INPUT TAX CREDIT UNDER GST | WHAT IS INPUT TAX CREDIT? |
HOW TO CLAIM IT UNDER GST?

The implementation of law ie., Goods and Services Tax Act,2017 has brought about a significant updates in the system of Indirect Taxes as well as provided various benefits for the businesses. Due to the double system of taxation, there were occurrences of Tax Evasion, and in addition to that, people were suffering the ill effects of double taxation, which naturally hampered their income as well as economic growth. To do away with this complication and an obstacle to the economic growth of the Businesses, the GST Act, 2017 was introduced, and it played a significant role in achieving the aim of taking out the Double Tax Assessment (Tax on Tax), which people witnessed during the previous VAT regime.

For more information, please contact us on info@trijuris.com or call us Mb. No. 85100 58386 or 9310 717274.

What is Input Tax Credit?

The Input Tax Credit is the result of GST implementation, which removed the errors of the previous tax regime. Input here refers to ‘Goods’ and ‘Manufactured Finished Products’ and ‘Services’. Tax here refers to ‘GST’ paid, and Credit refers to a refund of the Extra tax paid on the purchase of the above-referred products. Therefore, Input Tax credit accumulates when paid input tax is more than the output Tax liability. In simple words, it can be said that ‘Input Tax Credit is a mechanism that allows a buyer of the goods and services to retrieve the amount of tax paid on output while the tax already paid on inputs will be deducted, and the balance amount shall be paid. It must be noted here that, to avail the benefits of the Input Tax Credit, the individual must register himself with the GST number.

 Example throughout which ITC can be understood-

Let’s assume X is a registered Taxpayer–

Tax payable on output (finished & final product) is INR 150

Tax paid on input (purchases) is INR 100

Now, X can claim INPUT TAX CREDIT of Rs 100, and X only needs to deposit INR 50 while setting off its outward supplies.

COMPONENTS OF GST ON WHICH INPUT TAX CREDIT CAN BE AVAILED

GST has 4 kinds of levies which are destination-based:

1. Central Goods & Services Tax; levied on intra-state or intra-UT on purchase and supply of goods and services both.

2. State Goods and Services Tax; levied on the supply of goods or services or both within the same state.

3. Union Territory Goods and Services Tax; levied on the supply of goods within the same union territory.

4. Integrated Goods & Services Tax; levied on inter-state supply of goods or services of both.

Based on the components of GST, Input Tax Credit can be availed in the following three manners:

1. Credit of CGST – Allowed 1st for payment of CGST, and therefore the balance is often utilized for the payment of IGST. The Credit of CGST isn’t allowed for payment of SGST.

2. Credit of SGST/ UTGST – Allowed 1st for payment of SGST/UTGST, and therefore the balance can be utilized for the payment of IGST. The Credit of SGST/ UTGST isn’t 

allowed for payment of CGST.

3. Credit of IGST – Allowed 1st for payment of IGST, then for payment of CGST and therefore the balance for payment of SGST/ UTGST.

CONDITIONS AND ELIGIBILITY OF CLAIMING INPUT TAX CREDIT

There are various terms that are to be fulfilled during the Input Tax credit Process in order to take advantage of it:

1. The very first condition which is to be fulfilled by an individual is that he must be a taxable person, having registered himself with the GST.

2. A Tax Invoice or a Debit Note issued by the supplier should be there to claim ITC.

3. It is availed only when the goods and services in question are purchased for business activity and not for personal use.

4. The supplier from whom goods are purchased must have paid or deposited the GST to the Government in respect of such supply.

5. It can be claimed on the export products and services, also called ‘zero-rated supplies’, which are taxable.

6. According to Section 39 of the Goods and Services tax, 2017, the applicant must have filed the GST Returns.

7. Input Tax Credit can be credited into an Electronic Credit ledger, which is maintained by the buyer/supplier of those goods and services.

8. Where the goods in question are received in installments, ITC can be claimed only after the delivery of the last lot.

9. The Input tax credit can be availed during the same financial year and not in the upcoming FY.

DOCUMENTS REQUIRED TO AVAIL ITC BENEFITS

1. A tax invoice issued by a goods/services supplier.

2. Receipt gave by you as a beneficiary of goods and services provided by an unregistered seller. Such an inventory goes under the reverse charge mechanism. This instrument includes supplies made by an unregistered individual to a registered individual.

