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Urgent query for composition scheme

RAKSHIT MEHTA (tax consultant) (114 Points)

09 July 2017

IF A PERSON IS UNDER NORMAL SCHEME UNDER CURRENT REGIME WANTS TO OPT FOR PAYMENT OF TAX UNDER COMPOSITION SCHEME IN GST REGIME, HELDS STOCK ON WHICH ALL INPUT TAX HAS BEEN CLAIMED, WHAT WOULD BE THE TRANSACTIONAL PROVISIONAL FOR OPTING COMPOSITION SCHEME ??

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Karan Batra (Creator: TheProTalks) (2325 Points)
Replied 24 July 2017

Read the following 2 questions from the FAQs on Composition scheme rekaesed by CBEC

"Q. What are the compliances from ITC reversal point of view that need to be made by a person opting for composition levy?

Ans. The registered person opting to pay tax under composition scheme is required to pay an amount equal to the input tax credit in respect of inputs held in stock and inputs conatined in semi-finished or finished goods held in stock on the day immediately preceding the date of exercise of option. The ITC on inputs shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such inputs. In respect of capital goods held in stock on the day immediately preceding the date of exercise of option, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as 5 years. Assume capital goods have been in use for 4 years, 6 months and 15 days. The useful remaining life in months will be 5 months ignoring the part of the month. If ITC on such capital goods is taken as C, ITC attributable to the remaining useful life will be C multiplied by 5/60. This would be the amount payable on capital goods. The ITC amount shall be determined separately for integrated tax, central tax and state tax/Union territory tax. The payment can be made by debiting electronic credit ledger, if there is sufficient balance in the said ledger, or by debiting electronic cash ledger.The balance , if any in the electronic credit ledger would lapse. Such persons also have to furnish the statement in FORM GST ITC-03 which is a declaration for intimation of ITC reversal/payment of tax on inputs held in stock, inputs contained in semi-finished and finished goods held in stock and capital goods under Section 18(4) of the CGST Act, 2017 within a period of sixty days from the commencement of the relevant financial year"

"Q 33. A registered person has excess ITC of Rs 10, 000/- in his last VAT return for the period immediately preceding the appointed day. Under GST he opts for composition scheme. Can he carry forward the aforesaid excess ITC to GST?

Ans. The registered person will not be able to carry forward the excess ITC of VAT to GST if he opts for composition scheme"

"Q 8. Can a person who has opted to pay tax under the composition scheme avail Input Tax Credit on his inward supplies?

Ans. No. A taxable person opting to pay tax under the composition scheme is out of the credit chain. He cannot take credit on his input supplies"

Thus by going through all these questions you can fairly determine that one cannot Opt for Composition Scheme if ITC has been availed and also even if ITC has been paid back but some excess ITC is remaining then also you cannot carryforward it.