ITC reversal when switching from regular to Composition scheme

[Asked by Guest]

My neighbour owns a general stores(provision stores kirana stores) shop and doesn't maintain any sales record .He only maintains purchase bills.

So what he does is he adds 10/8% margin on purchase value and compute rate wise sales and accordingly pay GST

As if purchases made during a month are sold during that month itself i.e. GST calculations are made under an assumption(due to lack of records) of zero inventory at the end of the day.

My question is NOW he wants to opt for composition scheme and as per the act he has to reverse ITC taken on inputs held in stock on the day prior to switching to composition scheme.

But per our GST calculations all sales are made out of current stock i.e. one which is acquired on or after 1st April 2020. So he should not be liable for ITC reversal

Please help

AI Summary

ITC reversal on transition to composition scheme: stock held input credit must be reversed and cannot be carried forward.
Section 18(4) requires reversal of ITC for inputs, inputs in semi finished and finished goods, and capital goods held on the day immediately preceding exercise of the option to join the composition scheme; the taxpayer must debit an amount equivalent to that credit to the electronic credit or cash ledger (subject to prescribed reductions), and any remaining balance in the electronic credit ledger after payment shall lapse. Goods acquired on or after the date of opting into composition are not subject to this reversal. Incomplete records do not negate the statutory reversal obligation, and tax on value addition for pre option stock must be discharged in cash.