All registered taxable persons under the existing indirect tax regime will be automatically transitioned to GST and will be given a provisional registration ID. After validation of the details submitted during enrolment, final registration IDs will be issued. Similarly, those traders, who have opted for composition levy, will be auto transitioned to GST.

Under GST, a registered taxable person whose aggregate turnover does not excess Rupees 75 lakhs ( for businesses in Arunachal Pradesh, Assam, Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, and Himachal Pradesh and 1 Crore( for rest of India), during the financial year can opt for composition levy. This again is subject to certain conditions. Accordingly, on transition to GST, a Composition Dealer may switch over as a Regular Dealer.

On switching from being a Composition Dealer to a Regular Dealer under GST, you will be adhering to the compliance requirements of a Regular Dealer. You will be allowed to avail input tax credit on your inward supplies and charge GST on outward supplies.

While all this sounds good, you may want to know ‘what happens to the tax paid on closing stock, if a Composition Dealer becomes a regular dealer under GST?’.

Let us understand this in detail.

A Composition Dealer may switch over as a Regular Dealer due to either of the following reasons:

  • Voluntarily opts to become a regular dealer
  • By enforcement of law: The aggregate turnover exceeds the prescribed threshold limit of Rupees 50 Lakhs or 1 crore as ,applicable, or as per the prescribed conditions, he may not be eligible to opt for composition levy under GST.

On becoming a Regular Dealer, you will be allowed to avail the tax credit held in the closing stock of inputs (raw- materials), semi- finished goods, and finished goods. However, there are conditions that you need to meet to be eligible to avail the input tax credit held in your closing stock.

Eligibility conditions to avail input tax credit held in your closing stock

You can avail the input tax credit held in your closing stock under the following conditions:

  • The closing stock held either in the form of raw materials, semi-finished goods or finished goods, must be used or intended to be used for taxable supplies.Conditions for availing GST ITC on closing stock
  • The VAT paid on inputs held in the closing stock should be allowed as credit under the earlier law. This is applicable only for claiming credit of VAT.
  • You have invoices or any other prescribed duty/tax paying documents in respect of the closing stock of inputs (including semi-finished goods and finished goods).Tax documents needed for claiming GST Input tax credit
  • The date of invoices or any other prescribed duty/tax paying documents is within 12 months from the date of transitioning to GST.
    Carry forward Input tax credit to GST
    Once the above conditions are met, the amount of credit to be allowed will be calculated in a method which is yet to be prescribed.

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Yarab A

Author: Yarab A

Yarab is associated with Tally since 2012. In his 7+ years of experience, he has built his expertise in the field of Accounting, Inventory, Compliance and software product for the diverse industry segment. Being a member of ‘Centre of Excellence’ team, he has conducted several knowledge sharing sessions on GST and has written 200+ blogs and articles on GST, UAE VAT, Saudi VAT, Bahrain VAT, iTax in Kenya and Business efficiency.