Gst Composition Scheme, Job Work, And Itc Rules Explained

Composition Scheme

Small taxpayers with an annual turnover up to ₹50 lakhs can opt for the Composition Scheme. They pay tax at a flat rate of at least 1% of their total turnover and cannot claim input tax credit (ITC).

Eligibility restrictions:

• Taxpayers making inter-state supplies or paying tax on a reverse charge basis are not eligible.

• Only dealers and manufacturers can opt for it; service providers cannot.

Job Work

A job worker is a person who processes raw materials or semi-finished goods supplied to them. This completes part or all of the manufacturing process, resulting in a finished article or performing any essential operation.

Key GST rules for job work:

• Job workers must register under GST if their aggregate turnover exceeds the threshold limit.

• Only registered principals can supply taxable goods to a job worker without paying tax.

• Principals can send goods from one job worker to another.

Principal's turnover impact:

• If the principal's goods are supplied directly from the job worker's premises, it counts toward the principal's turnover—provided the job worker is registered, and the principal declares the job worker's place as an additional place of business or notifies the goods movement.

Treatment of ITC on Inputs/Capital Goods

For inputs or capital goods sent for job work:

• The principal can claim ITC only if the goods are returned within 180 days from the date they were sent to the job worker.

• If sent directly to the job worker, the 180-day clock starts from the date of receipt by the job worker.

Reversal rules:

• If goods aren't returned on time, the principal must reverse the ITC availed (pay back the amount) plus interest.

• ITC is restored once the goods are actually returned.