Opting In And Out Of Composition Scheme 2020-21

Due to the impact of Corona Virus, the lives of the people became highly unstable and the Governments across the globe struggles to lift back the manufacturing and industrial sector. The impact of the devastation forced Governments to lockdown their countries wholly or partially. To create a stable economic platform, the Government of India slashed and waived all the penalties and postponed to pay taxes for people. As a result, many taxpayers unable to register or avail schemes due to lockdown of all central and state departments. However, the GoI extended time period for filing taxes and to avail schemes. As such, through the Notification No. 30/2020, the Central Board of Indirect Taxes and Customs implemented Central Goods and Services Tax (Fourth Amendment) Rules, 2020. In the Fourth Amendment, the CBIC notified that the taxpayer liable to taxes for the Composition Scheme for the year 2020-21, the taxpayer may choose to file the taxes by: Sending an intimation in

Form GST CMP-02, signed and verified through an electronic code through the GST Portal and furnish the statement in Form GST ITC-03 as per rule 44 on or before 31st July 2020 or The taxpayer may also choose to file directly through a Facilitation Centre as notified by the Commissioner on or before 30th June 2020. Existing taxpayers for Composition Scheme, should not file in GSTR-1 or GSTR-3B for the tax period of 2020-21. Filing in GSTR-1 or GSTR-3B shall be considered as not registered for the Composition Scheme. To continue with the Composition Scheme, the taxpayer need not re-opt to avail the Composition Scheme as it avails automatically. Note: This shall apply only during the lockdown period. After the ban of the lockdown period, the below-mentioned procedures shall apply. For more details on the notification, Scroll down:

Goods and service tax has brought along with it various compliance procedure resulting in high compliance cost. In order to reduce the compliance cost of the small taxpayers and to ease up the procedure, the Government has come up with the concept of

composition scheme. Taxpayer can opt for composition scheme only when the total turnover is less than INR 1.5 Crore (in special case INR 75 Lakhs). There are various rules and regulations which the taxpayer has to follow when registered under compositions scheme. In the present article, we would look into the aspects of opting in and opting out of the composition scheme.

Opting In Composition Scheme

The most important point to be taken care of while opting in the composition scheme is that the taxpayer has to file a declaration at the beginning of every financial year on the common portal. In other words, the taxpayer has to decide at the beginning of the financial year whether he wants to opt for compositions scheme or not. A taxpayer cannot opt for composition scheme at any time during the year.

Procedure

In order to opt for compositions scheme, the taxpayer is required to file an application in form GST CMP-01 on the common portal and after filing the application the taxpayer is required to file form GST CMP-03 within a period of 90 days from the date of application. Form GST CMP-03 contains details of stock held by the taxpayer on the day of opting in the composition scheme.

Effect Of Input Tax Credit

The provisions affecting

input tax credit are provided under section 18 (4) of the CGST Act. As per the said provisions, when the taxpayer opts for composition scheme, he is held liable to pay an amount equal 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 opting for composition scheme. The amount is to be paid by way of debit in the electronic credit ledger or electronic cash ledger. It must be noted that after the payment of the above-mentioned amount, any balance left of input tax credit in electronic credit ledger will lapse.

Opting Out Of Composition Scheme

Procedure

In order to opt out of composition scheme, the taxpayer has to file an intimation for withdrawal from the composition scheme in form

GST CMP-04. The taxpayer needs to furnish details of stock of inputs, inputs contained in semi-finished and finished goods in form GST ITC-01. Such details needs to be submitted within a period of 30 days from the date of filing intimation in form GST CMP-04.

Effect Of Input Tax Credit

The provisions affecting input tax credit when the taxpayer moves out of the composition scheme are contained in section 18 (1) (c) of the CGST Act. According to the provisions contained in the said section, when a taxpayer moves out of the composition scheme and enters the main taxation regime, the taxpayer is eligible to avail input tax credit of stock of input, inputs contained in semi-finished and finished goods and on capital goods as on the day immediately preceding the date on which he becomes liable to pay tax under section 9. Input tax credit is available subject to the following conditions

• The stock of inputs, semi-finished goods or finished goods on which input tax credit is claimed are going to be used in making taxable supplies.
• The invoices/documents on the basis of which input tax credit has been claimed should be available.
• The date of invoice should be within 12 months from the appointed date.
• Credit on capital goods shall be reduced by such percentage points as may be prescribed.