Service Composition Scheme – Who Can Opt, Procedure and Returns – April 2019 Update

Background of this update

For the Service sector, dealing with consumers directly (B2C), GST has been one of the areas of concern and hurdle for pricing and growth, since July 2017. One of the essential reasons for this is the increase in tax burden for services. In Mar 2015, the service tax rate was 12.36% which was increased to 18% under GST, for general services. This had a very persuading impact in case of the service industry, more specifically service industry operating in B2C.

Therefore, there was a great need for some simple taxation scheme under GST, for a small service provider, where tax rate will be lower, and compliance will be minimum, like composition scheme for supply of goods upto Rs 1.5 crores. Accordingly, GST Council in its 32nd meeting, held on 10th Jan 2019, taken very important decision of implementation of composition scheme for a small service provider, with GST Rate of 6% from 1st April 2019. This scheme though focuses on the service sector, but it also allows supplies of goods as well.

WHICH INDUSTRY CAN GO FOR THIS BENEFICIAL SCHEME

Small Service provider dealing with consumers and having GST Turnover more than Rs 20 lakhs but less than Rs 50 lakhs, can go for this scheme.  Below is an illustrative list of the service provider, who can apply for said scheme:

  • Event Management Service Provider
    Professional, providing services of Accounts, taxation, Engineering, Architect etc
    Engineering Service / Fabrication Services
    Small Works Contractor
    Mandap Keeper service provider
    Electronic Repair Service Provider
    Service of Renting of Properties

Features of this scheme:

Sr. No

Feature

Details

1

Applicable to

Registered Supplier, supplying goods or services or both within state

2

GST Rate

6% (3% CGST + 3% SGST)

3

GST at 6% is payable on

First supplies of goods or services or both, upto an aggregate turnover of Rs 50 lakhs, made on or after the 1st day of April in any financial year. After crossing the limit of Rs 50 lakhs, tax at the normal rate will be payable.

Tax at 6% is payable on aggregate turnover, which includes exempt turnover as well.

However, in computing aggregate turnover, in order to determine eligibility to pay tax at 3% + 3% under this notification, value of supply of exempt services by way of extending deposits/loans /advances in so far as the consideration is represented by way of interest/discount, shall not be taken into account

4

Applicable from

This scheme is applicable from 1st April 2019

5

Applicable for

Said scheme is applicable only for Intra State Supply of good or services. Supplier becomes ineligible for the said scheme, if he makes interstate supply

6

Document to be issued

Bill of Supply - The registered person, opting for this scheme, shall issue, instead of tax invoice, a bill of supply

Heading of Bill of Supply -  The registered person shall mention the following words at the top of the bill of supply, namely: - ‘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’

7

Input Tax Credit

ITC Not allowed, cannot collect Tax - ITC Not allowed, cannot collect Tax - The registered person, opting for this 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

8

Conversion from Normal Tax Scheme to this 6% Scheme

Input Tax Credit availed earlier:- If person who has availed Input tax credit, opts to pay tax under this scheme, he shall pay an amount, by way of debit in electronic credit ledger or electronic cash ledger, equal to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods reduced as per Rule 44 of CGST Rules, 2017 as amended from time to time, on the day immediately preceding the date of exercising of such option.

Any balance in Electronic credit ledger after payment of such amount will be lapsed

9

Meaning of First Supplies

The expression “first supplies of goods or services or both” shall, for the purposes of determining eligibility of a person to pay tax under this notification, include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the said Act, but for the purpose of determination of tax payable under this notification shall not include the supplies from the first day of April of a financial year to the date from which he becomes liable for registration under the Act

10

How to opt for Scheme in case of Already Registered Person

Filing of Form CMP 02 - A registered person who wants to opt for this scheme shall file an online intimation in FORM GST CMP-02 by selecting the category of registered person as “Any other supplier eligible for composition levy”, latest by 30th April, 2019.

Online procedure for the same is, after login on GST Portal, on the dashboard, click on Services →Then click on Registration → Then click on Applicable to opt for composition Scheme → Select Category of a Registered person as “Any other supplier eligible for composition levy” →Submit with DSC/OTP

Filing of Form ITC 03 - In order to reverse ITC with respect to Input contained in stock or Capital Goods, intimation in Form ITC 03 is required to be filed within 60 days from commencement of the relevant financial year.