3. A Debit note is given by your provider in the event that the tax charged in a receipt or invoice is less than the duty payable in regard to such stock.

4. A credit note or invoice issued by an input service provider as per GST rules.

5. A bill of supply of goods and services.

6. Bill of Entry or identity documents issued by the customs department in case of import of goods.

For more information, please contact us on info@trijuris.com or call us Mb. No. 85100 58386 or 9310 717274.

WHERE CAN INPUT TAX CREDIT NOT BE CLAIMED?

1. Motor vehicles and Conveyances: is not available for any vehicles having a seating capacity of 13 or less than that, with some exceptions;

• Vehicles are supplying other vehicles, Vessels, or Aircraft.

• Transportation of passengers

• Vehicle which is used for training to other individuals at a driving school or any other kind of school for flying, navigation, etc

• Transportation of goods.

2. Food, Beverage, and any kind of Club Membership (beauty, health, fitness Services, etc.)

3. General Insurance, Health insurance, Life insurance.

4. Renting Cab, Travel, etc.

5. Non-Resident Indians cannot claim ITC.

6. Restaurant etc.

7. No ITC is available in the cases of Free Samples, destroys goods, and Fraud cases.

REVERSAL OF THE INPUT TAX CREDIT 

Reversal of the Input Tax Credit means that the Credit of Inputs utilized earlier would now be added to the output tax liability, effectively nullifying the Credit claimed earlier.

The Table 4(B) of the GSTR-3B form mentions the followings circumstances when the Reversal of the Input Tax credit occurs:

1. Under rules 37(2) of GSTR-2, When the Recipient is unable to make payment to the supplier within 180 days from the issue of the invoice.

2. When the depreciation or concession has been claimed under the Income Tax Act on the GST components of the purchased input goods, there is a reversal of Input Tax Credit at the time of closing the books of accounts for that financial year.

3. Under CGST Rules 42 and 43, Where the goods or inputs purchased were taken into Personal Use, either fully or partially, and were not sold by the purchaser of those goods and services.

4. 50% of input tax credit shall be reversed by the banking and other Financial Institutions under various rules.

5. 5/6th of the input tax credit claimed on gold dore bars acquired on 1 July 2017 must be reversed.

6. Input tax credit received on the goods, which were lost, destroyed, stolen etc.

7. Working contract (For the construction of properties).

8. Purchase from composition scheme.

Recent updates related to input tax credit

May 1, 2021

The CGST Rule 36(4) confining temporary ITC claims to 5% of GSTR-2B in GSTR-3B is loose for April 2021. The taxpayer citizen can apply this standard aggregately for both April and May while GSTR-3B for May 2021.

February 1, 2021

Section 16 is changed to permit tax-paying citizens’ claim of the Input Tax Credit dependent on GSTR-2A and GSTR-2B. Consequently, the ITC or invoice receipt might have profited just when the subtleties of such invoice receipt or debit note have been given by the provider in the proclamation of outward supplies, and such subtleties have been imparted to the beneficiary of such receipt or charge note.

December 29, 2020

Central Board of Indirect Taxes and Customs (“CBIC”) introduced a new rule making it mandatory for businesses with a monthly turnover of over 50,00,00 rupees to pay at least 1% off their GST in cash.

Conclusion: 

The system of the Input Tax credit has proved to be a boon for the traders and businessmen, who themselves were the targets of the previous regime of indirect taxes. Due to double assessment or overlapping of taxes, the individuals and individuals were not paying it, and we’re finding new ways to evade the taxation system; tax evasion is a criminal activity under Chapter 22 of the Income Tax Act, 1961.

Now when the GST is introduced, and they brought this concept of Input Credit System to remove the double assessment of taxes, and it provides a return of extra tax or double tax paid during the whole cycle of business activity. Now the ill activity of the tax evasion can be checked upon, as the govt now makes sure that the GST is paid on the very first step of the business, and later if anyone else pays GST on the same products, he can claim it back from the Government.

For more information, please contact us on info@trijuris.com or call us Mb. No. 85100 58386 or 9310 717274.