Circa 2017: The Goods and Services Tax (GST) introduced in July of 2017 faced many challenges. It took 17 long years for this to be finally implemented. The implementation of the indirect tax in India (India is one of the last developing countries to implement this) ushered in a unified system under the “one nation, one tax” scheme. The GST promised to eliminate the complex tax structure that every state in India wielded to stretch every rupee they could lay their hands on.
Today, the monthly average GST collection stands at Rs. 1.4 lakh crore helping build the states and the nation. This blog discusses how to Claim Input Tax Credit for businesses and the documents required.
What is an Input tax credit (ITC)
Input Tax Credit is an integral part of the GST that ensures tax is applicable only on the incremental value addition done at each stage of the overall supply chain. The credit for taxes paid on inputs, capital goods, or input services against the output tax payable was the game changer for the government and businesses.
How to claim input tax credit for e-invoices for small businesses
The first step for claiming input tax credit for e-invoices is to ensure that you meet the eligibility criteria. To be eligible for ITC, you must:
- Be registered under GST.
- Have a valid Goods and Services Tax
- Identification Number (GSTIN).
In effect, without a proper GST registration, you cannot avail yourself of an input tax credit. The GST e-invoice input tax credit claim process is subject to specific conditions. These conditions include:
- Possession of a Valid Tax Invoice or Debit Note: To claim an input tax credit, you must have a valid tax invoice or debit note issued by a registered dealer. These documents are critical as they contain detailed information about the goods or services you have purchased.
- Receipt of Goods or Services: It is not sufficient to possess a tax invoice; you must receive the goods or services mentioned in the invoice. This condition ensures one claims credit for items physically received and used for your business.
- Filing of Returns: To maintain compliance and be eligible for input tax credit, you must file your GST returns regularly and accurately. One can file GST Returns on a monthly or quarterly basis.
- Tax Payment by the Supplier: The tax charged on your purchases must be deposited or paid to the government by your supplier. This indicates that the tax is remitted to the authorities. In certain instances, the supplier does not remit the money to the Government, leading to litigations.
- Also, one must remember the vendors or suppliers are to be paid within 180 days. However, if a supplier fails to supply goods within 180 days from the invoice date, the output tax liability will be added with ITC already claimed by the receiver. The interest required to be paid on such a tax will be included, and once the supplier receives the payment, the ITC will be eligible for claims.
- Submission of Furnished Return.
- The supplier has delivered goods to another person after furnishing documents of transfer of goods by a registered person.
- Availing of ITC only after the last installment is received if goods received are in installments.
- If depreciation has not been claimed on the tax component of capital goods
- Claims can be made either on the due date of GST return filing for the next financial year i.e., September, or the date when annual returns for the current financial year are filed, whichever is earlier.
- In the case of debit notes, the same condition applies subject to the original date of invoice.
What is the Time Limit for Claiming ITC:
When to claim input tax credit for e-invoices is important for a specific invoice or debit note. One can claim ITC before 30th November of the next financial year or the date of filing annual returns in form GSTR-9 for that financial year.
GSTR-2B is an auto-drafted monthly input tax credit statement. This statement provides detailed insights into available ITC for the taxpayer. Reconciliation of purchases with GSTR-2B ensures accuracy and compliance, facilitating error-free credit claims.
Restrictions on ITC Claims:
Certain restrictions apply to what you can claim as input tax credit:
- You cannot claim the input tax credit for goods and services used for personal consumption. ITC is intended ONLY for business-related expenses.
- The input tax credit cannot be claimed for goods and services used for exempt supplies, which are supplies not subject to GST. In effect, it means, not every invoice can be claimed.
- There are also restrictions on claiming GST for conveyance and motor vehicles, except:
- Transporting goods or passengers
- Training purposes
- Delivery of services or goods in the same category or composite supply
- Sale of club and fitness center membership
- Renting of cabs
- Claiming of Life/health insurance. Exceptions are when it is made obligatory by the government for employers to provide employees
- Employee travel benefits are applicable for leave, home travel concession, etc.
- Service of works contract to construct immovable property except for further supply of service under works contract
- Supplying plant and machinery items
- To construct in an immovable property for personal or business use
- Goods and services for personal use
- Any good or service received by a non-resident taxpayer apart from imports
- Goods lost, stolen, written off, destroyed, or gifted under free samples
- Frauds like an excessive refund on ITC availed, purposefully led wrong statements, suppression of facts, and goods confiscated or seized.
What are the requirements for claiming input tax credit for e-invoices
After the introduction of e-invoicing, compliance with e-invoicing standards is essential. E-invoicing is now mandatory for businesses with an annual turnover exceeding INR 50 crores from April 1, 2021.
For any GST e-invoice input tax credit claim requirements you must ensure that your e-invoices comply with the following:
- The e-invoice should be generated on the official GST portal only.
- The e-invoice should contain all the mandatory fields. Accurate information is to be provided as prescribed by the Goods and Services Tax Network (GSTN).
- The e-invoice should be authenticated using a digital signature or QR code. This ensures the authenticity and integrity of the invoice, which is essential for smooth processing and validation.
The documents required for claiming input tax credit for e-invoices are:
- E-invoice issued by the supplier.
- ITC must reflect in the GSTR-2B of the recipient or buyer.
