In the latest circular, the ministry of finance has clarified that taxpayers cannot avail benefits of composition scheme under GST norms if they provide services in other states.
Simply put, the composition scheme does not allow distributors to avail benefits if they provide interstate services. For instance, if a Chennai based distributor is selling the schemes of a Mumbai based fund house, he cannot avail the benefits of composition scheme. Since practically all distributors work with AMCs that are based out of Maharashtra and Tamil Nadu, they cannot avail the benefits.
That means only a fraction of Maharashtra distributors who do not have business with AMCs out of Maharashtra and earn between Rs.20 lakh and Rs.50 lakh can avail the benefits of composition scheme.
Earlier, the Union Finance Minister Arun Jaitley had announced the introduction of composition schemes for services sector. Under the scheme, service providers earning up to Rs.50 lakh could pay GST rate of 6% instead of 18% with effect from April 1, 2019. However, these service providers cannot avail input credits if they opt for the composition scheme. Also, they will have to pay taxes quarterly but file returns annually.