Law Legends


How to take ITC on stocks & Capital Goods in case of Withdrawal from Composition Scheme


If a person is registered under the Composition scheme and now converts from the Composition to the Normal scheme, they shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock, and on capital goods on the day immediately preceding the date of conversion.

In the case of inputs, the tax invoice should not be more than one year old. In the case of capital goods, ITC can be claimed for tax invoices that are not more than one year old. For capital goods, ITC is reduced at the rate of 5% per quarter or part of the quarter.

For Example:

In the Case of Inputs, Semi-finished Stock, and Finished Goods: If a person converts from the Composition scheme to the Normal scheme on 24.08.2023, ITC can be claimed on the stock held in the form of inputs, semi-finished stock, and finished goods on the preceding date, 23.08.2023. However, as of 24.08.2023, GST paid in respect of such stocks with invoices that are more than one year old cannot be availed as ITC.

In the Case of Capital Goods: As of 01.04.2020, capital goods were purchased at the cost of Rs. 100,000 with GST paid of Rs. 18,000 (i.e., at the rate of 18%). Assume conversion from the Composition scheme to the Normal scheme on 24.08.2023. In such a case, ITC can be claimed in the following manner:

For F.Y. 2020-21 20% ( 4 Quarter*5%)
For F.Y. 2021-22 20% ( 4 Quarter*5%)
For F.Y. 2022-23 20% ( 4 Quarter*5%)
For F.Y. 2023 -24 10 % ( 2 quarter*5%)
Total     70 %


Total ITC Rs.18000
Less : ITC to be reduced i.e. 70% Rs.12600 (18000*70%)
Net ITC available Rs. 5400

In the case of capital goods, Rs. 5,400 ITC is availed.

Form Used for Transferring ITC:

The ITC-01 form is filed by the taxpayer to claim ITC.

Time Limit to File ITC-01 Form:

The ITC-01 form must be filed within 30 days from the date of conversion from the Composition scheme to the Normal scheme.

It is important to file the ITC-01 form timely to claim ITC. If the ITC-01 form is not filed within the stipulated time, ITC cannot be availed.

Example: You are registered under the Composition scheme. As of 12/12/2023, you opt out of the Composition scheme and file the CMP-08 form. In this case, you must file the ITC-01 form within 30 days from 12/12/2023, i.e., by 10/01/2024.

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