In GST Input Tax Credit means the tax which the supplier paid at the time of sale, they had reduce the tax they already paid.

Input Tax Credit

Input tax credit is the mechanism in which the supplier paid the tax on purchasing the raw material, packaging material etc and paid tax on it. The input of purchasing is to be credited while calculating output tax at the time of sale. Input Tax credit is the backbone of GST & is one of the most important reasons for the introduction of GST.

GST is an integrated tax system where every purchase by a business should be matched with a sale by another business. This makes flow of credit across an entire supply chain a seamless process.

Conditions of Claiming Input Tax Credit

A Business can claim ITC only when the following conditions are fulfilled:

  • It has a GST-compliant invoice
  • Its supplier has uploaded the invoice to the GSTN
  • Its supplier has paid GST to the government
  • Returns have been filed

A Business who opt for composition scheme or if a person purchase the goods for personal use, in both the cases, ITC cannot be claimed.

 Input Tax Credit of CGST/SGST/UTGST/IGST

GST comprises of the following levies:

  1. CGST (also known as central tax) which is levied on intra-state or intra union territory on supply of goods & services or both.
  2. SGST (also known as state tax) which is levied on supply of goods & services or both within the same state.
  3. UTGST (also known as Union Territory Tax) which is levied on supply of goods & services within the same union territory.
  4. IGST (also known as Integrated Tax) which is levied on inter-state supply of goods & services.

How Input Tax credit of GST is allowed?

Credit of To be Utilized 1st for the payment of May be utilized further for the payment of

GST Input Tax Credit Rules

 You can be entitled to Input Tax Credit if you satisfy the below-mentioned conditions:

  • You must be registered as a taxable person under GST.
  • Goods & services on which you want to claim ITC should have been used only for business purposes.
  • Input Tax Credit can be claimed on taxable & zero-rated supplies (exports).
  • If the constitution of registered taxable person changes due to sale, merger or transfer of business, then unused ITC shall be transferred to the sold, merged or transferred business.
  • To claim ITC, you need supporting documents like tax invoice, debit note, supplementary invoice, etc.
  • You can claim Input Tax Credit if you have actually received some goods & services.
  • To claim ITC, the Input Tax must be paid through electronic cash ledger or electronic credit ledger.
  • It is mandatory to file all the applicable GST returns.
  • For goods which are received in lots, you can claim ITC only after you have received the final lot.

 You cannot claim Input Tax Credit in the following cases:

  • If you have acquired goods & services under a contract which results in the construction of immovable property other than plant & machinery.
  • If you have paid tax on goods & services under GST composition scheme.
  • Such goods & services which have been used by employees for their personal consumption.
  • If depreciation has been claimed on the cost of capital goods (including ITC amount), then they are not eligible for Input Tax credit.
  • No ITC can be claimed for goods or services used for personal purposes.

Allowance/Dis-allowance of ITC

ITC can be claimed by every registered taxable person on all inputs used or intended to be used in the course of or furtherance of business (except in some certain cases).

The specified cases where the input tax credit would not be allowed are mentioned below:

S. No Input Tax Credit not allowed for GST paid on Exception (i.e., GST Input Tax Credit allowed for the goods & services only in the following cases:
1. Motor Vehicles & other Conveyance Allowed only when they are supplied in the normal course of business or are used for providing the following taxable services:

1.) Transportation of Passengers

2.) Transportation of Goods

3.) Imparting Training on Motor Driving Skills

2. Rent-a-Cab service, Health Insurance & Life Insurance Allowed only if

a.) The Govt. makes it obligatory for the employers to provide it to their employees

b.) In cases where the goods and services are taken to deliver the same category of services or as a part of composite supply.

3.) Food & Beverages, Outdoor Catering, Beauty Treatment Health Services, Cosmetic & Plastic Surgery Allowed only if the goods & services are taken to deliver the same category of services or as a part of composite supply, the credit would be available.
4.) Works Contract Services , when supplied for the Construction of Immovable Property Allowed only if:

a) Works Contract Services supplied for construction of Plant & Machinery.

b) One Works Contract Services is input for another works contract services.

5.) Goods/Services received by a Non-Resident Taxable Person Allowed for Goods/Services imported by a non-resident taxable person

The Input Tax Credit of GST paid on all other goods & services which are used for the furtherance of business would be allowed.

Time Limit to Avail GST ITC

ITC can be availed by a registered taxable person in a specific manner & within a specified time limit. There are different situations in which inputs can be claimed for stock or semi- finished goods or finished goods.

Situations Details Day on which ITC can be claimed (held on immediately preceding day)
1 If a person has applied for registration or is liable to register or is granted registration Day from when he is liable to pay taxes
2 If a person takes voluntarily registration The day of registration
3 When a taxable registered person stops paying taxes in composition levy scheme The day from which he becomes liable to tax normally

Hope the information will assist you in your Professional endeavors. In case of any query / information, please do not hesitate to write back to us at [email protected].

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September 2021