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Input Tax Credit (ITC) under GST

  1. What is Input Tax Credit (ITC)
  2. SGST, CGST and IGST – How Input Tax Credit is allowed
  3. Persons who are allowed to take Input Tax Credit
  4. Persons NOT allowed to take Input Tax Credit
  5. Time limit for taking ITC
  6. Conditions for taking ITC
  7. Input Tax Credit shall not be available for
  8. Reversal of Input tax credit
  9. ITC for GST paid on reverse charge
  10. ITC on Capital Goods and Reversal on its sale
  11. ITC in respect of inputs sent for job work
  12. Manner of distribution of credit by Input Service Distributor
  13. ITC in special cases

What is Input Tax Credit (ITC)

Input Tax Credit refers to the tax already paid by a person at time  of purhase of goods ro services and which is available as deduction from tax payable .

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.

SGST, UTGST, CGST and IGST – How ITC allowed

GST Input Tax Credit Calculator

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 or UTGST.

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 or UTGST.

Amount of Input Tax Credit on account of SGST or UTGST shall first be utilized for the payment of SGST or UTGST then for payment of IGST. Such amount can not be used for payment of CGST.

SGST/UTGST payable or Input tax credit of SGST/UTGST will be calculated state wise i.e ITC of SGST in one state can not be utilized for payment of SGST of another state.

Input tax credit 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.

Example

IGST CGST SGST
Tax Payable 10,000 8,000 5,000
Input Tax Credit 12,000 7,500 1,200
IGST CGST SGST
Tax Payable 10,000 8,000 5,000
Less: Input Tax Credit of IGST from IGST
CGST from CGST and SGST from SGST
(up to maximum of tax payable)
10,000 7,500 1,200
                                        Gross  Tax Payable NIL 500 3,800
Less: Input Tax Credit of Remaining IGST of Rs. 2,000
from CGST first and then SGST
500 1.500
                                        Net Tax Payable 2,300

Persons who are allowed to take Input Tax Credit

  1. All registered person are allowed to take input tax credit other than person who are paying tax under composition scheme.
  2. 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.
  3. A person who hast taken voluntarily 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 of grant of registration.
  4. 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.

Under the points 2, 3 and 4 above, the input tax credit is allowed only for the stock which is purchased in last one year from the aforementioned date. Such person needs to file Form GST ITC-01 within 30 days of his becoming eligible for availing input tax credit. Details furnished in the form is to be certified by a practicing chartered accountant or cost accountant if the input tax credit claimed is more than Rs. 2 lakhs.

Persons NOT allowed to take Input Tax Credit

  1. Persons who are not registered in GST
  2. Persons who are registered under composition scheme

Time limit for taking ITC

ITC is not allowed after any of the following happens

  • due date of return for month of September of next financial year
  • annual return filed for relevant year (Filing date, not due date)

Conditions for taking ITC

Input Tax Credit is allowed to a person only if following conditions are satisfied

  1. he is in possession of a tax invoice or debit note issued by a supplier registered under GST
  2. he has received the goods and/or services
  3. the tax charged in respect of such supply has been actually paid to the account of the appropriate Government
  4. he has furnished the return under section 39
  5. ITC is not allowed after any of the following
    • due date of return for month of September of next financial year
    • annual return filed for relevant year (Filing date, not due date)
  6. 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.
  7. Input tax credit is allowed only on purchases made for selling taxable or zero rated goods or services. ITC is not allowed for purchases made for exempted supplies.
  8. 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.
  9. 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.
  10. Input tax credit of GST component of capital goods is not allowed if the person has claimed depreciation in income tax act for GST 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 for

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 or such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply
(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 74, 129 or 130.

Reversal of Input tax credit

If a person who is paying tax in normal scheme and wants to shift to Composition scheme or where goods or services supplied by him become wholly exempt, he has to pay credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption. After payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

Where a recipient fails to pay to the supplier of goods or services, the amount towards the value of supply of goods/services along with tax payable thereon within a period of 180 days 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. This rule doesn’t apply where the recipient is liable to pay tax on reverse charge basis. Such person has to furnish such details in From GSTR-2 for the month in which such period of 180 days lapse.

ITC for GST paid on reverse charge

GST paid on reverse charge is also allowed as Input Tax Credit subject to the condition that it is allowed according to all other provisions. But note that reverse charge has to paid through cash only.

ITC on Capital Goods and Reversal on its sale

Credit of tax paid on capital goods is also permitted to be availed in one instalment.

Input tax credit of tax component of capital goods is not allowed if the person has claimed depreciation in income tax act for GST component. In other words ,a person can either take input tax credit of GST on capital goods or claim depreciation on tax component.

If the taxable person sells 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 5 percentage points per quarter of a year or part thereof from the date of invoice
  • Sale price of capital goods multiplied by GST rate

Where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined.

ITC in respect of inputs sent for job work

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.

Manner of distribution of credit by Input Service Distributor

(1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed.

(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:––

(a) the credit can be distributed to the recipients of credit against a document containing such 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 amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory 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 or turnover in a Union territory 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.––For the purposes of this section,––

(a) the “relevant period” shall be––

(i) if the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the said financial year; or
(ii) if some or all recipients of the credit do not have any turnover in their States or Union territories 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;

(b) the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;
(c) the term ‘turnover’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule.

ITC in special cases

Banks and Financial Institutions

Banks, financial institutions and non banking financial companies (NBFC) engaged in business of deposits, extending loans or advances have an option to avail an amount equal to fifty per cent of the eligible input tax credit on inputs, capital goods and input services in that month or to take Input tax credit only on purchases made for selling taxable or zero rated goods or services and leave out the tax paid on purchases made for exempted supplies.

Option once exercised can not be changes during the financial year. Also restriction of 50% doesn’t apply where the tax is paid on supply from one registered person to another registered person having the same Permanent Account Number.

Pipelines and Telecommunication Tower

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.

2 comments

  1. jaikumartaneja

    I purchases LCD can we take gst/vat tax input on it.

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