The meaning of ‘Input Tax Credit’ can be understood easily if we break the words ‘input’ and ‘tax credit’. Here ‘input’ is referred to the materials or services that a manufacturer/Supplier of services procures in order to manufacture a taxable product or to render a taxable service. The word ‘Tax credit’ means the tax paid on the purchase of inputs (goods to be used in taxable supply) which can be used to reduce the output tax (Tax to be paid on the supply of goods or services).
How ITC works?
When a producer/manufacturer/supplier of services pays the tax (output tax) on his output, he can set off the tax (input tax) he previously paid on the procurement of inputs.
How to Claim Input Tax Credit under GST?
Suppose a company named ABC Limited (a tyre manufacturer) registered under GST purchased 10 tons of rubber from a registered supplier named XYZ Limited (a rubber Company). Both the companies will reconcile their transactions respectively, and the recipient (ABC Limited in this case) will claim the input tax credit, as follows:
Time Limit specified in Input Tax Credit Rules under GST
A registered person can claim Input Tax Credit in the stipulated time and prescribed manner. There can be different circumstances in which the credit of input can be claimed for stocks, finished goods or semi-finished goods.
|Circumstances||Details||Day on which Input Tax Credit can be claimed for stock, Semi-finished Goods or Finished Goods (held on immediately preceding day)|
|1||Where a person is liable to get registered under GST, or applied for registration within the prescribed time||The day on which he becomes liable to pay GST|
|2||Where a person opts for voluntary registration||The date of registration|
|3||A registered person who switches to normal provisions from composition levy scheme||The day from which he becomes liable to tax normally|
Input Tax Credit mentioned in above circumstances can be claimed within 1 year only. The date is to be reckoned from the date of issue of invoice. However, in any other case, the last date for claiming Input Tax Credit is earlier of the two below: