11 July 2024
Under GST composition scheme, subcontractors who are opted under the scheme cannot avail input tax credit (ITC) on the tax paid on their inputs. This is a key condition of the composition scheme, where the benefit of ITC is forgone in exchange for a simpler compliance process.
Here’s a breakdown of the relevant rules:
1. **Composition Scheme Overview:** - Under the composition scheme, eligible taxpayers pay tax at a fixed rate on their turnover and cannot collect tax from their customers. - They are not eligible to claim input tax credit (ITC) on their purchases.
2. **Subcontractors and Composition Scheme:** - Subcontractors providing taxable services or supplying goods can opt for the composition scheme if their aggregate turnover does not exceed the prescribed limit (₹1.5 crore for goods suppliers and ₹50 lakh for service providers). - However, once they opt for the composition scheme, they cannot avail input tax credit on the GST paid on their purchases.
3. **Rule 8(5)(c) of CGST Rules:** - Rule 8(5)(c) of the CGST Rules pertains to the conditions for availing input tax credit (ITC). It states that a person opting for composition scheme under section 10 of the CGST Act is not eligible for ITC. - This rule applies uniformly to all taxpayers under the composition scheme, including subcontractors.
4. **Deduction Under Rule 8(5)(c):** - Since subcontractors under the composition scheme do not have the option to avail ITC, they cannot claim any deduction of tax paid on their inputs. - The purpose of the composition scheme is to simplify compliance for small businesses by offering them a fixed tax rate, but at the cost of ITC.
In conclusion, subcontractors who have opted for the composition scheme cannot avail tax paid on their inputs as a deduction under Rule 8(5)(c) of the CGST Rules. They are required to follow the conditions of the composition scheme, which exclude the possibility of claiming input tax credit.
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