Input Tax Credit in GST

Updated on July 24, 2023 11:01:14 AM

Input tax credit means paying off the balance amount got after deducting tax paid on the input against tax paid on the output.Input Tax Credit in GST

Supplies made by the registered person and GST collected are not payable to the government entirely. Under certain conditions, GST is Paid on the inward supplies and is adjusted against GST collected from the recipient.

This is one of the basic features of the GST Registration designed to eliminate cascading taxation and value added at each stage are taxed. Input tax credit in gst is reflected in the GST Common Portal in the electronic credit ledger of the taxpayer.

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Input tax credit in gst is a mechanism that enables registered taxpayers to claim a credit for the tax paid on inputs (purchases of goods or services) utilized in the course of their business.

As per Section 2 (63) of the CGST Act, 2017 “input tax credit” means the credit of input tax.

Input tax credit in gst enables the smooth transfer of input credit throughout the country and the supply chain (from the production of commodities to their consumption).

There are items which are excluded from the input tax credit in GST as mentioned below -

• Motor vehicles or conveyances with a seating capacity of less than or equal to 13 persons, vessels, aircraft, and goods transport agencies. However, there are certain exceptions to it i.e. ITC is allowed.

  • Transport of goods and passengers.
  • Conveyance and motor vehicles are far supplies or sold.
  • Transport of Goods and Passengers
  • Conveyance is used for pass-on training on flying and driving.
• Input tax credit in gst is available for outdoor catering services, beverages, health services, beauty treatment, and cosmetic and plastic surgery. if the products and/or services are used to deliver services belonging to the same category or as a component of a composite supply.
• Membership of the health, club, and fitness center.
• Travel benefits such as home travel concessions. leave extended to employees.
• Goods and/or services used for personal consumption or use.
• Input tax credit in gst on the purchase of goods and services opting for a composition scheme by the registered person.
• Input Tax Credit in GST on goods disposed of, lost, stolen, written off, or destroyed by way of the free samples or gifts
• The Input tax credit in gst is paid on fraud cases.
• Input tax credit in gst on goods and services used for personal use.
• Input tax credit in gst on health insurance, rent a cab, life insurance, or life insurance except
  • Employers are required by law to give it to their employees, according to the government.
  • Unless specified in Sl. No. 1, leasing, renting, or hiring a vehicle, a vessel, or an aircraft.
  • The Input tax credit in gst is offered when goods and/or services are used to deliver the same category of services or as a component of a composite supply.
  • In the Construction of the immovable property goods and services are used either for business use or personal use.
  • In the construction of the immovable property through a work contract.

Person who are eligible to get Input Tax Credit in GST as mentioned below -

1. A person who has a tax invoice or debit note in his possession.
   • A receipt is raised by the recipient when an unregistered supplier makes an inside supply.
   • A debit note is given out by the provider of the products, services, or both.
   • A statement of accounts issued by the provider of products, services, or both.
   • A bill of entry or any other document similar to one required under the Customs Act of 1962.
   • Any document issued by an input service distributor for the purpose of distributing credit, such as an input service distributor invoice or credit note.
2. A person has received the goods and/or services
   • Input tax credit in gst can not be claimed by the person who has not received the goods and services.
3. Tax charges paid to the Government

   Under section 16(2)(c) On the goods or services for which Input tax credit in gst is being taken, that tax is actually paid to the government. The payment is made by the supplier as mentioned below -

   • (a) Making the payment through cash or
   • (b) through the utilization of ITC.
4. Valid Return is filled
   • The return has been filled out by the registered person. The return is filed on the 20th of the month. The return should contain all details about the inward supplies and it is filled in Form GSTR-3.
5. Voluntary Registration
   • A person who has taken voluntary registration can take an Input tax credit in gst on input in stock, input in semi-finished goods, and finished goods.

The main aim of the time taken for taking Input tax credit in gst is to avoid taking back-dated invoices to reduce the current tax liabilities

Input Tax Credit in GST can be claimed on the supply of goods and services or both in respect of the Debit Note or Invoice.

Earlier of the both

1. After the end of the financial year on November 30th
2. Under section 44 furnishing of the relevant annual return in FORM GSTR-9

• Additional points related to the Tax Invoice - In certain circumstances, one year after the invoice date - Under special cases, such as voluntary registration or new registration. After the expiry of one year from the date of issue of the tax invoice in the supply of goods and services or both. The Input tax credit in gst can not be entitled by the registered person.
• Date That Is Relevant for a Debit Note - When assessing the time restriction to claim the Input tax credit in gst for the GST charged on the debit note, the date the related invoice was issued is irrelevant.
• There is no time limit for recouping Input tax credit in gst that was reversed for failure to pay within 180 days - Once the payment has been paid, the amount that was added to the output tax due may once more be claimed as ITC. The proportionate ITC can be reclaimed without a time limit if part payment is made after the 180-day period has passed and the ITC claimed has been added to output liabilities.

The foremost prerequisite and condition to claim Input tax credit in gst are that taxpayers need to have valid documents.

Under Rule 36(1) Mention the list of documents are needed to be filled by the Registered Person to claim ITC -

• A bill of supply is issued by the supplier of the goods.
• Under Customs Act of 1962, Bill of Entry or a similar document was issued.
• In case of an increase in the agreed sales price, Debit Note is issued by the supplier of goods and services.
• Under the GST Rules, Invoice is issued by the supplier of goods or services or both.
• Invoice or credit note issued by the Input Services Distributor under 54(1) of the GST Rule 2017.
• Invoice Raised under Reverse Charge Mechanism.

When goods and services are used for the business purpose only on them Input tax credit in gst can be claimed. When goods are used for exempted supplies or Non-Business purposes then ITC cannot be claimed.

Various situations in which ITC can be reversed is mentioned below -

• Credit note issued to ISD by the seller - There is a reverse of the ITC when a credit note is issued by the seller to the head office. This is for ISD. If a credit note was issued by the seller to the HO then the ITC subsequently reduced will be reversed.
  • Payment is not received in 180 days and ITC is availed on the amount along with interest
  • 180 days are calculated for the purpose of the Input Tax Credit in GST from the date of the issue of the invoice not from the date of recording of the invoice in the books of the account or on the date the ITC is claimed. Under GST ITC is reversed and is applicable for nonpayment of the invoice not for the goods.
• When the input is partly used for personal use or for exempted supplies or for business purposess - ITC of the Goods and services used for personal purpose need to be reversed proportionally.
• Less than the requirement ITC is reversed - The difference amount calculated after deducting total ITC on inputs of non-business purpose/exempted from actual ITC reversed is added into the output liability. This is done after the annual return is submitted and interest is also applicable.
• Either ITC or Depreciation can be claimed - A person is not allowed to obtain a dual advantage under two distinct laws at the same time. The assessee has the choice of either claiming ITC or depreciation on the tax component of capital goods by capitalizing the capital goods inclusive of tax in the books of account.

• Any person who does not have GST Registration.
• Any person who is not registered under the composition scheme in GST.

Input Tax Credit in GST can be utilised along the entire supply chain, until the products or services are delivered to the final customer. This prevents the cascading impact of taxes (tax on tax), ensuring that tax is only assessed on the value added at each stage of the supply chain. These goods and services are used for the commercial purpose and not for the personal use. The invoice or other required documents (such as debit notes) proving the tax paid on the input should have been given to the taxpayer.