INPUT TAX CREDIT UNDER GST

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Published Date:  06-12-2023   Author:   shruti-apte
input tax credit under gst

Input Credit means at the time of paying tax you can reduce the tax you have already paid on inputs. 

ITC is one of the most important features of the goods and service tax (GST) regime. ITC has been introduced to eliminate the cascading effect of taxes to be paid to the central government and that levied by the state government. This has helped reduce the cost of doing business.

If you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned, registered under GST you are eligible to claim INPUT CREDIT for tax paid by you on your purchases.

What is input tax credit (ITC)?

–Input tax credit concept was introduced to levy tax on value addition only.

–It can be taken on GST incurred  for input supply which can be used to make supply of payments of tax liability on output supply.

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–to reduce the cascading effect of taxes.

Input tax credit (ITC) is the amount of tax that a business can deduct from its output tax liability. Output tax is the tax that a business charges on its sales or supplies of goods and services. Input tax is the tax that a business pays on its purchases or inputs of goods and services. In short, input tax credit can be used to set-off the GST liability on the supply of goods or services by the registered person.

There are four type of taxes which can be claimed under ITC: 

  1. Integrated GST (IGST) : This tax is for inter state movement of goods 
  2. Central GST(CGST): Is a tax levied on intra state supplies of both goods and services by the central Government and collected by it for its coffers.
  3. State GST (SGST) / Union Territory GST (UTGST): this tax is for intra state movement of goods.
  4. GST compensation Cess: this tax is for notified goods.

Who is eligible for ITC under GST?

  • Every registered person is entitled to take the credit of tax paid on input 
  • Credit is allowed for input supply which are used or intended to be used in the course or furtherance of his business
  • As per the SGST and CGST Act, a taxable person who is registered as per the GST Act and is paying the tax due is eligible to claim ITC. 

Who can claim ITC  ? 

ITC can be claimed by a person registered under GST only if he fulfills all the conditions as prescribed. Some input tax credits are specifically blocked/restricted by the GST law.

  1. Registration: One must be registered under GST and have valid GSTIN 
  2. Possession tax invoice: The dealer possesses the tax invoice, debit note or other tax paying documents.
  3. Receipt of goods or services or both: He has received goods and services or both. Goods/services must not be used for personal consumption/exempted supplies.

–It includes goods received by the agent or third person under his direction before or during movement of goods I.e. if the goods are sold in transit.

  1. Furnishing of returns : GST Returns have been filed & reported the details of purchases & sales. 
  2. Payment of tax: The tax charged has been paid or must be paid to the government by the supplier within 180 days of the invoice.( Section 16(2)(c )-applicable from 1st July 2017.
  3. Lot based eligibility: When goods are received in installments ITC can be claimed only when the last lot is received.
  4. No ITC will be allowed if depreciation has been claimed on tax component of a capital good

–The business must not claim ITC on goods or services that are blocked from ITC under GST law. Some examples of such goods or services are motor vehicles, food and beverages, outdoor catering, beauty services, health services, etc.

Therefore, to allow you to claim input credit on purchases  all your suppliers must be GST compliant as well. 

Credit of input tax can be availed till the last date of filing annual return or actual date of filing annual return whichever is earlier.

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How to claim input tax credit under GST? 

 You can claim credit only if the supplier has deposited tax which was collected from you during the transaction. Thus, the validation process is mandatory before you claim ITC. Suppliers should also be GST compliant. You can claim a refund when the tax on sale is lesser than the tax on purchase.

The following table can give picture of the GST return structure: 

Annual turnover  Return type 
Less than 5 Crores 
  1. Regular quarterly return 
  2. GSTR Sugam return 
  3. GSTR Sahaj return
More than 5 Crores Regular monthly return


Suppliers can continuously upload invoices anytime during the month, the same shall be visible to the recipient any time.

Invoices uploaded will be auto-populated in annexure for inward supplies of the recipient on a real time basis, and the same can be viewed by the recipient in the “ viewing facility” on the portal. Any action against the invoice can be taken after 10th of the next week under “viewing facility”

Once the recipient has accepted the invoices, no changes can be effected thereafter.

There cannot be automatic reversal of ITC if the invoice is uploaded but the tax as not been paid by the supplier.In such cases, the recovery shall be first made from supplier 

To claim input tax credit under GST a person must:

  1. Check the eligibility 
  2. Ensure that the supplier has filed a tax invoice or debit note in form GSTR-1 (www.gst.gov.in) and it appears in the person’s form GSTR-2B.
  3. File the return before the due date or before filing the annual return, whichever is earlier.

Post the above points are satisfied, you need to follow below steps for claiming the input tax credit: 

  1. Login to the GST portal with login credentials, enter details  and access ITC form.
  2. Select Prepare online to provide statements through the portal, select claim type, enter suppliers GSTIN , invoice details and other details. 
  3. Post filing in the details click on save, then submit and then proceed.

Common ITC mistakes and how to avoid them.

