GST Composition Scheme for Service Providers

The composition scheme is designed to help small taxpayers by reducing the GST compliance burden. A composition scheme bearer must keep fewer composition records for service providers. Furthermore, they must file GST returns quarterly rather than monthly. 

Previously, the composition was only applicable to the goods' supplier. However, the 32nd GST Council Meeting decided that service providers could also choose the composition scheme.

What is the Composition Scheme for Service Providers?

Any taxpayer with an annual turnover of less than or equal to Rs 50 lakhs may choose a service provider. The scheme is available for the following:

• Service suppliers

• Suppliers of goods and services that were ineligible for the composition scheme earlier

Registering into the Composition Levy

A service provider's registration into the composition scheme is the same as that of an existing composition taxpayer. However, if a service provider chooses to pay the composition levy, he or she must review S.No.5 (iii) in CMP-02 (“any other supplier eligible for composition levy”). Aside from that, the rest of the information must be provided like other composition dealers.

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.

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.

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

The applicable GST rate for service providers is 6%. 

The value of the supply of exempt services by extending deposits, loans, or advances where the income is represented by interest or discount shall not be considered while calculating the aggregate annual turnover.

Comparing the Normal and Composition Schemes