Input tax credit (also referred to as, “ITC”) is one of the key features of Goods and Services Tax. Input Tax Credit under GST means the credit of GST paid on purchase of Goods and Services which are used for the furtherance of business. The taxpayer is allowed to claim the Input tax Credit of GST incurred on his purchases with his Output tax on sale of such goods and services. The concept is not entirely new as it already existed under the pre-GST indirect taxes regime (service tax, VAT and excise duty). Now its scope has been widened under GST.
GST comprises of the following Taxes:
- Central Goods and Services Tax (CGST) [also known as Central Tax]
- State Goods and Services Tax (SGST) [also known as State Tax]
- Union Territory Goods and Services Tax (UTGST) [also known as Union territory Tax]
- Integrated Goods and Services Tax (IGST) [also known as Integrated Tax] on inter-state supply of goods or services or both. In case of import of goods also, the present levy of Countervailing Duty (CVD) and Special Additional Duty (SAD) would be replaced by integrated tax.
Input Tax Credit Utilisation Procedure:
|ITC of||First to be utilised for the payment of||Balance if any can be utilised for|
|IGST||IGST||CGST, then SGST/UGST|
*Credit of CGST cannot be used for payment of SGST/UTGST and credit of SGST/UTGST cannot be utilised for payment of CGST
Eligibility and conditions for claiming Input tax credit:
- Every registered person can avail credit of tax paid on the inward supply of goods or services or both, which is used or intended to be used in the course or furtherance of business.
- The essentials for availing credit by registered person are:
- Possession of tax invoice or any other specified tax paying document.
- He has received the goods or services. “Bill to ship” scenarios also included.
- Tax is actually paid by the supplier.
- He has furnished the return.
- If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.
- He should pay the supplier, the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed
- Documents on the basis of which credit can be availed are:
- Invoice issued by a supplier of goods or services or both
- Invoice issued by recipient along with proof of payment of tax
- A debit note issued by supplier
- Bill of entry or similar document prescribed under Customs Act
- Revised invoice if any.
- A registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 i.e. No ITC beyond September of the following FY to which invoice pertains or date of filing of annual return, whichever is earlier
- The Input Service Distributor (ISD) may distribute the credit available for distribution in the same month in which, it is availed.
Input Tax Credit is not available in certian cases, some of them is as below:
- motor vehicles and other conveyances except under specified circumstances
- goods and/or services provided in relation to:
- Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances;
- Membership of a club, health and fitness center;
- Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;
- Travel benefits extended to employees on vacation such as leave or home travel concession;
- Works contract services when supplied for construction of immovable property, other than plant & machinery, except where it is an input service for further supply of works contract;
- Goods or services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;
- Goods and/or services on which tax has been paid under composition scheme;
- Goods and/or services used for private or personal consumption, to the extent they are so consumed; g. Goods lost, stolen, destroyed, written off, gifted, or free samples;
- Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.
Special circumstances under which ITC is available:
- A person who has applied for registration within 30 days of becoming liable for registration is entitled to ITC of input tax in respect of goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax.
- A person who has taken voluntary registration is entitled to ITC of input tax in respect of goods held in stock on the day, immediately preceding the date of registration.
- A person switching over to normal scheme from composition scheme is entitled to ITC in respect of goods held in stock and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as normal taxpayer.
- Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock relatable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply, subject to reductions for the earlier usage as prescribed in the rules.
**ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier.
- In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilised ITC shall be allowed to be transferred to the transferee.
- A person switching over from composition scheme under section 10 to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in as well as capital goods will have to be paid.
- In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof) shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid.
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