- What is Input Tax Credit (ITC)
- SGST, CGST and IGST – How Input Tax Credit is allowed
- Persons who are allowed to take Input Tax Credit
- Persons NOT allowed to take Input Tax Credit
- Time limit for taking ITC
- Conditions for taking ITC
- Input Tax Credit shall not be available for
- ITC for GST paid on reverse charge
- ITC on Capital Goods and Reversal on its sale
- ITC in respect of inputs sent for job work
- Manner of distribution of credit by Input Service Distributor
- ITC in special cases
Input Tax Credit refers to the tax already paid by a person and which is available as deduction from tax payable to him. Since, tax paid or received by the dealer is not an expense or income for him, it will not appear in financial statements of the firm as expense or income.
For eg- A trader purchases good worth rs. 100 and pay tax of 10% on it. And now this trader sold such goods at Rs. 150 and collect tax of Rs. 15 from buyer. Now the trader has to pay Rs. 15 to government but he had already paid Rs. 10, so this Rs. 10 is ITC of the trader and will be allowed as deduction from tax payable and he has to pay net Rs. 5 as tax. Although availment of ITC is subject to certain conditions as covered in this article.
Amount of Input Tax Credit on account of IGST shall first be utilized for the payment of IGST then for payment of CGST and then for payment of SGST.
Amount of Input Tax Credit on account of CGST shall first be utilized for the payment of CGST then for payment of IGST. Such amount can not be used for payment of SGST.
Amount of Input Tax Credit on account of SGST shall first be utilized for the payment of SGST then for payment of IGST. Such amount can not be used for payment of CGST.
One important question arises here is that whether ITC of SGST of a state is allowed from the SGST payable in other state. For eg a person doing business in Rajasthan and Gujarat both, he has ITC of SGST in Rajasthan whereas in Gujarat he has SGST payable. Can he claim such input tax credit?
Although its not specifically mentioned that such credit is allowed or not but seeing the structure of GST it can be assumed that such ITC will not be allowed from SGST payable in other state. Clarification is awaiting for this.
ITC can not be used for payment of interest, penalty, fees or any amount payable under the act other than the GST in manner mentioned above.
|Input Tax Credit||12,000||7,500||1,200|
|Less: Input Tax Credit of IGST from IGST
CGST from CGST and SGST from SGST
(up to maximum of tax payable)
|Gross Tax Payable||NIL||500||3,800|
|Less: Input Tax Credit of Remaining IGST of Rs. 2,000
from CGST first and then SGST
|Net Tax Payable||–||–||2,300|
- All registered person are allowed to take input tax credit other than person who are paying tax under composition scheme.
- A person who has applied for registration within 30 days from the date on which he is liable for registration is allowed to take input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax.
- A person who has ceased to pay tax under composition scheme is entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he ceases to pay tax under composition scheme.
- Persons who are not registered in GST
- Persons who are registered under composition scheme
ITC is not allowed after any of the following happens
- return filed for month of September of next financial year
- annual return filed for relevant year
Input Tax Credit is allowed to a person only if following conditions are satisfied
- he is in possession of a tax invoice or debit note issued by a supplier registered under GST
- he has received the goods and/or services
- the tax charged in respect of such supply has been actually paid to the account of the appropriate Government
- he has furnished the return under section 34
- ITC is not allowed after any of the following
- return filed for month of September of next financial year
- annual return filed for relevant year
The person who obtains voluntary registration is entitled to take the input tax credit of input tax on inputs in stock, inputs in semi finished goods and finished goods in stock, held on the day immediately preceding the date of registration.
the input tax credit of goods and / or service attributable to only taxable supplies can be taken by registered taxable person. The amount of eligible credit would be calculated in a manner to be prescribed in terms of section 16(7) of the MGL read with GST ITC Rules (yet to be issued). It is important to note that credit on capital goods also would now be permitted on proportionate basis.
Where the goods against an invoice are received in lots or instalments, the registered taxable person shall be entitled to take credit upon receipt of the last lot or instalment.
Where a recipient fails to pay to the supplier of services, the amount towards the value of supply of services along with tax payable thereon within a period of three months from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon.
Input tax credit of tax component of capital goods is not allowed if the person has claimed depreciation in income tax act for tax component. In other words ,a person can either take input tax credit of gst on capital goods or claim depreciation on tax component.
input tax credit shall not be available in respect of the following:
(a) motor vehicles and other conveyances except when they are used
(i) for making the following taxable supplies, namely
(A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
(ii) for transportation of goods.
(b) supply of goods and services, namely,
(i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services;
(ii) membership of a club, health and fitness centre,
(iii) rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; and
(iv) travel benefits extended to employees on vacation such as leave or home travel concession.
(c) works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service;
(d) goods or services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in course or furtherance of business;
Explanation 1.- For the purpose of this clause, the word “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.
Explanation 2.- ‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines, telecommunication tower fixed to earth by foundation or structural support that are used for making outward supply and includes such foundation and structural supports but excludes land, building or any other civil structures.
(e) goods and/or services on which tax has been paid under composition scheme;
(f) goods and/or services used for personal consumption;
(g) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
(h) any tax paid in terms of sections 67, 89 or 90.
GST paid on reverse charge is also allowed as Input Tax Credit.
Credit of tax paid on capital goods is also permitted to be availed in one instalment.
If the taxable person sell such capital goods on which ITC had been taken then such person is liable to pay GST of higher amount from the following
- ITC taken on such capital goods less percentage poinst as defined (percentage points are yet not defined)
- Sale price of capital goods multiplied by GST rate
Principal is allowed to take ITC of the goods or capital goods sent to a job worker for job work. Input is allowed even if the inputs are directly sent to a job worker for job-work without their being first brought to his place of business.
If such goods are not received back by principal or supplied from place of job worker within one year from the date of sending goods to job worker, 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. This limit of one year is increased to three years in case of capital goods.
Where the inputs are sent directly to a job worker, the period of one year or three year shall be counted from the date of receipt of inputs by the job worker.
This rule of deemed supply shall not apply to moulds and dies, jigs and fixtures, or tools sent out to a job-worker for job-work.
The Input Service Distributor may distribute the credit subject to the following conditions, namely:
(a) the credit can be distributed against a prescribed document issued to each of the recipients of the credit so distributed, and such document shall contain details as may be prescribed;
(b) the amount of the credit distributed shall not exceed the amount of credit available for distribution;
(c) the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
(d) the credit of tax paid on input services attributable to more than one recipient of credit shall be distributed only amongst such recipient(s) to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period;
(e) the credit of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.
Explanation 1. –For the purposes of this section, the “relevant period” shall be-
(a) if the recipients of the credit have turnover in their States in the financial year preceding the year during which credit is to be distributed, the said financial year; or
(b) if some or all recipients of the credit do not have any turnover in their States in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed.
Explanation 2. – For the purposes of this section, ‘recipient of credit’ means the supplier of goods and / or services having the same PAN as that of Input Service Distributor.
Explanation 3. – For the purposes of this section, ‘turnover’ means aggregate value of turnover, as defined under sub-section (6) of section 2.
PROVIDED that credit of input tax in respect of pipelines and telecommunication tower fixed to earth by foundation or structural support including foundation and structural support thereto shall not exceed—
(a) one-third of the total input tax in the financial year in which the said goods are received,
(b) two-third of the total input tax, including the credit availed in the first financial year, in the financial year immediately succeeding the year referred to in clause (a) in which the said goods are received, and
(c) the balance of the amount of credit in any subsequent financial year.