Input Tax Credit Under GST Composition Scheme – 10 Important Questions Answered

  • Blog|Income Tax|
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  • By Taxmann
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  • Last Updated on 23 November, 2021

1. Can composition dealer avail Input Tax Credit?

No, credit because he is not allowed to take CREDIT of input tax paid.

2. What will be the Impact of tax paid on Inward Supply on accounting for composition dealers?

The tax paid on inward supply by the composition dealer shall not be allowed as credit so much tax paid shall be treated as expenses as per accounting point of view.

3. If I convert myself from a composition scheme to a regular scheme, whether I will be eligible to get ITC?

Yes, you are eligible for the input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on date on which you have converted yourself from composition scheme to regular scheme.

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4. In case the Option to pay tax under composition levy is denied by the Proper Officer, Can the person avail ITC on the stock after denial?

Yes, ITC can be availed by filing, a statement is Form GST ITC -01 (containing details of the stock of inputs contained in semi-finished or finished goods held in stock) by him on the date on which the option is denied as per order in FORM GST CMP-07, within a period of thirty days from the order.

5. What would happen to the input tax credit availed by a registered person who opts for the composition scheme? Reversal on Input or even on Capital Goods?

If a registered person opts for composition scheme then he has to reverse the input tax credit taken by him on inputs that are being used by him in the year in which he opts for the composition scheme. However, in the case of capital goods, the credit shall be reduced by 5% per quarter of the year or part thereof from the date of invoice.

6. Can the Customer who buys from the registered person who is under the composition scheme claim composition tax as an input tax credit?

The customer who buys from a registered person who is under the composition scheme has not to pay any tax as the person who is under the composition scheme has no power to collect tax from his customers. So, the question of claiming ITC does not arise.

7. Can a registered person, who purchases goods from a taxable person paying tax under the composition scheme, avail credit of tax paid purchases made from the composition dealer?

No, as the composition dealer cannot collect tax paid by him on outward supplies from his customers, the registered person making purchases from a taxable person paying tax under the composition scheme cannot avail credit.

8. Can a person who has opted to pay tax under the composition scheme avail of Input Tax Credit on his Inward Supplies?

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. When he switch over from composition scheme to normal scheme, eligible credit on the date of transition would be allowed.

9. What is the treatment for Input Credit availed when transitioning from normal scheme to composition scheme?

When switching from normal scheme to composition scheme, the taxpayer shall be liable to pay an amount equal to the credit of input tax in respect of inputs held in stock on the day immediately preceding the date of such switchover. The balance of input tax credit after payment of such amount, if any lying in the credit ledger shall lapse.

10. What are the conditions for availing Input Credit on Stock lying at the time of the transaction?

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.

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