All about Input Tax Credit under GST


Synopsis​

1. Input Tax Credit under GST

2. Eligibility for claiming Input tax credit [Section 16(1)]​

3. Conditions for taking Input Tax Credit  [Section 16(2)]

4. Time limit for claiming ITC [Section 16(4)]

5. Blocked Credit [Section 17(5)]

6. Taking ITC w.r.t Inputs & Capital goods sent for job work

7. Manner and utilization of GST credit

Input Tax Credit under GST

Input Tax Credit refers to the tax already paid by a person at time of purchase of goods or services in the form of IGST, CGST, SGST and which is available as deduction from GST payable.

Eligibility for claiming Input tax credit [Section 16(1)]

1. Every registered person shall be entitled to ITC charged on inward supply of goods or services subject to the provisions of section 49.

2. Goods/Services shall be used in the course of business/ furtherance of business. Which implies that goods which are used or intended to be used for non-business purpose cannot be availed as credit. The input tax  credit of assesse will be reflected in electronic credit ledger in the portal.

Conditions for taking Input Tax Credit  [Section 16(2)]

The registered person will be entitled to ITC if all the below mentioned points are satisfied.

1. Assesse is in possession of sufficient tax paying document namely,

    (i) Tax invoice issued by supplier of good/services

    (ii) Invoice issued by recipient (For Reverse Charges Supplies)

    (iii) Debit note issued by a supplier registered under GST

    (iv) Bill of entry or Document issued by ISD


2. The person must have received the goods and/or services to claim ITC. Receipt of goods includes delivery to another person on the direction of registered person (Bill to Ship to Model). It would be deemed that registered person received goods on such scenario.

Note: Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of last lot or installment.

​​

3. The tax charged in respect of such supply has been actually paid to the account of the appropriate Government by the supplier and he must have filed GST return.


4. The registered person must have paid the value of goods/ services along with tax within 180 days from the date of issue of invoice. In the event of failure to do so, the ITC credit claimed earlier will be added to his output tax liability along with interest at 18%. And once the payment is made recipient will be entitled to credit again. Suppose if part payment is made, then credit will be allowed proportionately.

..However the condition of 180 days does not apply for

(i) Supplies made under reverse charge.   

(ii) Deemed supplies without consideration.


5. Input tax credit on GST component of capital goods is allowed if the person has not claimed depreciation in income tax act for GST component. [Section 16(3)]


6. Input tax credit is allowed only on purchases made for selling taxable or zero rated goods or services and it is for business purpose. ITC is not allowed for purchases made for exempted supplies.

7. ITC has been blocked for certain goods or services (Blocked Credit) [Section 17(5)]

Time limit for claiming ITC [Section 16(4)]

Time limit for filing ITC shall be earlier of following:

(i) Due date of return for month of September of next financial year

(ii) Date of filing of annual return. (Filing date, not due date)

Note: The above time limit does not apply to re-availing of credit reversed earlier.

ITC Not allowed for- Blocked Credit [Section 17(5)]

ITC of tax paid on almost every inputs and input services used for supply of taxable goods or services or both is allowed under GST except the list of items provided u/s 17(5). Which covers mainly items of personal consumption, inputs use of which results into formation of an immovable property (except plant and machinery), and penalties & taxes paid as a result of detection of evasion of taxes.

The detailed list is given here under:

(a) Motor vehicles and conveyances, except when used for

     - For transportation of goods

     - For making the following taxable suppliesor

           • Further supply of such vehicles or conveyances; or

           • Transportation of passengers; or

           • Imparting training on driving, flying, navigating such vehicles or conveyances.

Points to remember: ITC on Purchase of car is not allowed, however ITC included in amount paid for repairs to car can be claimed as GST credit.


(b) Foods and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except when an inward supply of these is used for making an outward taxable supply of the same category or as an element of a taxable composite or mixed supply.


(c) Membership of a club, health and fitness centre


(d) Rent-a-cab, life insurance and health insurance, except where

     - The Govt made it obligatory for an employer to provide these services to its employees; or

     - Inward supply of these services is used for making an outward taxable supply of the same category or as an element of a taxable composite or mixed supply.

(e) Travel benefits to employees on vacation such as leave or home travel concession

(f) Works contract services for construction of an immovable property except when

     - It is input service for further supply of works contract service

     - Immovable property is plant and machinery


(g) Inward supplies received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account even when such supplies are used in the course or furtherance of business


“Construction”, includes re-construction, renovation, additions or alterations or repairs, to the extent

of capitalization, to the said immovable property;

“Plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural supports but excludes land, building or other civil structures, telecommunication towers, and pipelines laid outside the factory premises.

(h) Inward supplies on which tax has been paid under the composition scheme


(i) Inward supplies received by a non-resident taxable person except goods imported by him


(j) Goods and / or services used for personal consumption


(k) Goods that are lost, stolen, destroyed, written off or disposed of by way of gift or free samples


(l) Taxes paid as a result of evasion of taxes, or upon detention of goods or conveyances in transit, or towards redemption of confiscated goods/conveyances.)

Taking ITC w.r.t Inputs & Capital goods sent for job work

1. The principal shall be entitled to ITC on inputs sent to a job-worker for job work.

2. Principal shall be entitled to take ITC on inputs even if the inputs are directly sent to job worker

without their being first brought to his place of business.

3. Where the inputs sent for job work without payment of GST are not received back by the principal after completion of job work or otherwise; Not supplied from the place of business of the job worker;

within one year of their being sent out,

Then it shall be deemed that such inputs had been supplied by the principal to the job-worker on the day when the said inputs were sent out and GST along with interest has to be paid by supplier.

4. The principal shall be entitled to take ITC on CG even if they are sent directly to a job worker without their being first brought to his place of business.

5. Where the Capital Goods sent for job-work without payment of GST are not received back by the principal within 3 years, it shall be deemed that such CG had been supplied by the principal to job worker on the day when the said CG were sent out for job work.

Note:

  • Principal shall issue a challan when sending inputs/capital goods to job worker and the same shall be furnished in GSTR 1.

  • If the inputs/capital goods are not returned within prescribed time, challan shall be deemed to be invoice.

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