Composition scheme under GST law is for small businesses. This is to bring relief to small businesses so that they need not be burdened with the compliance provisions under the law.
An option has been provided to the eligible taxpayer who can opt to pay a fixed percentage of turnover as fees in lieu of tax and be relieved from the detailed compliance of the provisions of law. Earlier this benefit was available to taxpayers who are engaged in the supply of goods or engaged in the restaurant business.
Vide notification no. 2/2019-Central Tax (Rate), dated 7.3.2019, this benefit of composition scheme was also made available to supplier of services. This scheme is applicable from 1st April 2019.
In this article, we will discuss details of composition scheme for the supply of services under GST.
Eligible Service Provider
The registered taxpayers rendering services or supplying goods and services both can opt for composition scheme under GST from 1st April 2019 having an aggregate turnover up to Rs. 50 Lakhs in the preceding year.
Example: If a taxpayer has Rs. 25 Lakhs of supply of services and Rs. 15 lakhs supply of goods in FY 2018-19, he can opt for composition scheme from 1.4.2019.
If a person’s turnover exceeds Rs. 50 lakhs during a year, he has to shift to the normal scheme and pay tax at regular rates.
A person who is not registered in GST and then get registered in composition scheme due to turnover more than Rs. 20/10 lakhs. Now for deciding whether he has to opt for regular scheme, his total turnover will be counted (both before registering in composition scheme and after registering in composition scheme.
Example: If any unregistered service provider exceeds the threshold limit of 20 Lakh under the GST Act on 10th July, he needs to get register under the GST Act. He can opt for above- mentioned composition scheme on date of registration, till his total turnover exceeds the limit of Rs. 50 Lakh i.e. till further Rs. 30 Lakh turnover he can opt for this scheme after registration. At 10th February, he exceeds the limit of Rs. 50 Lakh = 20 Lakh (till 10th July) + 30 Lakh (from 11th July to 10th February). So after 10th February, he will be ineligible for this composition scheme and has to pay tax as a regular taxpayer.
Note: Services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount is exempt from tax under GST. While calculating aggregate turnover to determine eligibility for the composition scheme, the value of supply of exempt services by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount, shall not be taken into
The restaurant business is considered as supplying service (not supplying goods). Old composition scheme is still applicable and rate of composition fees is 5% in the old scheme. Also, they are not allowed to register under this new composition scheme for service providers.
Service Providers Who Are Not Eligible For Composition Scheme
Composition scheme is not applicable to taxpayers:
- Whose aggregate turnover in the preceding financial year exceeds Rs. 50 Lakhs.
- Who is engaged in making any inter-state outward supply i.e providing services to persons in other state or other country.
- Who is engaged in making supplies which are not chargeable to tax under GST like petrol, alcohol.
- Who is a casual taxable person or a non-resident taxable person
- Who is engaged in making any supply through an e-commerce operator who is required to collect TCS under Section 52.
- Who is eligible to pay tax under section 10(1) of the Act i.e. a person supplying goods.
- Who is supplying the ice cream and other edible ice, whether or not containing cocoa, pan masala and tobacco, and manufactured tobacco substitutes.
- If more than one GSTIN are registered on same PAN, then all GSTIN has to opt for composition scheme. It means that it cannot happen that some GSTIN pay in normal scheme and some in composition scheme.
Rate Of Tax Under Composition Scheme For Service Providers
Composite taxpayers are required to pay tax at 3 % as CGST and 3 % as SGST totalling to 6%. This is called as the composition fees. The person has to pay this fees from his own pocket and cannot charge from customers.
Composition fees is not required to be paid for the period when person in not registered in this scheme and for exempt supplies.
Other Points To Be Remember
- The person who has opted for this scheme cannot charge or collect GST from the customers. He has to pay composition fees from his own pocket.
- The service provider cannot take the input tax credit from any purchases.
- The supplier who has opted for composition scheme has to issue a bill of supply and not the tax invoice for the outward supply.
- The supplier should mention the following words on the bill of supplies: “Taxable person paying tax in terms of notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on applies”.
- The composite taxpayer has to comply with RCM provisions.
- The scheme will be applicable to all units of the service provider having GST numbers based same PAN. This means service provider can’t keep any unit out of ambit of this scheme if opted it for any one unit.
- All CGST rules as applicable to composition taxpayers under the existing scheme will apply to this Composition scheme for service providers also.
- The benefit of tax paid by a composition dealer is not passed on to the buyers. So if a person sells to registered persons then composition scheme may not be beneficial for him.
When a person can opt for this scheme
If any person wants to opt for composition scheme, then he can do so before the start of a financial year only. Opting for composition scheme is not allowed between a financial year. A person who opted the scheme once is not required each year to opte for the scheme.
Form CMP-02 is to be filed for opting composition scheme.
Benefits Of Composition Scheme
- The composite scheme has fewer compliances for the taxpayer.
- It reduces tax liability for the composite taxpayer.
- The composite taxpayer has to maintain fewer details in his books of accounts.
- The composite taxpayer has to file fewer returns under GST as compared to the norma taxpayer.
Illustration Of Tax Liability Under Normal And Composition Scheme
(Tax at 18%)
(Tax at 6%)
|Sales value with tax||1,41,600||1,41,600|
|Taxable value (In composition|
scheme, tax cannot be collected
|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)|
GST Returns to be filed
Persons registered under this scheme are required to file CMP-08 for each quarter and GSTR-4 for every financial year. Read our comprehensive article on GST returns for persons registered in composition scheme.
Composition scheme is available for service providers from 1st April 2019, with turnover of up to Rs. 50 lakh in the previous financial year.
Service providers who have opted for composition scheme are required to pay composition fees at rate of 6%.
It is beneficial for service providers who generally provide services directly to consumers like dry cleaning, car repair, home appliances services etc.
Such person cannot register under composition scheme. They have to pay tax under regular scheme only.