Section 10(2A): The 3% Scheme for Service Providers, and the "Not Eligible" Trap

Section 10 explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.

Section 10(2A) opens with a condition nobody expects: you may use it only if you are not eligible for the goods scheme. That single phrase produces a sequencing problem serious enough that ICAI's own Handbook says the provision needs amendment.

Section 10(2A), inserted by the Finance (No. 2) Act, 2019 and notified from 01.01.2020, lets a registered person not eligible under s.10(1) and s.10(2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, pay an amount not exceeding three per cent of turnover in the State or Union territory. Rule 7 item 4 prescribes exactly 3% — which with the State levy is the 6% of Notification No. 02/2019-CT(Rate) dated 07.03.2019. Five conditions apply, and the same PAN-wide proviso.

The gate: "not eligible to opt to pay tax under sub-section (1) and sub-section (2)"

The sub-section opens: "Notwithstanding anything to the contrary contained in this Act, but subject to the provisions of sub-sections (3) and (4) of section 9, a registered person, not eligible to opt to pay tax under sub-section (1) and sub-section (2), whose aggregate turnover in the preceding financial year did not exceed fifty lakh rupees, may opt to pay…"

Eligibility and opting are different things. The Handbook draws the distinction expressly. The condition is that the person is not eligible under s.10(1) and (2) — not that the person has not opted. Somebody who satisfies every condition of the goods scheme but chooses not to use it remains eligible, and is therefore shut out of s.10(2A).

The AAR has applied exactly that reading. In Empathic Trading Center [2020] 116 taxmann.com 868 (AAR – Karnataka), on Notification No. 02/2019-CT(Rate), the authority held that an applicant is eligible under the notification only if he is not eligible to pay tax under s.10(1), and the applicant failed that condition because he was registered under s.10. The Handbook treats the reasoning as applying equally to s.10(2A).

The trap, in the Handbook's own example

A person applies for a new registration. They want the s.10(2A) scheme, but at that moment they are not ineligible under s.10(1), so they cannot take it. They opt for the goods scheme instead.

A month later their service turnover crosses ₹5 lakh. They are now ineligible under s.10(1). But the time limit for opting under Rule 3 in the case of a new registration — the option in Part B of FORM GST REG-01 — has passed.

And waiting would not have helped either. Had they declined the goods scheme at registration and simply waited to become ineligible, the Rule 3 window for a new registration would have expired all the same.

ICAI's conclusion is that s.10(2A) requires amendment, or a clarification that because s.10(1), s.10(2) and s.10(2A) all sit within section 10, a person who has opted under s.10(1) and then becomes ineligible should be able to continue within section 10, paying under s.10(2A) instead, without a fresh option. That clarification has not issued.

Five conditions, and how they differ from s.10(2)

A person is eligible under s.10(2A) if he is not:

(a) engaged in making any supply of goods or services not leviable to tax — the five petroleum products and alcoholic liquor for human consumption;

(b) engaged in making any inter-State outward supplies of goods or services;

(c) engaged in making any supply of services through an e-commerce operator required to collect TCS under s.52 — the word "goods or" was omitted from 01.10.2023 by the Finance Act, 2023 through Notification No. 28/2023-CT, exactly as in s.10(2)(d);

(d) a manufacturer of such goods or supplier of such services as may be notified;

(e) a casual taxable person or a non-resident taxable person.

Two differences from s.10(2) are worth naming. There is no bar on supplying services — that is the entire purpose of the sub-section, so no clause (a) analogue and no 10% allowance. And clause (d) reaches a supplier of notified services as well as a manufacturer of notified goods, which s.10(2)(e) does not.

The rate: 3% central, 6% together

Rule 7, serial 4 prescribes three per cent of the turnover of supplies of goods and services in the State or Union territory for a person paying under s.10(2A). The section's ceiling is also three per cent, so unlike the goods scheme there is no headroom between cap and rate.

Add the identical State or Union territory levy and the burden is 6%. That is the figure in Notification No. 02/2019-CT(Rate) dated 07.03.2019, which introduced the scheme by notification before s.10(2A) put it in the statute.

And the base is wide. Rule 7 item 4 says "turnover of supplies of goods and services" — not "turnover of taxable supplies", which is the phrase used for other suppliers at serial 3. Read literally, exempt supplies enter the base of the 3% computation for a s.10(2A) taxpayer where they would not for a s.10(1) trader. Rule 7 column by column →

The threshold that was never raised

Fifty lakh rupees, and no proviso permitting the Government to raise it.

So the two schemes diverge sharply on size. A goods trader tests against ₹1.5 crore; a service provider or mixed supplier tests against ₹50 lakh, three times smaller, and on the same PAN-wide, all-India aggregate turnover basis. The ₹1.5 crore threshold →

Explanation 1 to section 10 applies here too, so interest and discount on deposits, loans and advances stay out of aggregate turnover for the eligibility test.

What is the same as the goods scheme

Reverse charge survives. The sub-section is expressly "subject to the provisions of sub-sections (3) and (4) of section 9".

No tax collected, no credit taken. Section 10(4) applies to s.10(2A) by its own words — "a taxable person to whom the provisions of sub-section (1) or, as the case may be, sub-section (2A) apply".

Lapse on crossing. Section 10(3) covers s.10(2A) in the same way, so the option lapses from the day aggregate turnover during the year exceeds fifty lakh.

Penalty for wrongful use. Section 10(5) applies to both, and the determination machinery it invokes now reads "section 73 or section 74 or section 74A" — s.74A having been added for tax periods from FY 2024-25 onwards.

The PAN-wide proviso applies. Every registered person on the PAN must opt under s.10(2A) together.

Returns are identical. Rule 62 covers "every registered person paying tax under section 10", so CMP-08 by the 18th of the month after the quarter and GSTR-4 by 30 June following the year, for FY 2024-25 onwards. CMP-08 and GSTR-4 →

Key takeaways

• s.10(2A) is available only to a person not eligible under s.10(1) and (2) — not merely one who has not opted; Empathic Trading Center applies that reading.
• The sequencing produces a real trap for new registrations, which ICAI says needs amendment or clarification.
• The threshold is ₹50 lakh with no power to raise it, against ₹1.5 crore for goods.
• The rate is 3% central, 6% in total — the Notification No. 02/2019-CT(Rate) rate, now in Rule 7 item 4.
• Rule 7 item 4's base is supplies of goods and services, not taxable supplies.
• Clause (d) also reaches a supplier of notified services, unlike s.10(2)(e).

Read next

• Section 10(1) Clause by Clause
• Rule 7 Rate Table, Column by Column
• The ₹1.5 Crore Composition Threshold and the Eight ₹75 Lakh States
• Rule 62: CMP-08 by the 18th, GSTR-4 by 30 June

Disclaimer: Positions stated as on 5 September 2026, based on section 10(2A) of the CGST Act, 2017 and Rule 7 of the CGST Rules, 2017 as recorded in the ICAI Bare Law (12th edition, amended to 31 March 2026), Notification No. 02/2019-CT(Rate) dated 07.03.2019, and the analysis and case reference in the ICAI Handbook on Composition Scheme under GST (February 2026, 3rd edition).