- The supplier’s debit note to the recipient in case of taxable value or tax payable mentioned in the invoice is less than the taxable value or tax payable.
- Bill of entry
- An invoice issued under certain circumstances like the bill of supply issued instead of a tax invoice if the amount is less than Rs 200 or in situations where the reverse charge is applicable.
- An invoice or credit note issued by the Input Service Distributor (ISD).
- Every document mentioned is to be furnished at the time of filing the GSTR-2 form.
Timely Filing of Returns:
Regular and accurate filing of GST returns is a prerequisite for claiming ITC. Timely submission of returns demonstrates your commitment to compliance and ensures you maintain a clear record of your transactions, which is necessary when claiming ITC.
How to claim input tax credit for e-invoices for exporters
To claim an Input Tax Credit (ITC) for e-invoices for exporters, you should first pay IGST and then claim a refund after the goods are exported. The said exporter can avail of Input Tax Credit (ITC) claim requirements for e-invoices provided there is a tax invoice or debit note issued by a registered dealer, the exporter has received the goods or services, and the tax charged on the exporter’s purchases has been deposited or paid to the government by the supplier in cash or via claiming input credit.
To apply for a refund:
- The shipping bill filed would also qualify as an application for a refund.
- The applicant is to produce valid GST returns in form GSTR 3/3B & GSTR.
- The details as filed in the GST returns require the Customs to generate a confirmation that the goods covered by the said invoices have been exported out of India.
- Upon receipt of information, Customs processes the claim for a refund. An amount equal to the integrated tax paid in respect of each shipping bill/bill of export is credited to the applicant.
- Export of goods or/and services under bond or Letter of Undertaking (LUT): Under this, you can claim a refund of unutilized input credit for which, you would be required to furnish a bond or a Letter of Undertaking in FORM GST RFD-11 Bond and LUT Format to the jurisdictional Commissioner before making the export.
To summarize, for input tax credit claim requirements for e-invoices for small businesses one should confirm eligibility, possess valid documents, verify the supplier’s tax payment, accurately record transactions, reconcile with GSTR-2B, ensure e-invoicing compliance, and file timely returns.
This systematic approach empowers businesses to offset their tax liability, comply with tax regulations, maintain transparency, and mitigate tax evasion risks. By diligently following these guidelines, businesses can optimize their tax liabilities and make a positive contribution to India’s evolving tax ecosystem.
Frequently Asked Questions
Why is the introduction of GST and the concept of ITC significant
The introduction of GST in India under the “one nation, one tax” scheme was to eliminate the complex tax structure and create a unified system. ITC is a critical component that benefits both the government and businesses by ensuring that tax is applicable only on value addition at each stage of the supply chain, fostering transparency, and simplifying the tax collection process.
What is Input Tax Credit (ITC) under GST Law
Input Tax Credit (ITC) is a part of the Indian GST system that allows businesses to claim a credit for taxes paid on inputs, capital goods, or input services against the output tax payable. It ensures that tax is applicable only on the incremental value addition at each stage of the supply chain.
What are the eligibility criteria for claiming ITC for e-invoices
To be eligible for ITC for e-invoices, you must be a registered taxpayer under the GST regime and possess a valid Goods and Services Tax Identification Number (GSTIN). Proper GST registration is a prerequisite to avail yourself of an input tax credit.
What are the specific conditions that must be fulfilled to claim ITC for GST in India?
To claim ITC, one must have a valid tax invoice or debit note, receive the goods or services mentioned in the invoice, regularly file GST returns, and ensure the supplier has paid the tax on your purchases.
What is the time limit for claiming ITC in India, and how is it determined
The time limit for claiming ITC is determined by the earlier of two dates: 30th of November of the next financial year or the date of filing annual returns in form GSTR-9 for that financial year. Claiming the credit within this time frame is essential to avoid complications or loss of credit.
What is GSTR-2B Reconciliation, and why is it important for claiming ITC
GSTR-2B is an auto-drafted monthly input tax credit statement that provides insights into available ITC for taxpayers. Reconciliation of purchases with GSTR-2B ensures accuracy and compliance, which is crucial for error-free credit claims.
Are there any restrictions on what can be claimed as input tax credit
Yes, there are restrictions on claiming ITC in India. You cannot claim ITC for goods and services used for personal consumption or exempt supplies not subject to GST. Categories, like conveyance and motor vehicles, have specific conditions for claiming ITC.
What are the e-invoicing requirements for claiming ITC
E-invoicing is mandatory for businesses with an annual turnover exceeding INR 50 crores. To claim ITC for e-invoices, you must ensure that your e-invoices generated on the GST portal contain mandatory fields with accurate information and authenticate using a digital signature or QR code.
How important is the timely filing of GST returns when claiming ITC
Timely filing of GST returns is crucial for claiming ITC in India. It demonstrates your commitment to compliance and ensures accurate transaction records, which are necessary when claiming ITC.
How does the systematic approach to ITC in India benefit businesses
The systematic approach, which includes confirming eligibility, possessing valid documents, verifying supplier tax payments, reconciling with GSTR-2B, ensuring e-invoicing compliance, and filing timely returns, empowers businesses to offset their tax liability while remaining compliant with tax regulations, reducing tax evasion risks.