Benefits and Rights of Regular Taxpayer: Access to Input Tax Credit and Refunds

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Published Date:  19-12-2023   Author:   samradni-p
captainbiz benefits and rights of regular taxpayer access to input tax credit and refunds

The input tax credit is the goods and services tax a taxable person pays to buy any services or goods. You must note that the goods and services are particularly used for business. 

Input Tax Credit is the main feature of GST. It provides tax deduction benefits to the manufacturer. However, a taxable person must fulfil specific ITC conditions to reap the benefits. You can also benefit from the input tax credit on utilising capital goods for the company’s operations.

Let’s dig deeper into the concepts of Input Tax Credit. 

Advantages of regular taxpayer registration under GST

Listed below are the major benefits of GST registration for regular taxpayers – 

  1. Reduces the tax cascading effects

Earlier, the taxpayers had to bear the interest on the tax amount unpaid after the due date. The sum also included the input tax credit amount. This practice was said to be unfair by tax experts. However, rectification in the tax system has reduced the interest burden for taxpayers. If you have GST registration and pay your taxes using an input tax credit, your interest burden could be zero.

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  1. Higher exemption threshold for registered taxpayers

According to the VAT structure, businesses with more than ₹ 5 lakh turnover had to pay VAT. The limit value differed from one state to another. Taxpayers whose annual turnover was below ₹ 10 lakh could even get service tax exemption. However, according to the revised tax system, the threshold limit is ₹ 20 lacs for GST-registered taxpayers. So, you can benefit from the exemption if you are a small service provider or trader. 

  1. The benefit of the composition scheme 

It is beneficial, especially for small business owners. The composition scheme comes under subsection section 10 and has provisions for the Service Providers. It states that the service providers with a yearly ₹ 50 lakh turnover can benefit from the GST composition scheme. The scheme also benefits suppliers that deal with both services and goods. The amendment compliance is easy for small business owners. They can easily file their returns while maintaining proper accounts. 

  1. Easy and simple online process

The online system of paying taxes is highly beneficial. Thanks to the latest modification of the CGST Act section 49. Now, the wrongly paid taxes can be moved to the correct head. Like in earlier times, you won’t have to pay the taxes if you paid the taxes wrongly. You can now easily get updates on the taxes and interest amount. The electronic cash ledger can also update the fee updates or penalties. It can later be moved to the correct head – CGST, IGST, UTGST, or SGST.

Also Read: Benefits Of GST Registration

Input tax credit mechanism and its benefits for regular taxpayers

The input tax credit is a mechanism that lets you claim a reduction in tax amount. The deduction is on the tax paid for a profession or a business. The Goods and Service Tax allows business owners to claim a tax credit. The mechanism also includes the output tax on the services provided or goods sold. The amount of tax liability is according to the GST law.

Let us understand the concept with the help of an example. A business owner purchases raw materials worth ₹ 1 lakh. And they pay ₹ 12,000 as GST on the purchase. And the owner hires a mechanical engineer. The cost of hiring is ₹ 2 lakh. And the GST on it is ₹ 36,000. The total input GST amount is ₹ 48,000.

The business uses the materials to manufacture customised machines. And the net value of sales is ₹ 5 lakh. The output GST on the sales is ₹ 90,000. So, after paying this output GST, the business can claim ₹ 48,000. It is the input credit for the paid GST amount. However, the output liability must be cleared before GST return filing. The net liability amount will be ₹ 42,000.

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Note – The business entity must create a bill of ₹ 5 lacs. And the GST amount of ₹ 90,000 should be collected. So, the net amount of the invoice should be ₹ 5 90,000. It is to be noted that the input tax credit is not to be included in the invoice calculation. And no reductions are to be made in the invoice.

The input tax credit is an excellent way to increase the taxpayer base. And the best part is that it reduces businesses’ tax liability. They can claim credit up to the GST amount on purchases.

Also Read: The Benefits Of Claiming ITC On Capital Goods

Refunds for regular taxpayers under GST

GST refund refers to a process where you can claim the extra amount paid on the GST liability. You need to submit a refund application to claim the amount. The application should have all the required details as per the GST portal.

Delays in refunds could adversely affect the cash flow and working capital requirements of business owners. GST implementation has ensured a smooth and quick refund process. Hence, tax management has become easier and more effective than ever.

Refund for taxpayers with GST registration

Refunds under GST are allowed to taxpayers in the following cases:

  • Supply of zero-rated goods, which is done without any tax payment
  • Refund amount generated according to the tax rate on inputs – in case the input tax rate is higher than the tax rate applied on output supplies 
  • Tax amount paid on supplies that aren’t partially or wholly provided. (Note – only those supplies whose invoice or a refund voucher hasn’t been issued are considered here).
  • Any amount paid to the individual, including the interest and tax amount, which is not passed on to any other person in any incidence
  • Any conditions notified by the government 

Tax optimisation and cost savings through regular taxpayer registration

Let’s say a business person buys raw materials for manufacturing a product. And they have a specific amount of tax on materials purchases. It is termed as input efforts. But when the products from the same raw material are sold, the finished product is called the output. The tax credit is claimed on the output, which has already been paid to the vendor or supplier. And the outstanding liability is only for the balance tax.

Input tax credit can also eliminate the possibility of double taxation. This is the major component of GST. Besides, input tax credit also eliminates the cascading impact of taxes. In simple words, the tax liability is reduced to a great extent for registered regular taxpayers. 