In general, the errors in ITC can be classified:

  • lack of understanding of what is eligible and not eligible,
  • mistakes in reversal of proportionate credit,
  • delay in credit availment,
  • documentation/ recording issues and others
  • suppliers have failed to furnish the correct details of outward supplies in their FORM GSTR-1

What are the conditions for claiming ITC?

  1. Taxpayer has an evidence documenting tax payment like tax invoice or debit note
  2. Receipt of goods and services 
  3. Furnished returns 
  4. Supplier has delivered goods to another person after being asked to do so by a registered person through a document indicating transfer  in title of goods 

ITC claim shall not be available in respect of the following: 

  • Motor vehicle and other conveyances, except if it is used for 
    • Further supply
    • Transport of passengers, transportation of goods
    • Imparting training on how to drive, navigate and fly them.
  • Supply of following goods or services or both: 
    • Membership of club/health and fitness center
    • Travel benefits to employees
    • Foods, beverages, beauty treatment, cosmetic surgery, health services, outdoor catering.
    • Rent a cab, life insurance and health insurance (unless govt. Makes it mandatory to provide such facilities to the employees)
  • Supplies used for personal consumption
  • Goods lost/stolen/destroyed/written off or disposed of by way of gift/free samples.
  • Supply where tax is levied under consumption scheme 
  • Works contract services for construction of immovable property other than plant and machinery.

Person who would like to take credit of input tax lying in stock or contained in finished goods or semi finished goods at the time of registration —

  • He should apply within 30 days from the date he becomes liable to take registration and the credit on such inputs held on the day immediately preceding the date from which he becomes liable to pay tax
  • In case of voluntary registration then the credit of such inputs held in stock immediately preceding the date of registration 

If a registered person ceases pay tax under composition scheme or his exempt supply becomes taxable supply–

  • He can take credit tax paid on such inputs held in stock on the day immediately preceding the date from which he becomes liable to pay tax 
  • If capital goods are supplied on which credit was taken-person shall pay an amount equal to such credit reduced by percentage points or transaction value of such supply whichever is higher. (A person has the option in case of supply of refractory bricks, mould and dies, jigs and fixtures.
  • He can take credit for tax paid on capital goods exclusively used for such goods and services.
    • Provided that credit shall be reduced such percentage points prescribed in rules.
    • Input tax credit can be taken within 1 year from the date of issue of tax invoice with respect to special cases discussed above.
    • Unutilised credit can be transferred in case of sale/amalgamation/ merger/ demerger/ lease/ transfer of the entity where there are special provisions for transfer of liability.
    • If person opt for composition scheme or supply becomes exempt-
      • Amount equal to the credit of input held in stock or credit on capital goods reduced by the percentage point shall be debited either in the e-cash ledger or e-credit ledger.
      • Balance credit will lapse.

What happens if you don’t meet the conditions?

In cases where there is difference in amount mentioned in GSTR-1, GSTR-2A & GSTR-3B, the difference in ITC  claimed by the registered person in form GSTR-3B and that available in GSTR-2A may be handled by following —

  1. The person should provide all the invoices on which ITC has been availed 
  2. Provide a debit note issued by the supplier or such other tax paying documents.
  3. Provide proof that he has received goods and services or both 
  4. Provide proof of payment being made towards the value of supply, along with tx payable thereon to the supplier.
  5. If the difference value is within INR 5 lakh: claimant should produce a certificate that supplies have been made by them to the registered person and the tax on said supplies has been paid by the supplier in his return in form GSTR-3B
  6. If the difference value exceeds INR 5 lakh: they shall produce a certificate from CA or CMA certifying the supplies in respect of the invoices of supplier have been made by the supplier to the registered person & the tax on such supplies has been paid by the supplier in his return from GSTR-3B. The certificate to be produced by CA/CMA should possess UDIN no. Same shall be verified by the government official.

If the supplier has filed form GSTR-1 as well as return in form GSTR-3B for a tax period, but he has declared the supplier with wrong GSTIN of the recipient: the official of the recipient shall intimate the concerned tax authority, whose GSTIN  has been wrongly mentioned,that ITC on those mentioned transaction should be disallowed, if claimed in form GSTR-3B. This action shall be in addition to the above stated points.

FAQs

  • If I buy raw material from a supplier unregistered in GST, do I have to pay GST in RCM and can I avail ITC of the same?

Yes, you have to pay GST via RCM. You can avail ITC of the GST so paid if you are otherwise eligible.

  • What is the time limit for taking input tax credit by a registered taxable person?

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

  • An assessee obtains new registration, voluntary registration, change of scheme from composition to regular scheme and from exempted goods/ services to taxable goods/services. It can avail credit on inputs lying in stock. What is the time limit for taking said credit?

One year from the date of invoice.

  • Eligibility of credit on capital goods in case of change of scheme from composition scheme to Regular Scheme. ?

Eligible Immediately before the date from which he becomes liable to pay tax under the Regular Scheme. 

  • Eligibility of credit on capital goods in case of change of scheme from composition scheme to Regular Scheme. ?

  • What is the maximum time limit for availing ITC ? 

Earliest of filing of Annual return or Due date of filing return u/s 39 for the month of September.

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