Composition Scheme for Services Suppliers
- Optional scheme Section 10/2A) has provided an option to a registered person whose aggregate turnover in the preceding financial year up to 50 lakh and who is not eligible to pay tax under section 10(1), to pay tax 6% (3% CCST and 3% SCST/UTCST).
- Traders and manufacturers of goods and restaurant service providers who are eligible for composition scheme u/s 10(1) (even if not opted) will not enter this facility.
Conditions:
A registered person can claim the benefit of this scheme provided he complies with the following conditions:
(a) His aggregate turnover in the preceding financial year mu not exceed Rs 50 Lakh Thus, the registered persons intending to opt for this scheme in the Financial Year 2021-22 should not have aggregate turnover of more than 50 lakhs during the Financial Year 2020-21;
(b) He is not engaged in making any supply of goods or services which are not leviable to tax under this Act
(c) He is not engaged in making any inter-State outward supply-neither of goods nor of services
(d) He is not engaged in making any supply of goods or services through an electronic commerce operator who is required to collect tax at source under section 52
(e) He is not a manufacturer of such goods or supplier of such services as may be notified by the Government on the recommendations of the Council; In composition scheme under section 10(1), condition is that the supplier should not be engaged in manufacture of notified goods.
(f) He is not a casual taxable person or a non-resident taxable person.
Persons not Eligible under Section 10(2A):
The supplier of following goods will not be eligible to opt for this scheme:
- Ice cream and other edible ice, whether or not containing cocoa
- Pan masala
- Aerated Water
- Tobacco and manufactured tobacco substitutes
Applicable for all transactions of registered person with same PAN
Where more than one registered person are having the same Permanent Account Number issued under the Income-tax Act, 1961, the registered person shall not be eligible to opt for this scheme unless all such registered persons opt to pay tax under this scheme.
Rates of Taxes
| Eligible Persons | CGST | SGST | TOTAL TAX RATE |
| Service supplied & Mixed Supplier | 3% Of Turnover in State or Union territory | 3% Of Turnover in State or Union territory | 6% Of Turnover in State or Union territory |
Option lapses if aggregate turnover exceeds 50 lakh [Section 10(3)]:
The benefit of composition scheme can be availed up to the aggregate turnover of 50 lakh in current financial year. The option availed of by a registered person under Section 10(2A) shall lapse with effect from the day on which his aggregate turnover during a financial year exceeds the limit of 50 lakh
Composition tax not to be Collected from Recipients Section 10(4)]:
A taxable person to whom the provisions of composition scheme applies shall not collect any tax from the recipient on supplies made by him. It means that a composition scheme supplier cannot issue a tax invoice.
Input tax credit cannot be Availed [Section 10(4)]:
A taxable person to whom the provisions of composition scheme applies shall not be entitled to any credit of input tax.
Penal Consequences (Section 10(5)]:
If 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 this Act, be liable to a penalty and the provisions of Section 73 or Section 74 shall be applicable for determination of tax and penalty,
Composition scheme not applicable for tax payable under Reverse Charge Mechanism (RCM):
It is important to note that for any tax payable under reverse charge mechanism, the option of payment under this scheme will not be available. Rate of tax payable on supplies taxable under RCM will be regular rates and not the composition rate.
Customer not entitled to take credit of Composition tax:
Customer who buys goods from registered person who is under composition scheme is not eligible for composition input tax credit because a composition scheme supplier cannot issue a tax invoice.
Computation of aggregate turnover for the purpose of eligibility [Explanation 1]:
For the purposes of computing aggregate turnover of a person for determining his eligibility to pay tax-under this scheme, the expression “aggregate turnover”
- shall include the value of supplies made by such person from the 1″ day of April of a financial year up to the date when he becomes liable for registration under this Act
- But shall not include the value of exempt supply of services provided by way of extending deposits, loans or advances in so far as the consideration is represented by way of interest or discount.