Eligibility criteria and procedures for claiming input tax credit and refunds

Eligibility criteria to claim input tax credit and refunds

A business must fulfil the criteria listed below to claim input tax credit:

  • The company must be GST-registered 
  • The services or goods on which input tax credit is being claimed should only be used for business purposes.
  • The supplier must have filed the GST return. Also, the tax amount which the supplier had charged must be cleared and paid. 
  • The recipient should have a GST return filed.

Your input tax credit claim will likely be accepted if you meet the above conditions. 

Procedure to claim input tax credit and refunds

You need to arrange the following documents to claim ITC:

  • Supplier issues invoice
  • If the cumulative value is below ₹ 200, the issued invoice should be similar to the supply bill. 
  • A debit note issued by the supplier
  • Entry bill or documents of equivalent value
  • Supply bill issued by the supplier 
  • A credit note or invoice issued by ISD 
  • Refund Process under GST

Here are the steps to initiate the refund process: 

  1. Go to the GSTN portal and complete the refund application form.
  2. After you fill out and submit the application form, you will receive an SMS or email, including an acknowledgement number. 
  3. The return and cash ledger is automatically adjusted along with the “carry-forward input tax credit.” 
  4. The authorities will scrutinise the refund application and the submitted documents. This process takes around 30 days from the date the refund application is submitted.
  5. “Unjust enrichment” is thoroughly checked by the officials. (Note – the refund amount is sent to the Consumer Welfare Fund if the application doesn’t qualify qualified for the refund)
  6. If the refund amount claimed by the person is more than the predetermined amount, a pre-audit process is done before sanctioning the refund. 
  7. The refund credit is transferred electronically to the applicant’s account. It could be done through ECS or NEFT. Applicants can also expect RTGS transfers. 
  8. You can make your refund applications by the end of every quarter.
  9. No refund is provided if the refund value is less than ₹ 1000.

Maximising benefits and minimising tax liabilities as a regular taxpayer

Input Tax Credit is a tax paid by a business entity on purchases. Businesses can leverage this tax mechanism to reduce their tax liability when selling. They can claim credit up to the value of GST payments made on the purchases. And this ultimately reduces tax liabilities for them. 

Conclusion

Input Tax Credit is one of the important aspects of GST. It benefits businesses by reducing their tax burden. If you are a business owner, you can reap the advantages of ITC by reducing the already paid non-taxable amount. This is termed a GST input tax credit. Taxpayers need to consider the output and input tax credits. The input value is deduced from the output tax credit value. This is how GST payables are calculated. It is easy to calculate and manage. But you must meet the conditions and eligibility criteria mandatorily for ITC claims.

Also Read: INPUT TAX CREDIT UNDER GST

Frequently Asked Questions

  1. What conditions must be fulfilled to claim the input tax credit?

Eligibility to take Input Tax Credit:

  • The business entity must have GST registration.
  • The services or goods on which input tax credit is claimed must be used for business purposes only. 
  • The recipient must have received the prescribed document, including the debit note or tax invoice.
  1. Can home buyers get input tax credit benefits?

Yes, homebuyers can reap the benefits of Input Tax Credit. They can claim the GST amount paid on the services and goods purchased for property construction. It helps in reducing their tax liability. 

  1. What is the maximum claimable value of input tax credit?

You can claim the input tax credit under GSTR-3B provisionally. The claim amount can be up to 20% of the suppliers’ input tax credit value in the GSTR-2A return. Taxpayers should check the GSTR-2A statement before filing GSTR-3B.

  1. Are salaried people eligible for GST refund claims?

Salaried individuals can’t claim Input Tax Credit. But if the salaried person is a dealer or a company owner, they can get ITC benefits. 

  1. How much time does it take to receive the ITC claim amount?

There are certain timelines set for refund claim processing. If the settlement is not done within 60 days, the taxpayer will get the additional 6% interest on the ITC claim amount.

  1. Is there any time limit for the ITC refund?

The application for ITC refund must be filed within two years from the “relevant date”. The “relevant date” concept is explained in CGST/TSGST Act – section 54.

  1. How is input tax credit different from tax deduction?

The input tax credit is the GST taxpayer’s payment on the services and goods purchased for the business. It is the amount deduced from the taxpayer’s tax liability. On the other hand, a tax deduction means a reduction in the taxpayer’s taxable income.

  1. Who cannot file for the input tax credit?

Fraud cases are not considered for ITC. These cases include suppression of facts, fraud misstatements, seizure, and confiscation of goods. In such cases, the taxpayer pays the tax with tax evading intention. ITC prohibition serves as a penalty to such assessees.

  1. What happens to unutilised ITC?

According to the GST law, if a taxpayer avails ITC wrongly and hasn’t utilised it, the credit will be reversed. The applicable interest is also charged on the sum. The refund should be done within 30 days from the mistake’s discovery date. If the individual fails to do so, they will have to face penalty proceedings.

  1. How do I check input tax credit claims?

To check the proceedings of the ITC claim, go to the GST Portal and input your login details. Once you log in, go to Services, click Returns, then Tax Liabilities and then the ITC comparison option. You will find all the details there.

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Samradni P

Meet Samradni Pradhan, a seasoned content writer with a passion for weaving narratives across diverse industries. Armed with a full-time MBA in Marketing, Samradni brings a wealth of experience garnered from elite advertising agencies such as Ogilvy and Mather and Lowe Lintas. With a dynamic career spanning 6 years, she has honed her craft by delving into various categories and niches, including technology, healthcare, fashion, lifestyle, and her speciality, BFSI.

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