Gst composition scheme and closing stock information

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TUSHAR VASUDEO THOSAR

TUSHAR VASUDEO THOSAR (Querist)
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09 July 2017 Please info compositon scheme and Closing stock

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09 July 2017 See this video to understand Composition scheme. https://youtu.be/R_zW-zh5oYI

Asha Kanta Sharma

Asha Kanta Sharma

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26 July 2024 The GST Composition Scheme and its implications on closing stock involve specific rules and requirements. Here's a detailed overview:

### **GST Composition Scheme**

#### **1. Overview of the GST Composition Scheme**

- **Eligibility**: The GST Composition Scheme is available for small taxpayers whose turnover does not exceed ₹1 crore (₹1.5 crore for special category states) in the previous financial year.
- **Benefits**: Taxpayers opting for this scheme benefit from lower tax rates and simplified compliance (e.g., filing quarterly returns instead of monthly).
- **Tax Rates**:
- **1%** of turnover for manufacturers and traders.
- **5%** of turnover for restaurants.
- **6%** of turnover for service providers (if applicable).

#### **2. Key Features**

- **Input Tax Credit (ITC)**: Under the Composition Scheme, businesses cannot claim input tax credit on inputs, capital goods, or services.
- **Returns**: Composition scheme taxpayers file quarterly returns using **GSTR-4**, which is a simplified return compared to the regular GST returns.

### **Implications on Closing Stock**

When a taxpayer opts for the Composition Scheme, they must consider the following aspects regarding closing stock:

#### **1. **Closing Stock at the Time of Switching**

- **Transitioning to Composition Scheme**:
- If a business opts for the Composition Scheme and it was previously under the regular scheme, they need to account for the closing stock.
- **No ITC on Closing Stock**: The business cannot claim any input tax credit (ITC) on closing stock. However, they should pay GST on the stock at the regular rates if they intend to continue trading under the regular scheme.

#### **2. **Impact on Closing Stock**

- **Before Opting for Composition Scheme**:
- **Regular Scheme**: Input tax credit (ITC) is available for purchases and inputs used for producing goods or providing services.
- **On Switching**: If the business switches to the Composition Scheme, they must ensure that no ITC is claimed on closing stock.

- **Stock Valuation**:
- **Valuation**: Determine the value of closing stock as per the regular GST rates before opting for the Composition Scheme.
- **Accounting**: Adjust your accounts to reflect the fact that no ITC is available on this stock under the Composition Scheme.

#### **3. **Form GST CMP-04**

When switching to or from the Composition Scheme, businesses must file **Form GST CMP-04** to declare the stock on hand and make the necessary adjustments.

**Example Scenario:**

- **Before Opting for Composition Scheme**:
- Suppose a business under the regular scheme has closing stock worth ₹10,00,000.
- The GST paid on this stock (assuming an 18% GST rate) would be ₹1,80,000.

- **After Opting for Composition Scheme**:
- The business must pay GST on this stock if they revert to the regular scheme later.
- If they remain under the Composition Scheme, no input tax credit can be claimed on this stock.

### **4. **Final Tax Payment and Compliance**

- **Stock Declaration**:
- When opting into the Composition Scheme, ensure you declare your closing stock properly and make any necessary adjustments.

- **Regular Compliance**:
- Keep proper records and documentation for all transactions and stock adjustments to ensure compliance with GST regulations.

### **Conclusion**

- **No ITC on Composition Scheme**: Under the Composition Scheme, businesses cannot claim ITC on inputs, including closing stock.
- **Proper Accounting**: Ensure accurate accounting for closing stock and comply with any necessary declarations when transitioning between schemes.

If you need specific guidance based on your business situation, consider consulting with a GST professional or tax advisor to ensure compliance with all applicable rules and regulations.

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