Moving to GST: Composition dealers switching to a regular dealer

By Registrationwala

23rd April 2017


Taxation laws in the last couple of years have come a long way to lay down the taxes applicable on composition dealers switching to a regular dealer. A composition dealer is not liable to collect tax from customers, and hence he/she can’t issue a tax invoice. Moreover, a composition dealer also can’t ask for input credit on his purchases and obtain CST registration. On the other hand, Regular dealer is liable to call for all such claims.

Under the current indirect tax regime, all registered taxable persons will automatically be switched to GST and will be facilitated with an interim registration ID. However, after the legalisation of the information and details, submitted at the time of final enrolment, the permanent registration IDs will be issued to the taxpayers. In a similar manner, those small, medium, and large-scale business persons and traders, who have chosen composition levy, will be automatically transitioned to GST.

Under GST, a permanently registered taxpayer whose collective turnover is not more than Rupees 50 lakhs throughout the fiscal year is eligible for composition levy. However, apart from this, this transition is also subjective to some other laws and by those conditions on the transition to GST; a Composition Dealer is entitled to switch as a Regular Dealer.

A Composition Dealer is eligible for switching over as a Regular Dealer down to either of the following causes

1)   Either by Deliberate selection to become a regular dealer

2)   Or by enforcement of law – the “aggregate turnover” goes beyond the approved threshold edge of Rupees 50 Lakhs, or according to the prescribed guidelines, he/she may not be qualified to take composition levy under GST scheme.

Opting for switching from a Composition Dealer to a Regular Dealer under GST, allows traders to adhere to the mandatory requirements of a Regular Dealer. And following those compliances will only enable you to avail input tax credit on your private supplies and claim GST on external supplies. However, there is some more compliance which a Composite dealer is obligatory to fulfil for switching to a regular dealer, and they are as follow:

Salient features of the composition levy scheme

1)   Only taxable persons whose ‘aggregate turnover’ is not more than Rs. 50 lacs in once financial year can opt for payment of tax under the levy composition scheme.

2)   The rate of tax is mandatory to be same as prescribed. However, it should not less than 1% of the revenue during the fiscal year.

3)   The option of Tax payment under this scheme is available only for a registered taxable person.

4)   Taxable persons, supplying domestic goods or services are not entitled to this law.

Once you become a Regular Dealer, you will have the right to avail the tax credit during the closing stock of inputs like raw- materials, semi- finished goods, and finished goods. However, there is also some acquiescence and guidelines under which you can avail the input tax credit held in your closing stock, and they are:

  • The closing stock should be held either in the form of raw materials, semi-finished goods or finished products and must be employed or intended to be applied to taxable supplies.
  • The Value Added Tax or VAT paid on inputs cleaved to the closing stock will only be allowable as a credit under the previous regulations. This is pertinent only for claiming the credit of VAT.
  • If you have any approved tax-paying or duty documents or invoices regarding the closing stock of inputs like semi-finished goods and finished goods, then you can claim for input tax credit held in your closing stock. [Note: The date of invoices or other prescribed duty or tax-paying documents is only applicable for 12 months from the time of transitioning to GST].


Moving to GST: Composition dealers switching to a regular dealer