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Lower GST Rate for Composition Scheme Service Providers

Composition Scheme Service Providers

Composition scheme is to help the small taxpayer by reducing the GST compliance burden. A composition scheme holder needs to maintain lesser records. Further, they have to file GST Return on a quarterly basis rather than monthly basis.

Previously, the composition was exclusively applicable to the supplier of the goods. But the 32nd GST Council Meeting has decided that the service provider can also opt for composition scheme.

What is the Composition Scheme for Service Providers?

Any taxpayer whose annual turnover is less than or equal to 50 Lakhs INR has an option to opt for a service provider.

Registration into Composition levy by Service providers

The method of registration into composition scheme by a service provider is the same as that of existing composition taxpayer. But, the service provider opting for composition levy shall check S.No.5 (iii) in CMP-02. This column states that the service provider is opting as any other supplier eligible for composition levy. Apart from this rest of the information shall be furnished similarly to any other composition dealer.

Due Date to opt for Composition Scheme

Wide Notification 97/2019 has extended the time period for opting into composition scheme for a service provider. According to this circular, the time limit has been extended to 30th April 2019. To register under composition levy you need furnish CMP-02 Form.

Advantages of Composition Scheme

Here are some major advantages that you can enjoy as a composition scheme holder:

  • Less Compliance as compared to the normal taxpayer
  • Lower tax burden on the composition scheme holder
  • Lesser records have to be maintained by the person opting for Composition scheme.

Disadvantages of Composition Scheme

  • The composition scheme holder cannot avail Input Tax Credit
  • A composition scheme holder has to bear the tax liability as they cannot collect tax from the goods or/and service recipient
  • They cannot make interstate outward supply or exports

Pre-requisite for Opting Composition Scheme

Here are the pre-requisite for opting composition scheme:

  • The service provider shall have the annual turnover not exceeding the 50 Lakhs INR mark.     
  • He shall not be supplying or dealing with non-taxable goods.
  • The person who wants to opt for composition scheme shall not make the inter-state outward supply.
  • He shall not be a casual taxable person or NRTP
  • The taxpayer shall issue Bill of supply mentioning “composition taxable person” in place of tax invoice.
  • The person who wants to opt for composition scheme cannot claim Input Tax Credit or collect tax from the customer.
  • He cannot make a supplier via e-commerce operator

GST Rate for Composition Service Provider

The applicable GST rate for Composition Service Provider is 6%

However, this 6% GST Rate is bifurcated into two i.e. 3% CGST and 3% SGST or 6% IGST. 

GST Return for Composition Scheme Holder

The taxpayer has to furnish the GSTR-4 on a quarterly basis rather than monthly basis. Furthermore, the taxpayer needs to file GSTR 9A annually.

Comparison between Composition Scheme and Normal

Let us understand the comparison between the Composition Scheme levy and Normal levy with the help of an illustration:

S. No Particulars Composition Taxpayer (GST Rate – 6%) Normal Taxpayer (GST Rate – 18%)
1 Sales  value 2,36,000 2,36,000
2 Sales value exclusive of taxes 2,36,000 2,00,000
3 Output GST 14160 36000
4 Purchases 80000 80000
5 Input GST @ 18% 14400 14400
6 Total purchase invoice value (6 = 4 + 5) 94400 94400
7 Net GST liability (7 = 3 – 5 Normal) 14160 21600
8 Gross Profit (8 = 1 – {6+7}) 1,27,440 1,20,000