Entitlement of ITC on inputs in stock on exiting composition levy

If a person ceases to pay tax under composition scheme U/s 10 then, that person shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax as per normal / regular scheme u/s 9. This means, the registered person switches from composition levy to regular scheme.

In case of capital goods, credit on such capital goods shall be reduced by 5% per quarter of a year or part of the year from the date of invoice.

ITC shall be verified with the corresponding details furnished by the corresponding supplier.

However, a registered person shall not be entitled to take input tax credit in respect of supply of goods and/or services after the expiry of 1 year from the date of issue of tax invoice relating to such supply.

Return and declaration to field

The registered person shall within a period of 30 days from the date of becoming eligible to avail input tax credit u/s 18(1) shall make a declaration electronically, on the common portal in Form GST ITC-01 to the effect that he is eligible to avail the input tax credit as aforesaid.

The return in form GST ITC-01 shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods on the day immediately preceding the date from which he becomes liable to pay tax u/s 9 in case of a claim u/s 18(1)(c).

Details in the return furnished on the common portal in Form GST ITC-01 shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of CGST, SGST, UTGST and IGST exceeds 2,00,000 rupees.

The input tax credit claimed chall be verified with the corresponding details furnished by the corresponding supplier in Form GSTR-1 or as the case may be, in Form GSTR-4, on the common portal.

The amount of credit in the case of supply of capital goods or plant and machinery for the purpose of 18(6), shall be calculated by reducing the input tax on the said goods at the rate of 5% point for every quarter or part thereof from the date of the issue of the invoice for such goods.

Reversal of ITC on switching to composition levy

As per section 18(4) of the CGST Act, 2017, the registered person has to reverse input tax credit when such person switches from regular scheme to composition levy. Such reversal is also required when supplies of the registered person get wholly exempted from tax.

As per the law, where any registered person who has availed input tax credit opts to pay tax under composition scheme or, where the goods and/or services supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by 5% per quarter of a year or part thereof from the date of the invoice or such other documents on which capital goods were received by the taxable person, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption.

If invoices are not available then, input tax credit can be reversed on the basis of the prevailing market price of such goods on the date of switch over or exemption. The details furnished on the basis of prevailing market value need to be duly certified by a practicing chartered accountant or cost accountant.

After payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

is a fellow member of the Institute of Chartered Accountants of India. He lives in Bhubaneswar, India. He writes about personal finance, income tax, goods and services tax (GST), company law and other topics on finance. Follow him on facebook or instagram or twitter.