Composition scheme under GST is a minimal compliance scheme available to certain category of taxpayers to pay straight forward a specified amount of GST without availing the ITC on purchases made.

Following are situations when a taxpayer withdraws form composition scheme and moves to regular scheme under GST: –

1. Voluntary conversion form composition to regular.

2. Exceeds the threshold turnover limit.

As and when a taxpayer moves to regular scheme under GST with payment of output tax and availment of ITC on purchases, there arises a question of the ITC contained in inputs, semi-finished goods or finished goods in stock and on capital goods.

In order to avail the ITC on inputs, semi-finished goods or finished goods in stock and on capital goods. There is a statutory provision under the CGST Act,2017.

As per Section 18(1)(d) –

Where any registered person ceases to pay tax u/s 10 of the Act, he shall be entitled to take credit of the input tax in respect of inputs held in stock, inputs contained in semi-finished goods or finished goods in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax u/s 9 of the Act.

Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.

As per Rule 40 of the CGST Rules,2017 :-

1.The input tax credit to be claimed in respect of capital goods shall be computed as follows :-

(i)Input tax on such capital goods (a)

(ii)Number of the quarter of a year or part thereof form the date of invoice or such other documents on which the capital goods were received by the taxable person (b)

The ITC to be claimed = (a) – {5% x (b)}

Effectively the useful life of the capital goods under GST is considered to be 5 years or 60 months. Beyond this period, there is no availability of ITC on capital goods.

2.FORM GST ITC-01: –

The taxpayer shall also file a declaration in the FORM GST ITC-01 in GST common portal within a period of 30 days from the date of withdrawal from the Composition scheme specifying the eligibility to avail the input tax credit and the amount of input tax credit.

3.Certificate from CHARTERED ACCOUNTANT: –

The declaration furnished under the Form GST ITC-01 shall be duly certified by a practicing Charted Accountant, if the aggregate value of the ITC to be claimed exceeds Rs. 2.00 lakhs.

4.The Input tax credit claimed in the FORM GST ITC-01 shall be verified with the corresponding details furnished by the corresponding supplier in their form GSTR-1 which is reflected in the taxpayers GSTR-4A.

CONCLUSION: –

Thus, the input tax credit, the main essence of the GST requires an expertise in and due adherence for timely availment of ITC by a taxpayer moving from the composition to regular scheme.

Disclaimer: The contents of this article are for information purposes only and does not constitute advice or a legal opinion and are personal views of the author. Readers are requested to check and refer to relevant provisions of statute, latest judicial pronouncements, circulars, clarifications etc before acting on the basis of the above write up.

The writer is a direct and indirect tax expert and can be reached on jainakansha1809@gmail.com.

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