Jyoti Jain
The GST Council in its 32nd Meeting held on 10 January, 2019 took two important decisions for the benefit of small and medium industry. One was, introduction of higher threshold limit for GST registration for supplier of goods and another was, revising the composition scheme by extending the benefit of scheme to all service providers and easing the compliance norms. Aforesaid amendments were made effective from 1st April, 2019. The decision regarding revised composition scheme which is currently available for all service providers along with a comparison under normal scheme is the subject matter of this article.
1. Service providers – Eligible person for composition scheme
Following registered persons having aggregate turnover up to INR 1.5 crores w.e.f 1-4-2019 by virtue of Notification No. 14/2019 dated 7-3-2019 –Central Tax (INR 75 lakhs for Special Category States) in preceding financial year are covered in the composition scheme:
– Manufacturers other than manufacturing tobacco and manufactured tobacco substitutes, pan-masala and ice-cream and other edible ice, whether or not containing cocoa.
– Traders
– Restaurants not serving alcohol
– Manufacturers and traders having a turnover of services of up to INR5 lakhs or 10% of total turnover from 1st February, 2019 (Vide Central GST (Amendment) Act, 2018).
What follows from the above is that post CGST Amendment also, only manufacturers and traders having a turnover of services of up to INR 5 lakhs or 10% of total turnover, were able to opt composition scheme and the same is not available to a person who is only a service provider other than a restaurant service provider. Therefore, in order to provide the benefit of composition scheme, a decision was announced in favour of service providers in GST Council’s 32nd meet. Accordingly, a composition scheme is made available to services providers (or mixed suppliers), with an aggregate turnover in the preceding financial year up to INR 50 lakhs.
The methodology to compute aggregate turnover is given in Section 2(6). Accordingly, ‘aggregate turnover’ means value of all outward supplies (taxable supplies+ exempt supplies+ exports + inter-state supplies) of a person having the same Permanent Account Number (PAN) and it excludes taxes levied under central tax (CGST), State tax (SGST), Union territory tax (UTGST), integrated tax(IGST) and compensation cess. Also, the value of inward supplies on which tax is payable under reverse charge and 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 account for calculation of ‘aggregate turnover.
It is to be noted that all registered persons having the same PAN are required to opt composition scheme. If one registered person opts for normal scheme, others become ineligible for composition scheme.
2. Conditions/Restrictions under composition scheme for service providers
(i) A service provider (or mixed supplier) registered under composition scheme should not be engaged in making any supply of goods which are not leviable to tax under the GST laws. [Section 10(2) of CGST Act, 2017].
(ii) A service provider (or mixed supplier) registered under composition scheme should not be engaged in making any inter-state outward supply of goods. [Section 10(2) of CGST Act, 2017]
(iii) A service provider (or mixed supplier) registered under composition scheme cannot make any supply of goods through an electronic commerce operator. [Section 10(2) of CGST Act, 2017].
(iv) A service provider (or mixed supplier) registered under composition scheme shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax. [Section 10(4) of CGST Act, 2017].
(v) A service provider (or mixed supplier) registered under composition scheme shall pay tax on reverse charge basis under sub sections (3) or (4) of section 9 on inward supply of goods or services or both [Rule 5 of CGST Rules, 2017].
(vi) A service provider (or mixed supplier) registered under composition scheme is required to mention the words ―composition taxable person, not eligible to collect tax on supplies at the top of the bill of supply issued by him. [Rule 5 of CGST Rules, 2017].
(vii) A service provider (or mixed supplier) registered under composition scheme shall also mention the words ―’composition taxable person’ on every notice or signboard displayed at a prominent place at his principal place of business and at every additional place or places of business. [Rule 5 of CGST Rules, 2017].
(viii) A mixed supplier, engaged in the manufacture of goods as notified under section 10(2)(e) of CGST Act, 2017, during the preceding financial year is not eligible to get himself registered under composition scheme. [Section 10(2) of CGST Act, 2017 read with rule 5 of CGST Rules, 2017].
(ix) A service provider should neither be a casual taxable person nor a non -resident taxable person in order to become eligible for registration under composition scheme. [Rule 5 of CGST Rules, 2017].
(x) A service provider (or mixed supplier) registered under composition scheme cannot issue tax invoice as they are not eligible to collect taxes on the supplies made by them.
3. Rate of tax under composition scheme for service providers
A registered person being a service provider (or mixed supplier), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay, in lieu of the tax payable by him, an amount calculated at the rate of 6 percent of turnover in lieu of the normal tax payable by him under section 9(1) of CGST Act, 2017. However, in case of restaurant services, where aggregate turnover in preceding financial year did not exceed INR
1.5 crore, restaurant service provider may opt to pay tax at the rate of 5% (2.5%CGST+2.5%SGST) in lieu of normal tax.