11

How to opt for Scheme in case of Fresh GST Registration Case

Any person who applies for registration and who wants to opt for this scheme, if eligible, may do so by indicating the option at serial no. 5 and 6.1(iii) of FORM GST REG-01 at the time of filing of an application for registration.

12

Effective date

The option to pay tax by availing the benefit of the said notification would be effective from the beginning of the financial year or from the date of registration in cases where new registration has been obtained during the financial year.

12

GST Return

Most probably, registered person opting for said scheme is required to file GST Return in Form GSTR 04, quarterly, within eighteen days after the end of such quarter.

We will get more clarity on this soon, once return utility is updated by the government for Tax Rate of 3% + 3% or any clarification is issued by the government in this regard.

14

Ineligibility

Not Eligible for Good Composition Scheme – Registered Person who wish to apply for the said scheme, should be not eligible to pay tax under Sec 10(1) [ Sec 10 composition is allowed for Traders, Hotel, etc. Due to this condition, such taxpayer cannot opt for this scheme of 6%]

Inter State Supply – Registered Person having interstate supply can not opt for this scheme

Non-Taxable Supply – Registered Person is also engaged in making any supply, which is not leviable to tax under the said Act, cannot opt for this scheme.

Sale through E Commerce – Registered Person who is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52

Casual / Non-Resident Person: Person who is casual taxable person nor a non-resident taxable person, can not apply for this scheme

Not allowed for some goods - who is not engaged in making supplies of the  some specified goods – Ice Cream, Edible Ice, Pan Masala, HS Code 24 – All goods i.e. Tobacco and Manufactured Tobacco Substitute

15

Other Conditions

Last Year Turnover limit - Aggregate turnover in the preceding financial year was Rs 50 fifty lakh rupees or below.

All GSTIN under one PAN should apply for said scheme - Where more than one registered persons are having the same PAN, tax on supplies by all such registered persons is paid at 3% + 3% under this notification

RCM Applicable - The registered person opting to pay under this notification, shall be liable to pay tax on inward supplies on which he is liable to pay tax under Sec 9(3) or 9(4), at the applicable rates

No other benefit allowed - The registered person opting to pay tax at 3% + 3% under this notification shall be liable to pay tax at the 3% + 3% on all outward supplies, notwithstanding any other notification issued under Sec 9(1) or Sec 11.

16

How to Opt out from Scheme

If Registered person who has opted for this scheme, voluntarily intends to withdraw from scheme or he ceases to satisfy any of the conditions mentioned of this scheme, he shall also file an intimation for withdrawal from the scheme in FORM GST CMP-04 within 7 days of the occurrence of such event.

In such case, said person should issue Tax Invoice at applicable GST Rate  

Conclusion:

Read More -   GST Taxpayers Will Lose in Lakhs If This is Not Done in September 2019

With this scheme, the government has tried to reduce compliance and Tax Rate for a small service provider. This scheme is very beneficial for the service provider, dealing with consumers directly. For Service provider having a B2B business, this scheme, may not be beneficial. A person opting for this scheme should ensure required compliance of documentation, online form filing, and turnover limit. For more details of the said scheme, one can refer Notification No 02/2019 Central Tax (Rate) dated 7th Mar 2019 as amended from time to time. This article is only for educational purpose.

Chartered Accountant | Website

He has authored book on GST, titled as “Handbook on GST For Beginners”. Also he has authored Two E Book on - GST E Way Bill and GST Amendment Act.

He has conducted seminars on GST, Indirect Tax & Foreign Trade Policy at – FIEO, ICAI, MSME, CII, MCCIA, WMTPA, Institute of Cost Accountant of India, Various association, colleges and Institutions etc

He has conducted 250+ seminars on IDT across India, for Professional, Students, Officers, Practitioners etc

He is instrumental in obtaining Circular from Department.
Also, he is Recognized Faculty for GST by ICAI. He is member of IDT Study group Pune of ICAI. He is member of “Taxation Committee”, of MCCIA.

He is Chairman of ‘CGST – L & R – Committee’ of WMTPA

He is regularly writing the articles which are published in various leading Taxation Magazine and online portal.

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