Basics of Input Tax Credit

Input tax means the central tax (CGST), State tax (SGST), integrated tax (IGST) or Union territory tax (UTGST) charged on the supply of goods or services or both made to a registered person. (Tax charged on purchase of goods or services)

Input tax credits cannot be taken on purchase invoices older than one year. Since GST is charged on both goods and services, input credit can be availed on both goods and services (except those on the exempted/negative list). Input tax credit is allowed on capital goods.

Input Tax Credit means claiming the GST credit paid on the purchase of Goods and Services used for the furtherance of business. The Mechanism of Input Tax Credit is the backbone of GST and is one of the most important reasons for the introduction of GST.

It also includes tax paid on a reverse charge basis and integrated goods and services tax charged on the import of goods.

It does not include tax paid under the composition levy.

GST paid on reverse charge

Input tax includes the tax payable under the reverse charge.

Other Provisions relating  to Input Tax Credit

• Input Tax includes taxes paid on input goods, input services and capital goods. Credit of tax paid on capital goods is permitted to be availed in one instalment.
• A registered person is entitled to take credit of input tax charged on the supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business,
• The registered person shall be entitled to the credit only upon receipt of the last lot or instalment.
• The recipient of goods has to pay the consideration along with tax within 180 days from the date of issue of invoice.If not paid within the stipulated date ,The amount of ITC would be added to output tax liability of the person alongwithinterest.However, tax payer can take ITC again on payment of consideration and tax.
• This condition is not applicable where tax is payable on a reverse charge basis.
• No, a person cannot take ITC with respect to goods lost, stolen, destroyed or written off. In addition, ITC with respect of goods given as gifts or free samples are also not allowed.
• The registered person shall be allowed to transfer the input tax credit that remains unutilized in its electronic credit ledger to the new entity, provided that there is a specific provision for the transfer of liabilities.
• A banking company or a financial institution including a non-banking financial company engaged in supply of specified services would either avail proportionate credit or avail 50% of the eligible input tax credit.
• The Input Tax Credit is also allowed on GST paid on Capital Goods.
• There are some credits blocked under section 17(5) which are not allowed to be taken as input credit.
• Input tax credit should be claimed based on auto-poputaled GSTR 2A / GSTR 2B In case of mismatch, the communication would be made to the both parties. If the mismatch is not rectified, then the amount will be added to the output liability of the recipient in return for the month succeeding the month in which the discrepancy is communicated.
• The ITC shall be available as per the invoices uploaded by respective suppliers either in their GSTR-1 or by using the Invoice Furnishing Facility (IFF).
• The recipients can claim a provisional input tax credit in GSTR-3B to the extent of 5% instead of the earlier 10% of the total ITC available in GSTR-2B for the month.

Amendment

As per CGST Rule 36(4), restricting provisional ITC claims to 5% of GSTR-2B in GSTR-3B is relaxed for April 2021. The taxpayer can apply this rule cumulatively for both April and May, while GSTR-3B for May 2021

Conditions for availing of ITC

The following four conditions are to be satisfied by the registered taxable person for obtaining ITC:

• The taxpayer must be in possession of tax invoices or debit notes or such other tax-paying documents as may be prescribed;
• received the goods or services or both;
• the supplier has actually paid the tax charged in respect of the supply to the government and
• The supplier should furnish the GSTR 1 return in taxpayers or other returns as per Section 39

 The time limit for taking ITC

A registered person cannot take ITC in respect of any invoice or debit note for supply of goods or services

• after the due date for furnishing the return under section 39 for the month of September following the end of the financial year to which such invoice/invoice relating to debit note pertains or
• furnishing of the relevant annual return, whichever is earlier.

Depreciation on capital goods

The input tax credit shall not be allowed on the said tax component in respect of which depreciation has been claimed.
 
Mode of set-off /Utilisation of input tax credit for payment of GST on outward supply liability: