In this article, We discuss everything you need to know about GST Input Tax Credit (ITC), the time limit for using ITC, how to measure Input Tax Credit, how to claim ITC, the situation where ITC can not be used and much more.
|Updates as on April-3rd-2020
The CBIC has notified that, in the GSTR-3B return from February 2020 to August 2020, taxpayers can claim input tax credit without applying the rule of capping provisional ITC claims to 10% of the eligible ITC as per GSTR-2A. When filing the September 2020 GSTR-3B, taxpayers are expected to cumulatively change ITC as per the February 2020 rule above.
Update as on Jan-1st-2020
The CBIC has revised the spectrum of temporary input tax credit claims from 20% to 10%.
Update as on Oct-9th-2019
The CBIC has informed that a registered person’s Input Tax Credit for invoices or debit notes will be limited to 20% of the qualified credit available for invoices or debit notes as per the information uploaded by the suppliers.
What is Input Tax Credit
Input Tax Credit means that the taxes levied on inputs from taxes to be charged on sales. When any supply of services or products is supplied to a taxable individual, the GST paid is known as Input Tax. The definition is not completely new as it already existed under the system of indirect taxes (service tax, VAT and excise duty) before GST. Now its spectrum under GST has been broadened.
Earlier, Central Income Tax, Entry Tax, Luxury Tax and Other Taxes could not be argued for the ITC. Additionally, The Central Excise Tax could not be asserted by producers and service providers.
Cross-crediting VAT against Service Tax / Excise or Vice Versa, was not permitted during the pre-GST period. But under GST because these taxes will be subsumed into one bill, there will be no limitation on applying this tax credit on inputs. The requirements for claiming ITC under GST are a very critical operation for setting the tax liability for growing company.
ITC can not be extended to all types of products with specific rules and regulations for each state or region. ITC is also feasible for a dealer who has purchased products to resell. Tax credit is the cornerstone of GST and is a big concern for registered persons. This is largely in line with the pre-GST system. These laws are very rigorous in their application and in particular.
Who can claim ITC
A individual registered under GST can only claim ITC if he meets All of the conditions prescribed.
- The Dealer will have a tax invoice.
- They have provided the said goods/services.
- Returns were filed.
- The tax charged was paid by the supplier to the Government.
- When goods are issued in installments ITC can only be asserted upon receipt of the last amount.
- No ITC will be permitted where depreciation on the tax part of a capital good has been reported.
An person registered under GST composition scheme can not claim ITC.
How to claim ITC
The amount of ITC must be reported by all regular taxpayers in their monthly GST Returns of Form GSTR-3B. Table 4 includes the summary figure of qualified ITC, invalid ITC and ITC reversed during tax time. The format given in Table 4 is as follow:
In the GSTR-3B, taxpayer may claim ITC on an interim basis to the extent of 20% of the qualified ITC registered by suppliers in the GSTR-2A auto produced return. So, before continuing to file GSTR-3B, a taxpayer should cross-check the GSTR-2A number. Any provisional ITC number may have been claimed by a taxpayer before Oct-9th-2019.
However, the CBIC has notified that as of Oct-9th-2019, a taxpayer can only say as provisional ITC not more than 20% of the qualifying ITC available in the GSTR-2A. This means that, since Oct-9th-2019, the amount of ITC recorded in the GSTR-3B will be the sum of the actual ITC in GSTR-2A and the provisional ITC will be 20% of the actual qualifying ITC in the GSTR-2A. Consequently, It is essential to fit the purchase register or expense ledger with the GSTR-2A.
Reversal of Input Tax Credit
ITC can only be used for commercial purposes on products and services. If they are used for non-commercial (personal) purposes or ITC can not be asserted for exempt supplies. Besides these there are other circumstances in which ITC can be reversed.
ITC will be reversed in the following cases-
- Non-Payment of the invoices within 180 days – Invoices which have not been paid within 180 days of issue will be reversed by ITC.
- Credit note given by seller to ISD – This relates to ISD. If the seller gave a credit note to the HO then the subsequently reduced ITC is reversed.
- Inputs partly for business purposes and partly for exempt materials or for personal use – This is for companies that use inputs for business and non-commercial purposes (personal). The ITC used in the portion of the input goods/services used for personal purposes shall be proportionately reversed.
- Capital goods partly for business and partly for exempted supplies or for personal use – This is similar to the above except that it includes capital goods.
- The reversed ITC is less than needed – This is measured after the annual return has been given. If total ITC on exempt / non-business use inputs is higher than the ITC actually reversed during the year then the difference sum will be applied to the liability for production. Interest must apply.
ITC reversal descriptions are to be furnished in GSTR-3B. For more information on ITC’s segregation into business and personal use and subsequent estimates, please visit our report.
