Input Tax Credit under GST
All about Input Tax Credit under GST
ALL ABOUT INPUT TAX CREDIT UNDER GST
One of the basic features of GST is a seamless flow of Input tax credits. Input tax credit avoids the cascading effect of taxes.
Before the introduction of GST, there were many taxes both at the Central and State levels such as excise duty, CST, VAT, Purchase Tax, service tax, etc. which had the effect of cascading tax i.e. tax on tax.
With the introduction of GST, all or major taxes both at the State and Central level have been subsumed under GST, and thus the tax on tax effect has been neutralized and now the input tax credit has become an important feature under GST.
There are three major taxes under GST which are :
1. CGST (Central Goods and Services Tax)
2. SGST (State Goods and Services Tax)
3. IGST (Integrated Goods and Services Tax)
The standard method of utilization of the above tax is as under:
1. IGST can be used for the payment of :
(a) First IGST
(b) Then CGST
(c) Then SGST
2. CGST can be used for the payment of :
(a) First CGST
(b) Then IGST
3. SGST can be used for the payment of :
(a) First SGST
(b) Then IGST
Thus the CGST and SGST can not be used for payment of each other.
For availing Input tax credit, the registered person needs to have some documents based on which the credit can be availed.
Some of the documents required for availing Input Tax credit are :
1. Invoice or Revised Invoice provided by the Supplier in respect of goods or services
2. A debit note issued by the Supplier
3. In the case of imports, the bill of entry as per the Customs Act
4. In the case of Input Service Distributor, the document issued in respect thereof;
Also, there are some Eligibility conditions for availing input tax credit:
(i) The taxpayer must be registered under GST.
(ii) The goods and services must be used for business purposes.
(iii) The taxpayer should possess a valid tax invoice or debit note issued by a registered supplier.
(iv) The supplier must have filed the GST returns, and the invoice should be uploaded in their GSTR-1, ensuring it appears in the recipient's GSTR-2B.
(v) ITC can be claimed only if the taxpayer has received the goods or services.
Also there are some conditions and restrictions for availing the Input Tax credit :
- ITC cannot be claimed on the following items:
- Motor vehicles and conveyances (with certain exceptions).
- Goods and services used for personal consumption.
- Goods lost, stolen, destroyed, or disposed of as gifts or free samples.
- Membership of a club, health, and fitness centers.
- Works contracts for the construction of immovable property (excluding plant and machinery).
- Travel benefits to employees (except when required for official purposes).
- ITC must be availed within a specified period:
- ITC should be claimed before 30th November of next financial year or before filing the annual return, whichever is earlier.
For Example, if the invoice has been issued on 20th March 2023, the ITC of the same can be taken till 30th Nov of filing of Annual Return which is 31st Dec.2023 whichever is earlier. Since in this case 30th Nov.. is earlier, the ITC can be claimed till 30th Nov.. 2023 only.
There are also provisions relating to reversal of ITC :
ITC must be reversed if:
- Payment is not made to the supplier within 180 days from the date of the invoice.
- Goods or services are used for non-business purposes.
- Input goods are used for exempt supplies.
ITC not available in some cases i.e. Blocked Credit [Section 17(5) of the CGST Act,2017]
1. In respect of Motor Vehicles except in some circumstances - to be discussed later.
2. Goods or services provided in relation to :
(a) Foods and beverages, outdoor catering, beauty treatment, cosmetic and plastic surgery etc.
(b) membership of club, health and fitness centre
(c) Life insurance and health insurance
(d) Rent a cab services
(e) travel benefits extended to the employees on leave on home travel concession
3. Works contract services when supplied for construction of immovable property (other than for plant and machinery)
However, the input will be allowed if it is an input service for further supply of works contract
4. Goods or services received for the construction of Immovable Property by a registered person (even if it is for his business purpose)
5. Goods or services which have been used for personal consumption or private use.
6. Goods that are lost, destroyed, written off, gifted, or free samples provided.
ITC on Capital Goods
- ITC is allowed on capital goods used for business, subject to certain conditions.
- However, if these capital goods are used for exempt supplies or non-business purposes, ITC will be restricted accordingly.
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