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Section 18(4) — when a registered person switches from REGULAR to COMPOSITION scheme:
ACarry forward ITC balance
BNo effect
CAn amount equivalent to ITC on inputs in stock + semi-finished/finished goods + capital goods reduced by 5%/qtr, on the day preceding switch, shall be paid (reversed)
DPay 50% of ITC balance
Answer & Solution
Correct answer: C. An amount equivalent to ITC on inputs in stock + semi-finished/finished goods + capital goods reduced by 5%/qtr, on the day preceding switch, shall be paid (reversed)
1. Sec 18(4) — when switching from regular to composition (or supplies become wholly exempt), the registered person must pay an amount equivalent to ITC in respect of:
2. (i) Inputs held in stock and contained in semi-finished/finished goods on the day immediately preceding the switch, AND
3. (ii) Capital goods (after reducing by 5 percentage points per quarter from date of invoice or such other percentage as prescribed).
_Source: ICAI BoS CA Final Paper 8, Ch 6 "Input Tax Credit", §Sec 18(4)_
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