As per Section 16 – Manner of taking input tax credit read with Input Tax Credit Rules – By Empowered Committee of State Finance Ministers June, 2016

1. Eligibility:

– Every registered taxable person shall be entitled to take credit of input tax admissible to him

(The said amount shall be credited to the electronic credit ledger of such person)

– He is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document

(Invoice should be issued by a supplier registered under this Act or the IGST Act)

– He has received the goods and/or services;

(It shall be deemed that the taxable person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such taxable person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise)

The tax charged in respect of such supply has been actually paid to the credit of the appropriate Government

(Tax shall be paid either in cash or through utilization of input tax credit admissible in respect of the said supply)

– He has furnished the return under section 27

(Provided that where the goods against an invoice are received in lots or installments, the registered taxable person shall be entitled to the credit upon receipt of the last lot or installment)

2. Input Tax credit on Specific Cases:

A person who became liable to get registered under the Act shall apply for registration within thirty days from the date on which he becomes liable to registration and has been granted such registration Such person is entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding

 

The date from which he becomes liable to pay tax under the provisions of this Act.
A person, who voluntarily takes registration under Section 19(3) The date of registration.
A registered taxable person ceases to pay tax under Composition Scheme (Section 8) The date from which he becomes liable to pay tax under section 7.

(i) Time Limit for Claiming Credit: Within one year from the date of issue of tax invoice relating to such supply.

(ii) Calculation of Credit: Amount of credit shall be calculated in accordance with generally accepted accounting principles (GAAP’s) as prescribed.

(iii) Other Procedures: Registered Person – who is eligible to claim Input Tax Credit shall follow the following procedure

  • File electronic declaration in Form GST ITC – 01 within 30 days regarding all the details of inputs lying in stock or inputs contained in semi-finished or finished goods lying in stock or capital goods
  • Get the declaration duly certified by a Practicing Chartered Accountant or Cost Accountant, if the aggregate value of claim on account of Central Tax, State tax and Integrated Tax exceeds 2,00,000/-.

(Details furnished shall be cross verified with those details provided by supplier in Common portal by FORM GSTR-1 or FORM GSTR- 4)

3. Apportionment of Input Tax Credit:

Ø A Registered Taxable person uses goods and/or services partly for the purpose of any business and partly for other purposes, Amount of credit shall be restricted to the input tax which is attributable to the purposes of his business. Credit shall be attributed in accordance with ITC Rule – 7 & Rule 8
Ø A Registered Taxable person uses goods and/or services partly for effecting taxable supplies and partly for effecting non-taxable supplies

(Non-Taxable supplies includes exempt supplies but excludes zero-rated supplies)

Amount of credit shall be restricted to the input tax which is attributable to the taxable supplies including zero-rated supplies.

4. Reversal of Input Tax Credit:

Ø Where any registered taxable person who has availed of input tax credit switches over to Composition Scheme (Section 8)

or

Where the goods and / or services supplied by him become exempt (Section10)

Credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock – on the day immediately preceding the date of such switch over or the date of such exemption – shall be paid by way of debit in the electronic credit or cash ledger

(After payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse)

The amount payable shall be calculated in accordance with generally accepted accounting principles (GAAP’s) as follows:

– For inputs lying in stock, and inputs contained in semi-finished and finished goods lying in stock, the input tax credit shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input.

– For capital goods lying in stock the input tax credit involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years;

– The amount shall be determined separately for input tax credit of IGST and CGST.

– In absence of valid tax invoices related to the inputs lying in stock, the registered person shall estimate the amount based on the prevailing market price of goods on the effective date of occurrence of any of the events.

5. Input tax credit in case of change in constitution of registered person:

Ø Where there is a change in the constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provision for transfer of liabilities, Transfer the unutilized input tax credit in its books of account to such sold, merged, demerged, amalgamated, leased or transferred business by the registered person

[by filing Form GST ITC-02 by the transferor (registered person) which should be accepted by transferee]

– In the case of demerger;

the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.

– A certificate from Practicing Chartered Accountant or Cost Accountant should be obtained by the transferor stating that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for transfer of liabilities.

– The inputs and capital goods so transferred shall be duly for by the transferee in his books of account.

6. Input Tax Credit in case of Capital goods:

Ø Input Tax Credit is taken during supply of capital goods Input tax credit taken on the Capital goods reduced by Percentage points

Or

tax on the transaction value of such capital goods

whichever is higher must be paid by the registered taxable person

Percentage points shall be calculated by taking 5% points per quarter of a year or part thereof from the date of invoice or such other documents on which the capital goods were received by the taxable person

7. No ITC:

In respect of the following cases, Input Tax Credit is not eligible:

a) motor vehicles except when they are supplied in the usual course of business or are used for providing the following taxable services—

(i) transportation of passengers, or

(ii) transportation of goods, or

(iii) imparting training on motor driving skills;

b) goods and / or services used primarily for personal use or consumption of any employee; Those goods / services are provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession
c) goods and/or services acquired by the principal in the 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 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 section 8 (Composition Scheme)
f) goods and/or services used for private or personal consumption

8. ITC on Tax component of Capital goods: No Input tax credit shall be available on tax component, if depreciation is claimed on tax component of the cost of capital goods by the registered taxable person as per Income Tax Act, 1961.

9. Time Limit to claim Input Tax Credit: to take input tax credit in respect of any invoice for supply of goods and/or services, shall not be entitled

After the filing of the return under Section 27 for the month of September following the end of financial year to which such invoice pertains

Or

Filing of the relevant annual return,

Whichever is earlier.

10. Documentary requirements and conditions for claiming input tax credit:

The input tax credit shall be availed by a registered person on the basis of any of the following documents containing all applicable particulars as prescribed in Invoice Rules:

(a) an invoice issued by the supplier of goods or services or both

(b) a debit note issued by a supplier

(c) a bill of entry

(d) a document issued by an Input Service Distributor

All the relevant information contained in the above mentioned document should be furnished in FORM GSTR-2 by such person.

No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been raised on account of any fraud, wilful misstatement or suppression of facts.

11. Reversal of input tax credit in case of non-payment of consideration:

  • A registered person, who has availed of input tax credit on any inward supply of goods or services or both,
  • Fails to pay to the supplier – the value of such supply along with the tax payable, within the time limit specified
  • Furnish the details of such supply and the amount of input tax credit availed after expiry of 180days from the date of invoice – in FORM GSTR-2 for the month.
  • Then the amount of input tax credit shall be added to the output tax liability of the registered person for the month in which the details are furnished
  • The registered person shall be liable to pay interest for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability is paid.

(Input Tax credit in respect of inputs sent to Job worker and manner of distribution of Credit by Input Service Distributor shall be available in the next post)

By CA K Lakshmi Janaki

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One response to “All about Input Tax Credit under GST Act & Rules – PART I”

  1. ajay says:

    you can explain more elaborate with example itc on capital goods in gst and not claim this in income tax

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