, audits, and accounts payable. By focusing on delivering information that is both engaging and informative, my aim is to share valuable insights that resonate with readers.

Frequently Asked Questions

  • Who Can Benefit From The Composition Scheme For Service Providers?
    Small service providers with annual turnover up to ₹50 lakh can opt for the Composition Scheme. It reduces tax rates and filing burden but restricts ITC claims. BUSY helps such businesses generate compliant invoices, apply the right tax rate, and file simplified returns easily.
  • Can A Service Provider Making Inter-State Supplies Opt For The Composition Scheme?
    No, service providers making inter-state supplies cannot choose the Composition Scheme. It is restricted to intra-state transactions only. BUSY ensures compliance by tracking turnover and supply type, alerting users if they cross limits or conditions, so they stay aligned with GST rules at all times.
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