How to convert GST to Composite scheme

GST composition scheme

The composition scheme is a scheme for payment of GST available to small taxpayers whose aggregate turnover in the preceding financial year did not exceed Rs. 1.5 Crores. However in the case of 9 States, this limit is ₹ 75 Lakhs in the preceding financial year, namely 

  • Arunachal Pradesh,
  •  Assam, 
  • Manipur, 
  • Meghalaya, 
  • Mizoram, 
  • Nagaland, 
  • Sikkim, 
  • Tripura and 
  • Himachal Pradesh.

Moreover, If a taxable person is a manufacturer of ice-cream, pan masala, or tobacco or tobacco products or if he is a service provider for services other than a restaurant, then the taxable person is not eligible for a composition scheme. It is a type of tax on turnover.

Conversion of GST to composition scheme

Process and Procedures:

Firstly there is a need to understand the transition process under GST. This transition provision comes into effect only because of the Input tax credit which the taxpayer has leftover and carried in his tax returns filed by him in the last return filed by him for the month of June.

One could have filed a return for June with Cenvat credit balances in case of a manufacturer or a taxpayer could have also filed VAT return with input Tax Credit for the stocks purchased in June and remaining unsold or there may be even stock lying in the taxpayer’s place of business against which returns have been filed, taxes have been paid but all these are done under earlier tax regime.

But now in GST, there is a totally different tax structure it has to carry the taxpayer’s data right from the registration process till carrying of Credits from the returns filed under previous tax regime or from the documents that justify the taxes paid on the closing stock by the taxpayers which are intended to be used for sale or business furtherance even after implementation of GST tax.

While switching from the normal taxpayer to Composition Scheme, the following situations may arise:

  • The goods or services or both supplied by him become wholly exempt,
  • Where the taxpayer has availed input tax credit, opts to pay tax under composition scheme

Effect on input tax credit while switching to composition scheme :

On the Switching from GST to composition scheme, taxpayers 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. Several residual input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

The person switching to composition scheme 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 within 60 days from the commencement of the relevant financial year.

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