Transition to GST
Following are a few important things one ought to know while moving to the GST regime:
Transfer of Input Tax Credit
As a tax payable entity you can take tax credit for the tax amount paid by you while buying capital goods for your business as per the Model GST law. You can move your tax credit while migrating to GST regime if you have input tax credit under your current tax regime.
As a company owner, prepare a comprehensive list of all the items purchased by you and claim input tax credit while filing returns. If the goods and services mentioned while filing the return are eligible for tax credit in the current tax regime these will be eligible for input tax credit under the new GST law. It should be done within 60 days of GST implementation.
How to move input tax credit?
Log into the GST portal
Submit the electronic form TRANS-1 with details like tax amount, you want to claim as tax credit
You should also provide the following details while submitting your application to move input tax credit under GST:
The name of the supplier
Serial number of the invoice
Issuing date of the invoice by the supplier
Input Tax supporting document used under the existing law
Complete details, number and worth of the goods and services
Sum of entitled taxes or duties
VAT details as charged by the supplier
The date of entering the receipt of goods/services in the books of the account of the receiver
Once, you submit the application, the tax department processes it. Once the tax department approves the amount of credit, it is credited to your electronic credit ledger under the form GST PMT-2.
For businesses that are already registered under VAT, Excise duty or Service tax, the transfer of credit to GST is same.
Credit for Excise and Additional Custom Duty
A manufacturing business is charged excise duty on the manufacturing of goods in the current tax regime and are not provided any credit for the excise duty or the custom duty.
However, as per the GST regime, tax is charged at the time of supply of goods and not during the manufacturing of those goods and this tax amount is also not eligible for any tax credit. For sure, this may distress the profit margin for manufacturing businesses.
Transition provision for Composition Scheme
What is Composition Scheme?
The composition scheme is meant for those small businesses that sell products without invoices and do not have any accountant to maintain their account books. Such businesses can use the Composition scheme to be GST compliant and pay a tiny percentage (1% to 2%) of their annual turnover amount in the form of taxes. Various small businesses that are registered under VAT follow this Composition Scheme.
Important points to know about the Composition Scheme:
Eligibility Criteria: The business must be functioning within the state and should not be functional across different states. The annual turnover has to be less than Rs.50 lakhs.
Input credit or GST cannot be claimed by such businesses that are registered under the composition scheme.
Tax paid under the composition scheme would be minimum 1% of the business’s annual turnover and up to 2%.
How to go for a transition from existing tax regime to Composition Scheme in GST?
A business must pay a sum equal to its existing input credit which will be calculated on the basis of the amount of input materials held in stock, unfinished and finished goods.
Transition from Composition Scheme to Normal Tax Scheme
When a business switches form composition scheme to the normal tax scheme, it turns eligible for tax credit. The tax credit will be calculated based on input materials held in stock, unfinished and finished goods.
Businesses, registered under the composition scheme need to file GSTR-4 which is a quarterly return and specially intended for such businesses.
Businesses under composition scheme must also file the GSTR-8 which is an annual return.