Article explains Conditions necessary for obtaining ITC under GST, Allowability of Depreciation on the GST tax component of capital goods and Time limit for taking ITC under GST.

Input Tax Credit (ITC) is one of the core concepts of  the Goods and Services Tax. “Input Tax” in relation to a taxable person under the GST Laws , means the Goods and Services Tax charged on any supply of goods and/or services to him which are used or are intended to be used, during furtherance of his business (eg. A car company buying types to manufacture a car). Under this mechanism of Input Tax Credit, a manufacturer who pays the tax on his output, can deduct the tax he previously paid on the input he purchased. It is used in GST to avoid cascading (tax-on-tax) effect of taxes, which was highly prevailing in the previous regime by ensuring that that the tax is collected in the state in which the goods/services or both are consumed. The person who claims to have the eligibility of input tax credit had the burden prove his eligibility. The Implication of the ITC at various stages will be taxed, only in value-additions. Thereby effectively rules out cost cascading effect of taxation. Thus, the input tax credit (ITC) is the backbone of the GST regime and is one of the core concepts of the GST framework.

Conditions necessary for obtaining ITC under GST

As per the section 16(2) of the Central Goods and Services Tax Act, in order to obtain Input Tax Credit in respect to the supply of any goods and services, a registered taxable person must satisfy the following conditions:

  • He is in possession of a tax invoice or debt note issued by a supplier registered under the GST Act or other taxpaying documents as may be prescribed.
  • He has received the goods and services or both,
  • subject to section 41 of the CGST Act, the tax charged in respect to such a supply has actually been paid to the credit of the appropriate government; and
  • He has to furnish the return every month under section 39 of the CGST Act.
  • However, No ITC will be allowed if depreciation has been claimed on tax component of a capital good

Depreciation on the GST tax component of capital goods

As per the provisions of section 2 (19) of the CGST Act, the term “capital goods” refer to goods, which are used or intended to be used in the course or furtherance of business (eg. tyres are the capital goods in a car company). Assuming that the value of capital goods was not capitalized in the books of account, The person purchasing the capital goods would still be eligible to claim input tax credit on capital goods, even if their value is not capitalized in the books of accounts, since the definition of ‘input tax’ applies to goods as a whole (including capital goods). However as per the provisions of section 16(3),  the input tax credit on the said tax component shall not be allowed if the registered person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income-tax Act of 1961; since dual benefits cannot be awarded to the taxpayer under both the GST Laws and the Income Tax Act simultaneous, the benefit may only be claimed under one of the laws.

Time limit for taking ITC under GST

As per the provisions of Section 16(4) of the CGST Act,  the maximum time period within which an ITC pertaining to an invoice can be claimed is up to the due date of furnishing of return under section 39 of the CGST Act for the month of September, of the next financial year to which such invoice relates. Therefore, the due date for filing the return for the month of September, is 20th October of the next financial year which is the last date up to which ITC. The ITC may also be filed at the Actual date filing of annual return, whichever is earlier.

Therefore, the underlying reasoning for this time limit is to restrict any changes in returns after September of next financial year. If annual return is filed before the month of September, then no change can be made after filing of annual return. This time limit under section 16(4) however, does not apply to the claims for re-availing of credit that had been reversed before.

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