Eligibility & Conditions for taking ITC under GST Regime

‘Input Tax’ in relation to a taxable person, means the Goods and Services Tax charged on any inward supplies of goods/services which are used or intended to be used, during or in furtherance of business.

Fulfilment of Input Tax Credit under GST and conditions to claim is one of the most critical activities for every business to settle its tax liability. Input Tax Credit (ITC) is the backbone of GST regime as due to:-

• These provisions of Input Tax Credit makes GST a value-added tax i.e., collection of tax all points after allowing credits for the inputs.
• ITC has been defined as a credit of IGST/CGST/SGST charged on any supply of goods and or services used or intended to be used in the course or furtherance of business and include tax payable under reverse charge.

IMPORTANT DEFINITIONS:-

Sec 2(59) Input: Means any goods used other than capital goods used or intended to be used by a supplier in course of furtherance of business.

Sec 2(60) Input Services: Means any services used or intended to be used by a supplier in the course or furtherance of business.

Sec 2(19) Capital Goods: Means goods, the value of which is capitalised in the books of accounts of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

Sec 2(46) Electronic Credit Ledger: Means the electronic credit ledger as referred in Sec 49(2) i.e. the input tax credit as self-assessed in the return of registered person shall be credited to electronic credit ledger in accordance with Sec 41, to be maintained in the manner as may be prescribed.

Sec 16 : ELIGIBILITY & CONDITIONS & TIME LIMIT

Sec 16(1) Eligibility Criteria:-

• Persons should be registered person to take ITC.
• Goods or Services are used/intended to be used in the course or furtherance of business.
• The amount should have Credited to Electronic Ledger of such person.

Sec 16(2)  Conditions for Availment of ITC:-

Notwithstanding anything contained in the section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless.

1. Tax Invoice/Debit Note or other Tax paying documents is in possession.

2. Should have received goods or services or both.

Exception: Bill to Ship to Model

• If goods are supplied on the direction of the third person then goods are deemed to be received by the third person when supplied by the supplier to the recipient.
• Where the Services are provided by the supplier to any person on the direction of and on account of such registered person.

3. The tax Charged in respect of such supply has been actually paid to the Government.

4. Should have furnished the periodical returns.

ITC IF GOODS ARE RECEIVED IN LOTS(PROVISO TO SEC 16)

Where the goods are against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment.

PAYMENT FOR THE INVOICE TO BE MADE WITHIN 180 DAYS (PROVISO TO SEC 16)

• Default: Failure by Recipient to pay to the supplier the within 180 Days from invoice date.
• Consequences: Amount equal to the ITC availed by the recipient + Interest@ 18% P.A. shall be added to the output tax liability.
• Details to be Furnished: Details of defaulted supply, value not paid, ITC availed to be mentioned in FORM GSTR-2 for the month of immediately after the expiry of 180 days from the invoice date.
• Regain of Credit: Regain when payments are made(below time limit not applicable for regaining of ITC.
• Non-Applicability: This provision is not applicable
  • Tax Payable under RCM
  • Deemed Supply without Consideration(Schedule-I)
  • Value of Supply on account as per Sec 15(2)(b)

SEC 16(3) NO ITC IF DEPRECIATION IS CLAIMED ON TAX COMPONENT OF CAPITAL GOODS:

Where the registered person has claimed depreciation on the tax component of the Cost of Capital goods and plant and machinery under the provisions of the INCOME TAX ACT,1961, the input tax credit on the said tax component shall not be allowed.

SEC 16(4) TIME LIMIT TO AVAIL ITC:

NO ITC for any invoice or debit note (pertaining to Invoice in F.Y.) for the supply of goods or services or both after-

• The due date of furnishing of the return for the month of September following the end of the F.Y. to which invoice/debit note pertains or
• The Date of Furnishing of the Relevant Annual Return,

WHICHEVER IS EARLIER.

RULE 36 OF THE CGST RULES:

RULE 36(1) DOCUMENTS REQUIRED FOR CLAIMING ITC:

1. An invoice issued by the supplier of goods or services or both.

2. An invoice issued by the recipient (receiving goods and/or services from unregistered supplier) along with proof of payment of tax (in case of reverse charge)

3. A debit note issued by the supplier.

4. A Bill of Entry or any similar documents prescribed under the Customs Act, 1962 for the assessment of integrated tax on imports;

5. Revised Invoice

6. Documents issued by Input Service Distributor.

RULE 36(2) NECESSARY PARTICULARS THAT ARE REQUIRED TO BE INCLUDED IN DOCUMENTS FOR CLAIMING ITC:-

1. Details of the amount of TAX Charged.

2. Descriptions of Goods or Services

3. The total value of the supply of goods or services or both

4. GSTIN of Supplier and Recipient and Place of Supply(In case of Inter-State Supply).

5. Input Tax Credit may be availed by such Registered person.

RULE 36(3)&(4) RESTRICTION FOR CLAIMING  ITC:

(3)No input tax credit shall be availed in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud willful misstatement or suppression of facts.

(4)With effect from 01.10.2019, rule 36(4) has been introduced in rule specify the quantum of ITC that can be claimed against the invoices/debit notes uploaded and invoices/debit not uploaded, by the supplier.

As per this Sub-Rule, the ITC to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers in GSTR-1, can not exceed 20% of the eligible credit available in respect of invoices or debit note the details of which have been uploaded by the suppliers in GSTR-1.

This Limit of 20% has been further reduced to 10% w.e.f  01.01.2020 by the govt. vide Notification No. 75/2019-Central Tax dated 26th December 2019.

In view of Covid-19 Outbreak rule 36(4) will not apply while filling of returns for the period February to August 2020 and will be applicable on a cumulative basis for these months while filing of return of September 2020. (Notification No. 30/2020-CT dated 03-04-2020).