Reconciliation of ITC
The ITC stated by the individual in its GST Return must suit the information specified by the supplier. In the case of any discrepancy, the manufacturer and the receiver will be told of discrepancies after GSTR-3B has been filled.
Learn how to do reconciliation through our GSTR-2A Reconciliation post. Please read our article on the thorough clarification of the reasons for ITC non-compliance and the process to be followed in applying for ITC re-claim.
Documents required for claiming ITC
To claim Input Tax Credit under GST each applicant may need the following documents:
- Supplier provided invoice to supply the Services and Goods or both in compliance with GST law.
- A debit not provided by the manufacturer to the receiver is less than the tax payable or taxable value on such supplies in the case of tax payable or taxable value as defined in the invoice.
- Entrance bill.
- A credit note or invoice to be issued by the ISD (Input Service Distributor) under the rules governing GST invoices.
- An invoice issued in certain situations like the supply bill, instead of the tax invoice. If the sum is less than INR 200 or under circumstances where the reverse charges are available under GST legislation.
- A manufacturer given a supply bill for products and services or both in compliance with the GST invoice law.
The above documents prepared in compliance with the rules of GST invoice should be furnished when filing the form GSTR-2. Failure to send such forms will result in the request being either denied or resubmitted.
Input Tax Credit can not be asserted for taxes paid on Goods and Service or both due to any fraud or order for the demand made, omission of evidence or willful error.
As input credit will be available to the seller at each point, it is expected that the Input Tax Credit will bring down the total taxes currently paid on the commodity. And, if the input credit system works successfully, the cost savings can be seen by end consumers.
Conditions for claiming ITC under GST
Only a Registered Individual may assert the value of GST’s Input Tax Credit. In addition, a registered person would be eligible to claim Input Tax Credit when the following conditions are fulfilled:-
- He owns Tax Invoice or any other tax-paying document mentioned therein.
- He got the Goods or the Services. Also included possibilities for “Shipping Bill”.
- Indeed the manufacturer is paying duty.
- He has the GST Return furnished.
- If the inputs are received in lots or installments, he will only be able to use the ITC after receiving the last lot or installment.
- Payment is due within 180 days from the date of invoice issue. In the event that the payment is not made within 180 days, under which the amount of credit used by the receiver will be applied along with interest to his income tax liability. However, after the balance is paid, the recipient will have the right to use the credit again. Proportionate credit will be provided in case part payment has been made.
Negative List for ITC
Section 16 (9) of the MGL provides for the ITC admissibility of negative list 100. It has been established that ITC can not be used on the following items:-
- Motor Vehicle, except when provided in the usual course of business or used for the following taxable services –
- Transportation of passengers.
- Transportation of goods.
- Imparting training on motor driving skills.
- Goods and Service offered in conjunction with food and drinks, outdoor dining, beauty treatment, dental care, cosmetic and plastic surgery, club membership, wellness and fitness center, life insurance, health insurance and travel benefits applied to workers on vacation, such as leave or home travel concessions. Where these Goods and Services are mainly used for the personal use or use of any worker.
- Goods and Services obtained in the execution of works contract by the principle when such contract result in the construction of immovable property, other than plant and machinery.
- Goods obtained by a principal, land not transferred (whether as goods or some other form) to any other person used to create immovable property other than plant or machinery.
Details of ITC through Videos
FAQ on ITC
Ques:- Is ITC eligible for the GST charged for the motor vehicles used for office purposes?
Ans:- ITC is responsible for all Goods and Services used in the course of business activities, but there are situations where ITC has been limited on Goods and Services. And the ITC is allowed by law only when the motor vehicle is purchased for the purpose of resale or transportation of passengers / Goods or training. Only the above causes make all causes eligible for the ITC otherwise all causes may be rejected for the ITC.
Ques:- Ready-made garments which attract 5% and 18% GST polyester yarn. How much credit is there to get?
Ans:- Polyester Yarn can offer a minimum tax credit of 18%.
Ques:- Will duty-free shop demand a refund?
Ans:- The excluded free shops don’t pay for ITC.
Ques:- A manufacturing company which provides the workers with canteen services. Will it get tax credit on inputs?
Ans:- ITC Section 17 (5) gives no input tax credit for these transactions.
Ques:- Will credit be available until June-30th for the important stocks?
Ans:- If the stocks contain all of the records then the credit may be claimed.
Conclusion on Input Tax Credit (ITC) in India
I suppose you have followed each step carefully for Input Tax Credit (ITC) in India. After downloading this software, open this software.
I suppose your PC does not installed this software. Then, you can download this software from ItTechGyan website. Now import that software file to your PC.
At last, I hope you liked this post on Input Tax Credit (ITC) in India.