It may be noted that manufacturers and traders are allowed to pay tax at the rate of 1 percent (0.5%CGST +0.5%SGST) of turnover respectively under composition scheme in case their aggregate turnover in preceding year does not exceed INR 1.5 crore.
4. Registration under composition scheme for new service providers
[Section 10 of CGST Act, 2017 and Sub rules (2), 3(3A) and (5) of Rule 3 of CGST Rules, 2017]
(a) Intimation regarding opting composition scheme: – Any service provider (or mixed supplier) who applies for registration under GST for the first time may choose an option to pay tax under composition scheme in Part B of FORM GST REG-01, which shall be considered as an intimation to pay tax under the said scheme. Any intimation regarding opting composition scheme in respect of any place of business in any State or Union territory shall be deemed to be an intimation in respect of all other places of business registered on the same PAN.
(b) Effective date: The intimation shall be considered only after the grant of registration to an applicant and his option to pay tax under composition scheme will be applicable from the 1st day of next month in which intimation has been filed. Eg: If a registered taxpayer submits the form on 15th March , then, composition scheme will apply from 1st April.
(c) Frequency of intimation: The registered service provider (or mixed supplier) paying tax under composition scheme may not file a fresh intimation every year and he may continue to pay tax under the said scheme subject to the provisions of the Act and Rules.
(d) Furnishing details of Input tax credit: A service provider (or mixed supplier) is also required to furnish the statement in FORM GST ITC-03 for details of input tax credit relating to inputs lying in stock, inputs contained in semi-finished or finished goods within a period of one hundred and eighty days from the day of commencement of composition levy.
5. Existing registered service provider (or mixed supplier) switching from normal scheme to composition scheme
[Section 10 and Sub rules 3(3) and 3(5) of CGST Rules, 2017]
(a) Intimation regarding opting composition scheme: Any registered service provider (or mixed supplier) who opts to pay tax under composition scheme shall electronically file an intimation in FORM GST CMP-02, prior to the commencement of the financial year for which the option to pay tax under the aforesaid scheme is exercised. Further, any intimation regarding opting composition scheme in respect of any place of business in any State or Union territory shall be deemed to be an intimation in respect of all other places of business registered on the same PAN. The last date for opting composition scheme for service providers in respect of FY 19-20 has been extended to 30-9-2019.
(b) Effective date: The composition scheme will be applicable from the 1st day of the next month in which registered service provider (or mixed supplier) files an intimation in Form GST CMP-02.
(c) Frequency of intimation: The registered service provider (or mixed supplier) paying tax under composition scheme may not file a fresh intimation every year and he may continue to pay tax under the said scheme subject to the provisions of the Act and rules.
(d) Furnishing of input tax credit details: A registered service provider or mixed supplier is required to furnish the statement in FORM GST ITC-03 for details of input tax credit relating to inputs lying in stock, inputs contained in semi-finished or finished goods within a period of sixty days from the commencement of the relevant financial year. It is to be remembered that such registered service provider (or mixed supplier) is not allowed to furnish the declaration in FORM GST TRAN-1 after the statement in FORM GST ITC-03 has been furnished.
6. Filing of returns under composition scheme
The Government has simplified the return filing for composition taxpayers by obliging them to file only a single annual return in GSTR-4 annually by 30th April for the previous financial year with the quarterly tax payments. As per rule 62 of CGST Rules, 2017, a simplified ‘statement for payment of self-assessed tax’ in Form GST CMP-08 is to be filed quarterly by taxpayers who have opted for composition scheme. This form is to filed by the 18th day of the subsequent month following the end of a quarter, which include details like outward supplies, inward supplies attracting reverse charge including import of services; tax, interest payable; and taxes and interest paid. For April to June,2019 quarter, new format will be applicable.
7. Switching from composition scheme to normal scheme [Rule 6 of CGST Rules, 2017]
(i) Voluntary withdrawal of the scheme: A service provider (or mixed supplier) who wants to withdraw from the composition scheme is required to file an application in FORM GST CMP-04, duly signed or verified through electronic verification code, electronically on the common portal, before the date of such withdrawal.
(ii) Denial of composition scheme: Where the proper officer has reasons to believe that the registered service provider (or mixed supplier) was not eligible to pay tax under composition scheme or has contravened the provisions of the Act or Rules, he may issue a notice to such person in FORM GST CMP-05 to show cause within fifteen days of the receipt of such notice as to why the option to pay tax under composition scheme shall not be denied.
