Vineet Chopra, (FCS, ACMA, LLM)

Input Tax Credit (ITC) mechanism is one of the crucial aspect under Indirect Taxation which facilitates utilisation of tax suffered in previous leg across the supply chain, thus, eliminating the tax on tax effect. The Model GST law provides a comprehensive and continuous chain of ‘set-off’ benefits from the producer’s point and the service provider’s point upto retailer’s level.

1. Key terms

‘Input’ means any goods other than capital goods, subject to prescribed exceptions, used or intended to be used bya supplier for making an outward supply in the course or furtherance of business.

‘Input Service’ means any service, subject to prescribed exceptions used or intended to be used by a supplierfor making an outward supply in the course or furtherance of business;

Input tax’ in relation to a taxable person, means the {IGST and CGST}/{IGSTand SGST} charged on supply of goods and/or services to him which are used or intended to be used in the course or furtherance of his business and includes the taxpayable on reverse charge basis.

‘Electronic cash ledger’ means the cash ledger in electronic form maintained at the common portal for each registered taxable person in the prescribed manner.

‘Electronic credit ledger’ means the Input Tax Credit ledger in electronic form maintained at the common portal for each registered taxable person in the prescribed manner.

‘Input tax credit’ means the credit of Input tax.

2. Conditions for taking ITC: Every registered taxable person is entitled within prescribed time and manner to take admissible credit of Input Tax.

Conditions prescribed in this regard.

a. A person must be registered as a Taxable Person

b. Use of Goods are Services for the purpose of business.

c. Credit shall be admissible only for effecting taxable supplies and zero rated supplies (exports)

d. In case of change in constitution of registered taxable person on account of sale, merger or transfer of business with specific provision of transfer of liabilities, transfer of unutilised ITC will be allowed in a prescribed manner.

e. Credit can be taken as self-assessed in Return and the same shall be credited on provisional basis to the Electronic Credit Ledger (ECL) of taxable person. Credit shall not be allowed to be utilized where a valid Return has not been furnished by a taxable person.

f. ITC must be backed by supporting taxpaying documents like tax invoice, debit note, supplementary invoice or other prescribed document issued by supplier;

g. The goods or services have actually received.

h. The Input tax has been actually paid either through electronic cash ledger or credit ledger

i. The taxable person has furnished the Return under section 27;

j. Where the goods are received in lots ITC will be allowed upon receipt of the last lot.

3. ITC not available under section 16 (9) in respect of:-

a. motor vehicle, (except in case the same is used for providing taxable services like transportation of passengers, goods, imparting training of motor driving skills)

b. goods and services used for primarily for personal use or consumption of employees like beauty treatment, health services, life insurance, etc.

c. goods and/or services acquired by principal in execution of works contract when such contract results in construction of immovable property, other than plant and machinery;

d. goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;

e. goods and/or services on which tax has been paid under composition levy scheme; and

f. ITC shall not be allowed on the tax component of depreciation of capital goods claimed.

4. Time Limits, section 16

Every registered taxable person shall be entitled within prescribed time and manner to take admissible credit of Input Tax (ITC) in various cases as under:-.

For the Credit of Input tax in respect of inputs held in stock and inputs contained in semi-finished (SFG) or finished goods (FG) held in stock various person shall be entitled to take credit as under:

Case day of entitlement to take ITC on inputs on stock, on SFG or FG held on the day immediately preceding the date :
1 A person who becomes liable to registration, applied and granted registration from which he becomes liable to pay tax
2 A person who voluntarily takes registration though not liable of registration
3 A registered taxable person ceases to pay tax under composition levy scheme from which he becomes liable  to tax normally (under section 7)

Aforesaid credit cannot be taken after expiry of one year from the date of issue of tax invoice relating to supply.

In other cases ITC cannot be taken in respect of any invoice after the filing of valid return under section 27 for the month of September following the end of the financial year to which such invoice pertains or filing of the annual return, whichever is earlier.As per section 30 last date for filing of annual return is 31st December following the end of the financial year.

5. Utilisation of ITC

a. ITC on account of CGST to be utilised first towards payment of CGST and amount remaining towards payment of IGST. (ITC of CGST cannot be utilised for payment of SGST)

b. ITC on account of SGST to be utilised first towards payment of SGST and amount remaining towards payment of IGST. (ITC of SGST cannot be utilised for payment of CGST)

c. IGST to be utilised first towards payment of IGST and amount remaining towards payment of CGST and then in payment of SGST.

