GST Composition Scheme for Service Providers

Preface: This post was originally published in 2019 and has been updated on February 22, 2025, to provide you with the most current and accurate information.

In recent years, the Government has introduced several schemes and initiatives to boost the small businesses’ growth and development. Even though the GST's introduction has already helped start-ups and MSMEs by standardizing and streamlining the tax system, the GST Composition Scheme makes tax compliance even easier for qualified businesses. 

In the past, the GST Composition Scheme was only accessible by the suppliers of goods. However, after the 32nd GST Council Meeting, the scheme became available to service providers as well. This article shall discuss the GST Composition Scheme for Service Providers.

What is the Composition Scheme for Service Providers?

GST Composition Scheme for service providers is a scheme that allows eligible businesses with an annual turnover of up to Rs. 50 lakh to pay GST at a reduced rate of 6%. Additionally, the scheme requires minimal compliance requirements to be fulfilled by eligible businesses. GST Composition Scheme is only available to service providers who are not engaged in inter-state supplies or supplying non-taxable goods or services. 

A taxpayer must submit a GST form to the government in order to opt the composition scheme. By signing in to the GST Portal, you can complete the process online. A dealer who wishes to choose the Composition Scheme should provide this intimation at the start of each financial year.

Eligibility for GST Composition Scheme for Service Providers

In order to be eligible for GST Composition Scheme, the service provider’s aggregate annual turnover in the preceding financial year must not have exceeded the threshold limit of Rs. 50 lakhs for services or mixed supply for goods and services. 

Pre-Requisites for GST Composition Scheme

The following are the pre-requisite conditions for GST Composition Scheme for service providers:

• The service provider’s annual turnover shall not exceed Rs 50 lakhs.

• They must be engaged in supplying or dealing with non-taxable goods.

• The service provider shall not be involved in conducting any inter-state supplies.

• Further, they should not be a casual taxable person or non-resident taxable person.

• The supplier of service must issue a bill of supply stating composition taxable person rather than a tax invoice.

• The service provider cannot avail of input tax credits or collect tax from the customer.

• They cannot supply ice cream and other edible ice, whether or not containing cocoa, pan masala and tobacco as well as manufactured tobacco substitutes.

• Additionally, they cannot make a supplier through an e-commerce operator.

Features of GST Composition Scheme

GST Composition Scheme has the following features:

• The GST Composition Scheme is advantageous for companies with lesser incomes because tax is determined by turnover.

• Lower tax rates assist companies in maintaining greater liquidity by reducing outflows.

• Composite dealers are required to issue bills of supply rather than tax invoices.

• Companies operating under this program are unable to collect input tax credits on their purchases.

• Transactions under the reverse charge mechanism are subject to the standard GST rates.

• The composition scheme requires that all firms operating under a single PAN be registered together. Every firm must opt out of the scheme if one firm does so. 

GST Composition Scheme Forms

The following forms are used for GST Composition Scheme:

Benefits of GST Composition Scheme

The following are benefits of GST composition scheme for the taxpayers:

• Taxpayers who are registered under the GST composition scheme have fewer compliances to follow.

• The scheme allows composite taxpayers to reduce their tax liability.

• Under the GST composition scheme, the composite taxpayers are required to maintain lesser details in their books of accounts.

• Additionally, they are required to file fewer returns under the GST regime, unlike the normal taxpayers.

Conclusion

GST Composition Scheme for Service Providers is an initiative of the GST Council of the Government of India (GOI). It aims to ease the compliance burden for small taxpayers. Service providers earning an annual turnover of Rs. 50 lakhs or less can opt for composition levy subject to 6% GST rate under the GST Composition Scheme. As a result, the service providers under the scheme have to maintain fewer records.

If you want GST Registration for your business or need a helping hand in ensuring GST compliance, connect with Registrationwala for assistance. 

FAQs about GST Composition Scheme

Q1. When was the GST Composition Scheme launched for service providers?

A. GST Composition Scheme was launched for service providers on 1 April 2019.

Q2. What is the turnover limit for GST Composition Scheme for service providers?

A. For service providers, the turnover limit for opting GST Composition is Rs. 50 lakhs or less. 

Q3. What is the GST rate applicable to service providers under the GST Composition Scheme?

A. Service providers under the GST Composition Scheme are subject to a GST rate of 6%.

Author: Dushyant Sharma

Hey there, I'm Dushyant Sharma. With the extensive knowledge I've gained in past 8 years, I have been creating content on various subjects such as banking, insurance, telecom, and all the important registration and licensing processes for various companies. I'm here to help everyone with my expertise in these areas through my articles.