Scheme for small service providers to help clients

Tax burden for clients of chartered accountants, architects and other service providers that operate on a smaller scale is set to get lighter. The GST Council said on Saturday that its Composition Scheme, under which a flat tax rate is levied, will be extended to small service providers.

But the scheme does not entitle the taxpayer to any input tax credit (ITC) refunds. As of now, businesses that have an annual turnover of up to Rs 20 lakh are exempted from GST. But traders with a turnover of more than Rs 20 lakh up to Rs 1.5 crore have the option to get registered under Composition Scheme and pay a flat one per cent rate. A similar scheme will now be extended to small service providers.

These service providers will be subjected to a lump sum tax at a significantly lower rate on which their clients will not be entitled for a tax refund.

A Finance Ministry statement said that the tax rate and threshold for exemption will be determined by the Law Committee and the GST Council's Fitment Committee.

"It is a welcome move and will reduce tax incidence on clients, who were not getting total refund of ITC, even if the tax rate was higher," said Axat Vyas, a member of the Core Committee of National Advocates Action Committee (NAAC) for GST.

NAAC had suggested a series of recommendations for simplifying GST and one of these was bringing small service providers under the Composition Scheme.

Sunil Keswani, honourary secretary of Tax Advocates Association of Gujarat (TAAG), said that under present provisions, clients are entitled to ITC for goods bought but not services sought in certain cases.

"Therefore, clients were practically not getting any refund. The recommendation to put small service providers under the scheme will ensure a lower flat rate of services, reducing the burden on clients and even on the end user," said Keswani.

It will also be a relief for unorganised and non-monopolised service providers, who end up bearing partial tax burden of the client. "Often clients are unwilling to pay entire GST and we have to pay a part of it. Now that the tax will be lower, we won't mind paying it," said Vyas.