6. ITC in respect of Inputs sent for job work

Subject to prescribed conditions, the registered taxable person (principal) shall be entitled to ITC on inputs sent to a job-worker if the said inputs are received back by him within one hundred and eighty days. For capital goods this time limit is two years

Where the inputs or capital goods are not received back within the specified time, the taxable person shall pay an amount equivalent to the ITC availed along with interest.However, it may be reclaimed when the inputs or capital goods are received back place of business.

7. Reversal /Lapse of ITC

Registered taxable person who has availed ITC shall reverse it, by way of debit in the electronic credit or cash ledger if the said person

  • Switches over as a taxable person under section 8 i.e. Composition levy or,
  • where the goods and / orservices supplied by him becomes exempt under section 10.

Reversal shall be equivalent to the creditof input tax in respect of inputs held in stock and inputs contained in semi-finished orfinished goods held in stock on the day immediately preceding the date of such switchover or, as the case may be, the date of such exemption. After payment of such amount, the balance of ITC, if any, lyingin his electronic credit ledger shall lapse.

8. ITC on Supply of Capital Goods

In case of supply of capital goods on which ITC has been taken, the registered taxable person shall pay an amount equal to the ITC taken on the said capital goods reduced by the prescribed percentage points orthe tax on the transaction value of such capital goods, whichever is higher.

Amount of credit to be calculated in accordance with generally accepted accounting principles.

9. Monitoring through matching mechanism

A matching system is provided to check accuracy of claims of ITC and therefore,details of every inward supply furnished by the ‘recipient’ for a tax period shall be matched with the corresponding details of outward supply furnished by the corresponding‘supplier’ in his valid Returnfor the same tax period or any preceding tax period. Also, it shall be matched with the additional duty of customs paid under section 3 of the Customs TariffAct, 1975 in respect of goods imported by him, and

In case of no discrepancy it is finally accepted and communicated to recipient. Where discrepancy is found or where excess ITC claimed by a recipient as compared to what is declared by the supplier or if not declared by the supplier in his Returns, it will be communicated to both.

In case of duplication of claims of ITC shall be communicated to the recipient and if it any discrepancy is communicated but not rectified by the supplier in his Return for the month in which discrepancy is communicated, it shall be added to the output tax liability of the recipient, in his return for the month succeeding the month in which the same is communicated.

The amount of excess claim on account of duplication of claims, it is to be added to the output tax liability of the recipient in hisreturn for the month in which the duplication is communicated.

If the supplier declares the details of invoice and/ordebit note in his valid Return within the specified time, the recipient shall be eligible to reduce, from his output tax liability, the amountrectified.A recipient in whose output tax liability any amount has been added due to discrepancy or excess claim, he shall be liable to pay interestat specified rate.

10. MIGRATION – Cenvat Credit / VAT credit carried forward.

The amount of admissible Cenvat credit / VAT carried forward in a Return furnished under the earlier law in respect of the period ending with the day immediately preceding the appointed day shall be allowed to be taken as ITC. Un-availed admissible Cenvat credit on capital goods, not carried forward in a Return, which a registered taxable person is entitled shall also be allowed to be taken as ITC.

Criteria to become GST Practitioner

(Author is  Practicing Cost Accountant from  Indore and can be reached at Mb: 08720-021-021, email: vineet.chopra01@gmail.com)

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5 responses to “Input Tax Credit under Model GST Law-10 Key things to know”

  1. Raghunath Gadre says:

    Can you throw some light on
    1. Credit on Material in Transit during end of month
    2. Credit of Duty paid under protest.
    3. Edu Cess & HED cess balance laying as on 31 March 2015

  2. Raghunath Gadre says:

    Informative text !

  3. Ajay Shirke says:

    Dear Sreenath,
    As per transitional provision, Cenvat credit / ITC in respect of VAT shall be allowed to carry forward as an ITC for the day immediately preceding the appointed day. You not need to pay GST on stock lying as on 31st March but if clear the good after 01.04 you have to clear with payment of GST because on these stock ITC already taken as per transitional provision.

  4. Sreenath Munshi says:

    One of the major concern is the transitional issues:
    a. GST payable on Stock as on 31st March – Do the Dealers need to pay GST on closing stock ?
    b. Whether input tax credit available for GST paid on closing stock
    An article would be most welcome with legal views and Govt stand.

    • Vineet Chopra says:

      No, GST will not be payable on stock held as on 31st March, because, it will be effective after 31st March.

      Credit of admissible Input taxes paid and declared under Returns under current law will be carried forward.

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