Analysis of 6 % Composition Scheme for Service Providers w.e.f. 01/04/2019

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Service provider can now opt for Composition Scheme from 01/04/2019 vide notification No. 2/2019 – Central Tax (Rate) dated 07/03/2019. Earlier they are kept out of ambit of composition scheme u/s 10(1) of CGST Act.

Here is the Crux of the notification:

A registered person for first supplies of goods or services or both up to an aggregate turnover of fifty lakh rupees made  starting from 1st day of April in financial year.

Analysis:

Lets understand it with Example:

An Unregistered person made supply of 20 Lakhs till 10th August, and
Completed 50 Lakhs on 14th Feb,
made further supply of 15 lakh till 31st march.
 

Unregistered service provider exceeds the threshold limit of 20 Lakh under GST Act on 10th August and he needs to get register under GST Act within 30 days and can opt for above mentioned composition scheme on date of registration, up to aggregate limit of Rs. 50 Lakh.

Now He is eligible for Composition scheme only till 14th Feb and Service provider has to pay GST @ 6% (3% CGST & 3% SGST) on turnover of Rs. 30 Lakh only, achieved by him during 11th August to 14th Feb after registration.

After 14th Feb he has to pay normal tax. i.e. 18% on 15 Lakh.

Rate of six percent is mentioned herein by assuming corresponding notifications for this scheme will be issued by respective State / UT Govts.

 

 

1. Conditions:

This Scheme is applicable to registered person, –
(i) whose aggregate turnover in the preceding financial year was fifty lakh rupees or below;
(ii) who is not eligible to pay tax under sub-section (1) of section 10 of the said Act; – Therefore, this notification will be applicable mainly to Service Providers with certain exceptions u/s 10(2).
(iii) who is not engaged in making any supply which is not leviable to tax under the said Act; – Supplying NON GST Item e.g. petrol, etc
(iv)who is not engaged in making any inter-State outward supply;
(v)who is neither a casual taxable person nor a non-resident taxable person;
(vi)who is not engaged in making any supply through an electronic commerce operator who is required to collect tax at source under section 52; and
(vii) who is not engaged in making supplies of the goods, the description of which is specified in the Table below,
 
Sl. No.
Tariff item, subheading, heading or DescriptionChapter
Description
(1)
(2)
(3)
1
2105 00 00
Ice cream and other edible ice, whether or not containing cocoa
22106 90 20Pan masala
324All goods, i.e. Tobacco and manufactured tobacco substitutes

2. Where more than one registered persons are having the same PAN, issued under the Income Tax Act, 1961(43 of 1961), tax on supplies by all such registered persons is paid at the rate of six percent.

Analysis: – Scheme is applicable to all units of service provider having same PAN based GST numbers. i.e. service provider  needs to opt it for all units or non.

3.The registered person shall not collect any tax from the recipient on supplies made by him nor shall he be entitled to any credit of input tax.

Analysis: – Supplier can’t collect tax from buyer & NO ITC available, under composition scheme

4. The registered person shall issue, instead of tax invoice, a bill of supply as referred to in clause (c) of sub-section (3) of section 31 of the said Act with particulars as prescribed in rule 49 of Central Goods and Services Tax Rules.

5. 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’.

6. The registered person opting to pay tax under this notification shall be liable to pay tax at the rate of six percent on all outward supplies specified in column (1) notwithstanding any other notification issued under sub-section (1) of section 9 or under section 11 of said Act.

Analysis: –

Section 9(1) – refers to all intra-state supply of goods or service or both, except supply of alcoholic liquor.

Section 11 – refers to exempt supply, this means Tax is payable at 6% even on exempt supply.

7. The registered person opting to pay tax under this notification shall be liable to pay tax on inward supplies on which he is liable to pay tax under sub-section (3) or, as the case may be, under sub-section (4) of section 9 of said Act at the applicable rates.

Analysis: – RCM on inward supply related provisions u/s 9(3) & 9(4) will be applicable to those who are opting for this scheme.

B. In computing aggregate turnover in order to determine eligibility of a registered person to pay tax at the rate of six percent under this notification, 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.

Disclaimer: Due care has been taken to draft this write-up and is intended to express the Authors understanding and to start an academic discussion on the subject discussed in above write-up. it should not be considered as professional advice. Readers are advised to refer to relevant provisions of law before applying any of the above-mentioned views. The author accepts no responsibility whatsoever and will not be liable for any losses, claims or damages which may arise because of the content of this write-up.

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