Refund of Unutilised Input Tax Credit (ITC) - Inverted Duty Tax Structure

GST Council made changes to GST Rates for various goods as well as services. The reduction of rates is a good one for for consumers, and at front side, it looks to be good news for traders also, since a reduction in GST rates would essentially mean that the input tax credit being availed would be more than the tax liability for a business.


Let us consider goods which were rated at 18% at the time of purchase by the trader, but which dropped to 12% at the time of sales i.e. post the date on which the GST rate changes took effect. For a moment if we assume that the buying and selling prices are consistent, it effectively means that the trader is using 18% worth of GST input tax credit to offset a GST tax liability worth 12%, and thus is left with an effective unutilised ITC worth 6%.


In the current business world, question which arises is unutilised ITC leading to blocked capital or is there a way in which this can be utilised to offset tax liabilities?


Will see the solution to the above problem......


Refund of Unutilised ITC resulting from Inverted Duty Structure:


As per the GST law, a taxpayer can claim refund of unutilised ITC at the end of the relevant tax period i.e. on a monthly basis. Reversal of input tax credit will be granted where the input tax credit accumulation has taken place on account of inverted duty structure, wherein the rate of tax on inputs are higher than the rate of tax on output supplies.However, there are certain exception to it.


There are certain time lines set for processing of refund claims and ITC claims not settled within 60 days will be paid with interest @6%. Moreover, 90% of the claim would be paid within 7 days of acknowledgement of claim on provisional basis. Claims are to be filed with minimum documentation and the refund amount will be credited directly to the claimant’s bank account. The process is online and hassle free and with minimum interface with tax authorities.


In conclusion, it can be said that traders need not be worried about their unutilised ITC due GST rate changes. There is still a simple and clear provision wherein the refund of such ITC can be claimed, in the background of the inverted duty structure.


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