GST: Conversion from Composition Scheme to Regular Scheme and from Regular Scheme to Composition scheme

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GST: Conversion from Composition Scheme to Regular Scheme and from Regular Scheme to Composition scheme

Composition Scheme is introduced as a measure to simplify the compliances by few small categories of the taxpayers.  It is only for small taxpayers who are doing intrastate transaction and are not into import-export of goods. At present, only those taxpayers who have annual turnover not exceeding Rs 1.5 crore can opt for composition scheme. Earlier, this limit was of Rs. 75 Lakh. The GST rate under composition scheme is 1% for normal taxpayers whereas it is 5% for restaurant not serving alcohol.

There are lots of taxpayers who want to shift from composite Scheme to regular scheme as the buyers are not able to get the credit of GST in case of composition scheme. Switching from composition scheme to regular scheme has GST implications.

Taxpayers prefer conversion because of few benefits as under:

  1. Input Tax Credit- ITC is not allowed on input goods and services purchased by a composition dealer. This results an increases in the cost of goods supplied by him.
  2. Composition dealer has to pay 1% of the gross turnover from his own pocket, 5% in case of restaurants as GST which is not so in case of regular dealer who doesn’t  have to pay it. A regular dealer simply collects GST from the buyer, adjusts it with his ITC and deposits the balance.
  3. A composition dealer can neither make inter-state sales nor can export his goods.

Conversion from Composition scheme to Regular scheme:

On conversion from regular scheme to composition scheme, taxpayer shall be liable to pay an amount equal to the credit of input tax by way of debiting in the electronic credit /cash ledger in respect of inputs held in stock on the day immediately preceding the date of such switch over.

To withdraw from Composition levy, taxpayer is required to fill the Form GST CMP-04. There is a requirement of approval from State or Centre Tax Authorities to withdraw from the Composition levy. Once the application to withdraw from the Composition levy is filed, it is auto approved immediately and such taxpayers are opted out of the Composition levy. However, it is mandatory to file a Stock Intimation on the date of withdrawal. After filing the application to withdraw from the Composition levy, taxpayer is required to file statement in FORM GST ITC-01 containing details of the stock of inputs and inputs contained in semi-finished or finished goods held in stock by you on the date on which the option is withdrawn or denied, within a period of thirty days from the date from which the option is withdraw.

Conversion from Regular scheme to Composition scheme:

There are some benefits also attached with the composition scheme. So there are cases where person want to move from regular scheme to composition scheme also.

Composition scheme have some benefit as there is ease in compliance as no elaborate accounts and records are required to be maintained. It have simple Quarterly Return & easy Quarterly mode of payment of tax.

Moving from composition scheme under current regime to normal tax payer under GST will attract transition provision and will be allowed credit of duties held in stocks as inputs. However, credit of GST paid on such stocks will be available subject to the conditions, as under:

  1. Such inputs or goods are used or to be used in the making of taxable supplies
  2. The inputs are not such wherein credit is not admissible under the law
  3. Such person is in possession of invoice or document evidencing payment of duties

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