Gst Composition Scheme And Transitional Provisions Attached To Composition Scheme

India is a big country with diversified culture and businesses. And among these we have a so many small segment businesses which forms part of our Indian Economy. The small traders they operate within a limited boundary, with limited capital investment. And GST being a bigger tree that is planted by our government to give shade, fruits (benefits when it is ripened) and also share its roots (support every type of business) whether be small or large business. But the tree has some additional benefits for small scale businesses like a mother cares for an infant child at its early stages of growth. Like any other taxation system GST also aims towards timely recovery of taxes, filing of returns, simplified generation and maintenance of records, invoices and others documents. Such elements are often challenging ones for small businesses. To overcome this shortcoming GST extended its roots for small businesses in form of composition scheme, which was again a borrowed idea from erstwhile respective State VAT Laws with conditions applied on eligibility for the scheme accordingly.

Let’s unveil the extended arm which GST has extended for composition scheme tax payers. Composition Scheme will be granted to a taxable person only if he registers all the registered taxable businesses bearing the same PAN under the scheme. Here the motive is to bring all the business segments having same PAN under the scheme.

  

A registered tax payer, whose aggregate annual turnover does not exceed Rs 1.5 Crores or Rs. 1 Crore (for specific states) in the preceding financial year shall pay at a rate in lieu of central tax rate and State tax rate of not more than 2.5% CGST and 2.5% SGST respectively for restaurant sector and 0.5% CGST and 0.5% SGST for manufacturers and other suppliers. Composition Scheme will be a growth driver for small taxpayers who are carrying out intrastate transaction and does not involve into import-export of goods.

Recent Amendments: As per notification dated 01.01.2018, turnover in case of traders has been defined as ‘Turnover of taxable supplies of goods only’.

Operation of Transitional Provisions on GST Composition Scheme: To understand this firstly we have to understand the transition process under GST. The transition provision comes into effect only and only because of the Input tax credit which we have left over and carried in our tax returns filed by us in the last return filed by us for the month of June i.e., before the date of July 1 (the day of implementation of GST). One could have filed his return for the month of June with Cenvat credit balances (in case of manufacturer) or a tax payer could have also filed his VAT return with Input Tax Credits lying for the stocks purchased in the month of June and remaining unsold or there may be even stock lying in the taxpayers place of business against which taxes have been paid, returns have been filed but all these under earlier tax regime.

But now since GST is totally different tax structure it has to carry the tax payers data right from the registration process till carrying of Credits from the returns filed under previous tax regime or from the documents that justifies the taxes paid on the closing stock by the tax payers which are intended to be used for sale or furtherance of business even after implementation of GST tax law. Let us understand this arrangement in a better way. Now let us analyze situation wise status of Input Tax Credit for a composition tax payer when he makes a switch to and fro from Composition tax scheme to Regular scheme in GST and vice versa.

 

Situation

Manner of handling of Credits in the transition process after satisfying the following conditions

Switching from Normal Tax payer to Composition scheme. The following situations may arise.
 

The goods or services or both supplied by him become wholly exempt, on switch over date or where the taxpayer has availed input tax credit, opts to pay tax under Composition scheme

Then on the date of Switching from normal 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. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

Switching from Composition Scheme to Normal Tax payer

Switching 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 or credit of value added Tax in respect of inputs and inputs contained in semi-finished or finished goods on the appointed date subject to the following conditions:

Such inputs or goods are used or to be used in the making of taxable supplies

  • Not being a composite scheme holder
  • Being eligible to claim credit of taxes
  • The inputs were not such that credit was not admissible under the earlier law due to being mentioned in any schedule or otherwise
  • Being in possession of invoice or document evidencing payment of duties under earlier laws w.r.t. inputs held in stock and semi-finished or finished goods
  • Such invoices and/ or documents were issued maximum twelve months before the appointed date.

Transiting from erstwhile tax regime to GST Tax Regime

Following are the conditions which must be addressed by the taxpayer to avail credit on input at the time of transition from composition scheme to the normal scheme:

  • Such inputs or goods are intended to be used for making taxable supplies under GST Law.
  • Taxpayer was eligible for CENVAT Credit on such goods under the previous regime, however, couldn’t claim it being under composition scheme.
  • Such goods are eligible for input tax credit under GST regime.
  • The taxpayer has legal evidence of input tax paid on such goods.
  • Such invoices were issued within a period of 12 months from GST applicable date.

The taxpayers should also note that under GST most of the compliances have to be done online. The process of deduction, payment, and refund of indirect taxes under GST would be carried out electronically. Every business should have a fully computerized office for ease of compliance under GST. And the gst software, Tally.ERP 9 could be your IT Partner which offers simplicity in design and usage of software and also processes your returns and file returns from its software tool by enabling you to convert the GST Return data into JSON supported file format and thereby making filing of returns an easier job to handle. For composition tax payers Tally.ERP 9 Release 6.4 has provisions for matching of input tax credits with the auto populated inward supplies return (Form GSTR 4A) and thus enable reconciliation process an easier task.

Source::: The Pioneer, dated 01/03/2018.