Input Tax Credit (ITC) Provisions in GSTR-5

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Published Date:  13-10-2023   Updated on: 13-02-2424 Author:   vidya-sagar
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Input Tax Credit (ITC) Provisions in GSTR-5

The introduction of GST transformed the indirect tax system in India by integrating multiple complex taxes into a single, unified unit, making compliance and auditing easier for both taxpayers and tax authorities. The GST input tax credit (ITC) is the essence of GST, which is mainly responsible for eliminating the cascading effect of taxes on consumers and bringing efficiency and transparency to the indirect tax system of the country.

What is the GST Input Tax Credit (ITC)?

The credit system that allows businesses to claim credit for taxes paid on inputs, capital goods, or input services against the output tax payable ensures a seamless flow of credit at every stage of the supply chain, thereby reducing the burden of taxes on the end user or consumer. But certain conditions have to be met to be eligible for input tax credit. One of the conditions is that the taxpayer should be a resident of India. In other words, non-resident taxpayers are not eligible to avail input tax credit for tax paid on the procurement of any goods or services used in their business.

Related Report: Role of GST Registration in Income Tax Compliances

Non-Resident Taxable Person (NRTP)

As per Section 2(77) of GST law, a “Non-Resident Taxable Person (NRTP) means a person who occasionally undertakes business involving the supply of goods or services or both, whether as principal or agent or in any other capacity, and who does not have a fixed place of business or residence in India. A NRTP making taxable supplies must compulsorily register with GST but cannot opt for the composition scheme. He needs to make a mandatory advance deposit of tax equivalent to the estimated tax liability for the period for which the registration is sought. The registration certificate is granted only after the tax is deposited by the applicant. This deposit will be credited to his electronic cash ledger, which can be utilized for future tax payments while filing GSTR-5. He can also claim a refund for the balance deposit after clearing all his dues and furnishing all the required returns for the entire period for which the registration was taken. The refund can be applied in Form GSTR-5.

Also read: GST Registration for Non-Resident Taxable Person

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Filing GSTR-5 for Non-Resident Taxpayers

As part of the compliance process, non-resident taxpayers need to file returns in Form GSTR-5 electronically through the GST portal or through a facilitation centre notified by the authorities. The return consists of details of outward and inward supplies, tax liability, interest, late fees, and any other penalties due from the taxpayer. It is mandatory for him to pay his tax dues before filing the returns. The due date for filing the GSTR-5 returns is the 20th of the month following the particular tax period or within seven days after the last day of the validity period of registration, whichever is earlier.

Input Tax Credit

As per Section 17(5)(f), input tax credit is not available in respect of goods and services or both received by a non-resident taxpayer except on goods imported by him. The tax paid by the non-resident taxpayer is available as a credit to the respective recipients.

Thus, if the taxpayer has registered as a non-resident taxable person, ITC cannot be used on any inward supplies other than exports. But if the transactions are not occasional and the business is established in India, he will have to apply for regular registration, and then ITC as per the provisions of 17 (5)(f) can be claimed.

Reverse Charge Mechanism (RCM)

The supplier of goods and services is liable to pay GST in general. But in specified cases, like imports and other notified supplies, the liability rests on the recipient under the reverse charge mechanism. So, we can say that the reverse charge mechanism is a process in which the liability to pay the tax is on the recipient of the supply of goods or services, as if he is the person liable to pay the tax instead of the supplier, in respect of notified categories of supply. The ITC available in the credit ledger of the GST portal cannot be used to pay the liability under RCM as a service recipient. It has to be deposited in the cash ledger on the GST portal. Moreover, unlike normal registration, non-resident taxpayers are not allowed to avail input tax credit for tax paid under RCM. The aim was to curb evasion by motivating firms to register themselves under GST.

Conclusion

Taxpayers registered as non-resident taxpayers are not allowed to avail input tax credit for taxable supplies into the country except on goods imported by them. Instances of negative ITC have been observed where amendments have been made in respect of previous returns, which the taxpayer has to pay while setting off the tax liabilities in GSTR-5. They are also not allowed to avail input tax credit for the tax paid under RCM. But if the taxpayer converts the registration to normal registration instead of NRTP, then he can claim input tax credit. Knowing the provisions of input tax credit while filing GSTR-5 returns is important for non-resident taxpayers.

Frequently Asked Questions

  1. In which table in Form GSTR-5 should the taxpayer enter the details of the ITC on goods imported by him?

Answer: In Table 3, the taxpayer has to provide the details of inputs or capital goods received from outside India, along with the eligible input tax credit.

  1. When can the taxpayer claim a refund of the excess amount of deposit paid at the time of registration?

Answer: The taxpayer can claim the excess amount in the deposit paid after adjusting all the dues while filing the GSTR-5 returns.

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Vidya Sagar
Vidya Sagar has post graduate and Law graduate qualifications. She has worked in the finance industry for many years. She is passionate about writing and keen on writing articles related to tax, accounting, audit and other finance related topics. She likes to simplify complex financial matters to help her readers understand easily. She reads a lot in her spare time and keeps herself updated with the latest financial news. She likes helping people in all their financial and compliance requirements

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