Manual - Composition Scheme in GST

Section 10 - Composition levy.

Section 18 - Availability of credit in special circumstances.

THE CENTRAL GOODS AND SERVICES TAX ACT, 2017

Rule 44 - Manner of reversal of credit under special circumstances

Central Goods and Services Tax Rules, 2017

Yes, as per section 18(4) of CGST Act, 2017, 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 such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option.

Further, as per Rule 44(2), for capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.

Illustration:

Capital goods have been in use for 4 years, 6 month and 15 days.

The useful remaining life in months= 5 months ignoring a part of the month

Input tax credit taken on such capital goods= C

Input tax credit attributable to remaining useful life= C multiplied by 5/60

Reversal of Input Tax Credit on switching to composition scheme; capital goods credit prorated by remaining useful life. Switching to the composition scheme requires reversal of Input Tax Credit on inputs, inputs in semi finished or finished goods held in stock, and capital goods held in stock as on the day before the option is exercised, by payment from the electronic credit or cash ledger after prescribed reductions. For capital goods, reversal is prorated by remaining useful life using an assumed five year useful life, with the credit attributable to remaining months computed as original credit multiplied by remaining months divided by sixty.