Input tax credits: Where a registered person opts Composition Scheme

In this article we will understand the impact on Input tax credits, where a normal registered person under GST opts to pay tax under Composition Scheme

A person was registered under normal provisions under GST (i.e. claiming input tax credits on purchases, payment of tax on outward supplies after adjusting input tax credits) may at any time avail Composition Scheme.

Under Composition Levy Scheme, there is no need to maintain register of Input tax credits and just have to calculate and pay tax in simplified manner at a nominal rate on the amount of sales during a tax period.

Where a registered person wishes to convert its status from being a regular dealer to a dealer under Composition scheme, he shall be liable to pay an amount equivalent to the credits of input tax availed earlier on his purchases and where such purchases still lying in stock/stores at the time of conversion. It is because input tax credits not allowed under Composition Levy scheme.

So, a dealer has to pay input tax credits on stock lying in hand (for only that stock on which credits availed earlier) in respect of:-

  • Inputs held in Stock; and
  • Inputs contained in semi-finished goods in stock; and
  • Inputs contained in Finished goods held in stock; and
  • Capital goods

And, such stock of goods and capital goods will be counted on the day immediately preceding the date from which such taxable person opts to pay tax under the Composition Levy provisions of this act.

Manner of calculation of input tax credits payable as said above:

In respect of :

>  Inputs held in stock

>  Inputs contained in semi-finished goods in stock; and

>  Inputs contained in finished goods held in stock

Input tax credit shall be calculated proportionately on the basis of the corresponding invoices on which credit had been availed by the registered taxable person on such inputs

Where tax invoices are not available, estimated market price on the date of conversion shall be taken.

In respect of :

Capital Goods in Stock









Input tax credits involved in remaining useful life in months taking useful life of assets as 60 months from the date of invoice.

Example: An asset having input tax credits at the time of purchase was Rs 10000/-.

Today, after 35 months 10 days, dealer wish to opt composition scheme, then input tax credits payable GST will be:

10000 x (60-36 = 24) ÷ 60 = Rs 4000/- to be paid.

Remaining life to be calculated in complete months.

Any Part of month to be ignored and assumed as already used.

Important Points:-

  • Amount calculated above shall form part of Output tax liability and details of such liability shall be furnished in Form GST ITC-03. Such liability shall be paid by way of debit in the electronic credit ledger or electronic cash ledger.

  • Amount calculated above shall be duly certified by a practicing chartered accountant or cost accountant.

  • Such amount of tax shall be determined separately for input tax credit of central tax, State tax, Union territory tax and integrated tax.

  • Where, after payment of such amount, any un-utilized balance of input tax credit lying in electronic credit ledger shall lapse.