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 businesses particularly use the goods and services.

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. Tax experts called this practice unfair. 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.

2. 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. Additionally, 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. 

3. The benefit of the composition scheme 

This scheme is particularly beneficial, especially for small business owners. Moreover, the composition scheme falls under subsection 10 and includes specific provisions for service providers. Notably, it states that service providers with a yearly turnover of up to ₹ 50 lakh can take advantage of the GST composition scheme. Additionally, the scheme benefits suppliers engaged in both services and goods. Furthermore, the amendment ensures compliance is simplified for small business owners. As a result, they can file their returns effortlessly while maintaining proper accounts.

4. Easy and simple online process

This scheme proves to be particularly advantageous, especially for small business owners. Furthermore, the composition scheme is covered under subsection 10, which includes specific provisions tailored for service providers. Notably, it specifies that service providers with an annual turnover of up to ₹ 50 lakh are eligible to benefit from the GST composition scheme. Additionally, the scheme extends its advantages to suppliers dealing with both services and goods. Moreover, the amendment simplifies compliance requirements for small business owners. Consequently, they can file their returns with ease while maintaining accurate and proper accounts.

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.

They can deduct the tax paid for a profession or 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 clearly understand the concept with the help of an example. To begin with, suppose a business owner purchases raw materials worth ₹ 1 lakh, and consequently, they pay ₹ 12,000 as GST on the purchase. Additionally, the owner hires a mechanical engineer, which incurs a hiring cost of ₹ 2 lakh, and as a result, ₹ 36,000 is paid as GST. Therefore, the total input GST adds up to ₹ 48,000.

Furthermore, the business uses the purchased materials to manufacture customized machines. As a result, the net value of the sales amounts to ₹ 5 lakh, and the output GST applicable on these 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, they must clear the output liability before filing the GST return. The net liability amount will be ₹ 42,000.

Note – The business entity must create a bill of ₹ 5 lacs.

They should collect the GST amount of ₹ 90,000. So, the net amount of the invoice should be ₹ 5 90,000.

Note that they must exclude the input tax credit from the invoice calculation, and they should not make any reductions 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).
• The individual receives any amount, including the interest and tax, if it is not passed on to any other person in any instance.
• 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. When businesses sell products made from the same raw material, they refer to the finished product as the output. They can claim the tax credit on the output, which they have already 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, registered regular taxpayers can significantly reduce their tax liability.

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 business must register for GST.
• Businesses should use the services or goods, for which they claim input tax credit, exclusively for business purposes.
• The supplier must file the GST return, and businesses must ensure they clear and pay the tax amount charged by the supplier.
• The recipient should have a GST return filed.

If you meet the above conditions, the system will likely accept your input tax credit claim. 

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. Officials process the refund application within approximately 30 days from the submission date.
5. Moreover, officials thoroughly check for “unjust enrichment” during the evaluation. (Note: If the application fails to meet refund criteria, they transfer the refund amount to the Consumer Welfare Fund.)
6. Additionally, if the claimed refund exceeds the predetermined limit, officials conduct a pre-audit before approving the refund.
7. Finally, they electronically transfer the approved refund amount to the applicant’s account via ECS or NEFT.
8.  Applicants can also expect RTGS transfers.
9. You can make your refund applications by the end of every quarter.
10. No refund is provided if the refund value is less than ₹ 1000.

Maximising benefits and minimising tax liabilities as a regular taxpayer

Business entities pay Input Tax Credit 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

Also Read: CaptainBiz launches unlimited e-Invoices and e-Way bills for MSMEs

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.

2. 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. 

3. 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.

4. 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. 

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

The system sets certain timelines for refund claim processing. If the settlement does not occur within 60 days, the taxpayer receives an additional 6% interest on the ITC claim amount.

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

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

7. 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.

8. Who cannot file for the input tax credit?

Authorities do not consider fraud cases for ITC claims. 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.

9. 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 authorities also charge applicable interest on the sum. They must process the refund within 30 days from the date of discovering the mistake. If the individual fails to do so, they will have to face penalty proceedings.

10. 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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