Composition scheme under gst for services
Composition Scheme Under GST for Services: A Simple Tax Option for Small Businesses
- What is the Composition Scheme in GST?
- Eligibility Criteria
- Service Providers Who Are Not Eligible For Composition Scheme
- Rate Of Tax Under Composition Scheme For Service Providers
- GST Returns to Be Filed
- Key Benefits of Composition Scheme for Services
- Comparing the Regular and Composition Schemes
- How to Opt for the Scheme?
- Points To Be Remember
- Conclusion
- FAQs
What is the Composition Scheme in GST?
The word ‘composition’ means “to put together”. In tax laws, a composition scheme is a way to make things easier for taxpayers. Instead of maintaining detailed records of inputs and outputs and paying tax on the value added, the government gives an option to pay tax in a simpler, combined way. This helps reduce compliance burden for small taxpayers.
Eligibility Criteria
- The service provider’s yearly turnover should be within Rs 50 lakhs.
- They should not deal in goods that are not taxable.
- They should not do any inter-state sales or supply.
- They must not be a casual taxable person or a non-resident taxable person.
- Instead of a tax invoice, they should give a bill of supply with the words “composition taxable person” written on it.
- They cannot take input tax credit or charge GST from the customer.
- They also cannot sell their services through an e-commerce website or platform.
Service Providers Who Are Not Eligible For Composition Scheme
The Composition Scheme is not for everyone. Here’s who can’t choose it:
- If your total turnover in the previous financial year is more than ₹50 lakhs, you’re not eligible.
- If you’re doing inter-state sales or providing services to other states or countries, then you can’t opt for it.
- If you deal in items not covered under GST, like petrol, alcohol, etc., composition is not for you.
- If you are a casual taxable person or a non-resident taxable person, you’re not allowed.
- If you sell through an e-commerce platform (like Amazon, Flipkart) where the operator collects TCS under Section 52, then you’re out.
- If you’re covered under Section 10(1) – usually traders dealing in goods – only then you’re eligible. Others can’t opt in.
- If you’re supplying items like ice cream (with or without cocoa), pan masala, or tobacco-related products, you’re not eligible.
- If you have multiple GST registrations (GSTINs) under one PAN, then all of them must be under the composition scheme. You can’t mix some in a regular scheme and some in composition.
Rate Of Tax Under Composition Scheme For Service Providers
Composite taxpayers have to pay tax at 3% as CGST and 3% as SGST total 6%. This is called the composition fee. It has to be paid from their own pocket. They are not allowed to collect this from customers.
Also, this fee is not required for the period when the person is not registered under the scheme, and it’s not applicable on exempt supplies.
GST Returns to Be Filed
If you’re registered under the Composition Scheme, you need to file CMP-08 every quarter and GSTR-4 once in a financial year. For more details, check out our full article on GST returns for Composition Scheme taxpayers.
Key Benefits of Composition Scheme for Services
- In the composite scheme, there are less compliances for the taxpayer.
- Tax liability is also lower under this scheme.
- The person opting for this has to maintain less records in books.
- Compared to a regular taxpayer, return filing is also lesser and easier.
Comparing the Regular and Composition Schemes
|
Particulars |
Regular Taxpayer (18%) |
Composition Taxpayer (6%) |
|
Sales value (incl. GST) |
₹1,41,600 |
₹1,41,600 |
|
Taxable value |
₹1,20,000 |
₹1,41,600 (in composition, tax is not shown separately) |
|
GST payable |
₹21,600 |
₹8,496 (6% of ₹1,41,600) |
|
Purchases (incl. GST) |
₹59,000 (₹50,000 + ₹9,000 GST) |
₹59,000 (same as regular) |
|
Input GST credit (18%) |
₹9,000 |
Not available |
|
Net GST to pay |
₹12,600 (₹21,600 – ₹9,000) |
₹8,496 (full amount, no ITC) |
|
Gross profit |
₹70,000 (₹1,20,000 – ₹50,000) |
₹74,104 (₹1,41,600 – ₹59,000 – ₹8,496) |
How to Opt for the Scheme?
If someone wants to go for the Composition Scheme, they must do it before the new financial year begins. You can’t opt in during the middle of the year.
Once you have chosen the scheme, there’s no need to apply again every year, unless you want to switch. To opt for the scheme, you need to file Form CMP-02.
Points To Be Remember
- A person opting for the Composition Scheme cannot charge or collect GST from customers.
- The tax has to be paid from the person’s own pocket.
- The person cannot claim input tax credit on any purchases made.
- Instead of issuing a tax invoice, a Bill of Supply must be issued for outward supplies.
- The Bill of Supply must mention the following:
“Taxable person paying tax in terms of Notification No. 2/2019-Central Tax (Rate) dated 07.03.2019, not eligible to collect tax on supplies.” - The person must comply with Reverse Charge Mechanism (RCM) provisions where applicable.
- The scheme applies to all units of the service provider under the same PAN, meaning all units must be included if one unit opts for it.
- All CGST rules for regular composition taxpayers will apply to service providers under this scheme.
- The benefit of tax paid by a composition dealer is not passed on to buyers. This means the scheme may not be beneficial for those selling to registered buyers.
Conclusion
The Composition Scheme for service providers is a relief for small businesses under GST. If your annual turnover is ₹50 lakhs or less, you can choose this scheme and pay GST at just 6%. It reduces paperwork, and instead of filing returns every month, you only need to do it quarterly.
Earlier, this was mostly for traders, but now even service providers can take advantage of it. This move by the GST Council makes life a bit easier for small service-based businesses by cutting down on compliance and simplifying tax filing.
With that, we conclude this post. Please leave any questions or comments in the box below, and we will gladly respond.
FAQs
Q. Can a person providing services to other states or countries opt for the Composition Scheme?
Ans: No, you can’t apply for the Composition Scheme if you provide services to other states or outside India. It’s only for those who provide services within the same state or union territory.
Q. What is the validity of the GST Composition Scheme for service providers?
Ans: The scheme stays valid as long as the service provider meets all the conditions like turnover being below ₹50 lakh and no interstate or export supply. If any rule is broken, the person will be removed from the scheme.
Q. Which service providers benefit from a composition scheme?
Ans: It is beneficial for service providers that often offer services like dry cleaning, auto repair, home appliance maintenance, etc. directly to customers.