Upon receipt of the reply to the show cause notice issued from the registered person in FORM GST CMP-06, the proper officer shall issue an order in FORM GST CMP-07 within a period of thirty days of the receipt of such reply, either accepting the reply, or denying the option to pay tax under composition scheme from the date of the option or from the date of the event concerning such contravention, as the case may be.
Every person who has filed an application for withdrawal from the scheme or a person in respect of whom an order of withdrawal of option has been passed in FORM GST CMP-07, may electronically furnish at the common portal, a statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by him on the date on which the option is withdrawn or denied, within a period of thirty days from the date from which the option is withdrawn or from the date of the order passed in FORM GST CMP-07, as the case may be.
8. Penalty
According to section 10(5) of CGST Act, 2017, where the proper officer has reasons to believe that a taxable person has paid tax under composition scheme despite not being eligible, such person shall, in addition to any tax that may be payable by him under any other provisions of the CGST Act, 2017, be liable to a penalty and the provisions of section 73 or section 74 shall, mutatis mutandis, apply for determination of tax and penalty.
9. Comparison between normal service provider and service provider under composition scheme
| Particulars | Normal service provider | Service provider under composition scheme |
| Registration threshold | Threshold registration limit for normal service provider is aggregate turnover exceeding INR 20 lakh in a financial year (INR 10 lakhs in case of Special Category States) | Threshold registration limit under composition scheme for service provider (or mixed. suppliers) is annual turnover in preceding financial year not exceeding INR 50 lakh.
In case of restaurant services, threshold registration limit under composition scheme is annual turnover in preceding financial year not exceeding INR 1.5 crore w.e.f 1-4-2019. |
| Tax rate | For a normal tax payer, higher rate of tax is applicable as per the GST rate tier structure 0%,5%,12%,18% and 28% | For restaurant services, the rate is 5%. Whereas, it is 6%
for other service providers (or mixed suppliers) |
| Tax collection from service recipient |
A normal service provider collects tax from service recipient and deposit it to the Government | The burden of tax is kept on the service provider (or mixed supplier) himself. He cannot collect taxes from the service recipient as in case of normal tax payer |
| Input tax credit | A normal service provider is eligible to take input credit on his inward supplies and he can pass the same to service recipient by issuing tax invoice. | Any composition service provider (or mixed supplier) cannot avail the benefit of taking credit of input tax on inward supplies. Also, the service recipient even if registered will not get the input tax credit on his input supplies. |
| Returns | Currently, a normal service provider has to file 2 monthly returns (namely, GSTR-1 where turnover exceeds INR 1.5 crore & GSTR-3B) and one annual return, totalling to 25 returns in a year | A composition service provider has to file just single annual return in GSTR4 and a quarterly Statement for payment of self-assessed tax in GST CMP 08, totalling to 5 returns. |
| Tax payment | A normal service provider having turnover upto INR 1.5 crore is required to pay tax at quarterly intervals. On the other hand, service providers having turnover exceeding INR1.5 crore are required to make monthly tax payments. | Quarterly tax payment is allowed in case of composition service provider (or mixed supplier). |
| Restriction on interstate supplies | A normal service provider can make inter and intra-State state supplies of goods and or services. | A composition mixed service provider is barred from making inter-state supplies of goods. |
10. Summing up
The Government’s decision of allowing composition scheme to all service providers (or mixed suppliers) is a welcome move. It will benefit small and medium players in industry. The threshold for service providers (or mixed suppliers) and restaurants under composition scheme is annual turnover in preceding financial year not exceeding INR 50 lacs and INR 1.5 crores respectively. The registered service provider (or mixed supplier) and restaurants opting to pay tax under the composition scheme needs only to ascertain the aggregate value of outward taxable supplies, and compute the tax thereon at a fixed rate of 6 percent and 5 percent respectively, regardless of the actual rate of tax applicable on the said outward supplies.
To know more about gst composition scheme.
On one side, composition scheme has merits of low tax rate, reduced compliances, etc. but on the other side, it has few disadvantages like no tax collection from service recipient, no input tax credit, restriction on inter- state supplies, etc. So, depending upon type of services provided, whether Business to Business (B2B) or Business to Consumer (B2C), net margins, a decision regarding registration under composition scheme should be taken by the service providers.
(The author can be reached at jyotijain101@gmail.com)
In table first row third column it should be 20 lakhs
Point 2 (ii) says service provider should not be engaged in inter state supply of goods. Service providers generally don’t supply goods. They only provide services. Does a service provider of information technology providing services through internet, to client in other state, qualify for composition scheme ?
Good information.
Awesome guide, thoroughly explained. It’s a great .
A very good write-up in detail on Composition Scheme incorporating recent amendments with comparative analysis.
A big thank you for keeping readers like us in loop with the latest developments.