CA Mithun Khatry

A good news under the proposed the GST regime is that unlike the current VAT provision where a dealer can avail benefit of VAT paid under the state acts only, under the proposed GST regime a registered person shall be able to avail the input tax credit of GST paid both under the state act as well as GST paid under the central act i.e. input tax credit of SGST/UGST, CGST & IGST shall be available. Though some restrictions have been placed as regards inter-head adjustments of input tax credits, but apart from few exceptions, proper care has been taken to allow the seamless flow of credits across all goods & services. In this article we will try to understand all the provisions relating to Input Tax credits under the proposed GST regime.

In this article, unless otherwise specifically mentioned, all the sections &provisions mentioned here means the respective sections and provisions of CGST Act.

In this article, unless otherwise specifically mentioned, Inputs includes inputs on goods and inputs on services.

Some important definitions which are relevant for this article:

INPUT TAX means the CGST, SGST, IGST or UGST charged on any supply of goods or services or both made and includes IGST on Imports & tax payable under reverse charge provisions. However, Input Tax does not include the tax paid under the composition levy. [Section 2(62)]

INPUT TAX CREDIT means the credit of input tax. [Section 2(63)]

CAPITAL GOODS means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business. [Section 2(19)]

TAXABLE SUPPLY means a supply of goods or services or both which is leviable to tax under this Act [Section 2(108)]

NON-TAXABLE SUPPLY means a supply of goods or services or both which is not leviable to tax under this Act or under the IGST Act. [Section  2(78)]

EXEMPT SUPPLY means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11 of CGST Act, or under section 6 of the IGST Act, and includes non-taxable supply. [Section 2(47)]

ZERO RATED SUPPLY means any of the following supplies of goods or services or both, namely:––

(a) export of goods or services or both; or

(b) supply of goods or services or both to a SEZ developer or a SEZ unit.

[Section 16(1) of IGST Act]

Credit of input tax may be availed for making zero-rated supplies, notwithstanding that such supply may be an exempt supply. [Section 16(2) of IGST Act]

The input tax credit shall be credited to the electronic credit ledger of the registered supplier. [Section 49(2)]

Though you may utilize tax credit of SGST/UGST for payment of IGST & vice-a-versa, also you may utilize tax credit of CGST for payment of IGST & vice-a-versa, however inter-head adjustment of SGST/UGST with CSGT and vice-a-versa is not allowed under the proposed GST regime. [Section 49(5)(e)]

Time limit to claim Input Tax Credit. [Section 16(4)]

Input tax credit cannot be claimed after:

The due date of furnishing of the return for the month of September following the end of financial year to which such credit relates; or

the due date of  furnishing of the relevant annual return,

whichever is earlier.

As per the provisions of [Section 49 (5)] of CGST act, the amount of input tax credit available in the electronic credit ledger of the registered person shall be utilized in following order only:–

S.No. Input Tax Credit Output Tax Liability
1. IGST IGST àCGST à SGST/UGST.
2. CGST CGSTàIGST
3. SGST SGSTàIGST
4. UGST UGSTàIGST

 As per the provisions of [Section 17(5)], Input tax credit shall not be available in respect of the following:—

S.No. ITC not available for Exceptions
1. Tax paid on purchase of motor vehicles and other conveyances used for

(A) further supply of such vehicles or conveyances

(B) transportation of passengers; (C) imparting training on driving, flying, navigating such vehicles

or conveyances;

(D)for transportation of goods;

 

2. Tax paid on food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery Used for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply
3. Tax paid on membership of a club, health and fitness centre NO EXCEPTION
4. Tax paid on availing services of rent-a-cab, life insurance and health insurance Where

(A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or

(B) used for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply;

 

5. Tax paid on providing travel benefits extended to employees on vacation such as leave or home travel concession; NO EXCEPTION
6. Tax paid on works contract services for construction (including re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation) of an immovable property (other than plant and machinery)

“plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

[Explanation to section. 17]

where it is an input service for further supply of works contract service
7. Tax paid on goods or services for construction (including re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation) of an immovable property (other than plant or machinery) on his own account even if such goods or services are used in the course or furtherance of business.

“plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

[Explanation to section. 17]

NO EXCEPTION
8. Tax paid under composition scheme NO EXCEPTION
9. Tax paid on goods or services or both received by a non-resident taxable person goods imported by him
10. Tax paid on goods or services or both used for personal consumption NO EXCEPTION
11. Tax paid on goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples NO EXCEPTION
12. Tax paid u/s 74 i.e. tax paid upon Determination of tax not paid or short paid or erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any willful mis-statement or  Suppression of facts.

[Rule 1(3)]

NO EXCEPTION
13. Tax paid u/s 129 i.e. tax paid upon Detention, seizure and release of goods and Conveyances in transit.

 

NO EXCEPTION
14. Tax paid u/s 130 i.e. tax paid upon Confiscation of goods or Conveyances and levy of penalty. NO EXCEPTION

 Reversal of Input Tax Credit

Where the inputs are used partly for business and partly for other purposes, the amount of ITC as related to purpose other than business shall be reversed. [Section 17(1)]

Where the CGST & IGST inputs are used partly for effecting taxable supplies / zero-rated supplies and partly for effecting exempt supplies including supplies taxable under reverse charge/ transactions in securities/ sale of land, the amount of ITC as related to supplies other than Taxable / zero-rated supplies shall be reversed. [Section 17(2)].

Note: Though sale of land is treated as an exempt supply, however sale of land by the means of construction of a complex, building, civil structure or a part thereof, including a complex or building intended for sale to a buyer, wholly or partly shall be treated as a taxable supply, except where the entire consideration has been received after issuance of completion certificate, where required, by the competent authority or after its first occupation, whichever is earlier.  [Entry No. 5(b) of Schedule-II]

ITC on goods & services used commonly for both taxable & tax free supplies

Input Goods & Input Services

[Rule 7]

Input Capital goods

[Rule 8]

Procedure to calculate the amount of input tax to be revered in respect of common inputs used for both taxable & tax free supplies is as follows:

Calculate:

T= Total input tax on ALL inputs

T1=ITC on inputs used exclusively for non-business supplies. (TOTALLY DISALLOWED)

T2=ITC on inputs used exclusively for exempt supplies. (TOTALLY DISALLOWED)

T3=  ITC inadmissible u/s 17(5). (TOTALLY DISALLOWED)

C1= ITC credited to the electronic credit ledger.

C1 = T- (T1+T2+T3);

T4 = ITC on inputs used exclusively for taxable supplies including zero rated supplies(TOTALLY ALLOWED)

All T, T1, T2, T3 & T4 to be declared by the registered person in FORM GSTR-02

 

Out of  ITC credited to credit ledger account (i.e. C1),  the amount of ITC on inputs used for common purpose i.e. common ITC is C2

C2 = C1- T4 (PARTLY ALLOWED)

D1= Common ITC attributable towards exempt supplies.

D2= Common ITC attributable towards non-business supplies.

 

(The amount equal to ‘D1’ and ‘D2’ shall be added to the output tax liability of the registered person)

 

D1=C2*F                  (DISALLOWED)

          E

 

D2 = 5% of C2          (DISALLOWED)

 

Total turnover of the that tax period (F)

Exempt turnover of the that tax period (E)

Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ calculated by taking values of ‘E’ and ‘F’ of the last tax period for which details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to calculated;

C3= eligible ITC attributed to the purposes of business and for effecting taxable supplies including zero rated supplies

C3 = C2 – (D1+D2) (ALLOWED)

The amount of input tax in respect of capital goods used commonly for both taxable & tax free supplies, denoted as ‘A’, shall be credited to the electronic credit ledger and the useful life of such goods shall be taken as five years:

A= ITC on invoice of new asset

ITC in respect of an existing asset  earlier covered under clause (a) or (b) and  is subsequently covered under this clause,

Unused i.e available ITC of such goods shall be:

A =

ITC on invoice of asset

Less:

5% per qtr (or part thereof) for already used life.

Total Credits of all new assets added to this system during the tax period. (Tc)

Tc= ∑A’s  of all new & existing assets added to this system during the tax period.

Total monthly credit of all new assets added to this system during the tax period. (Tm)

Tm= Tc  / 60

Total ITC of the particular tax period including new & existing assets(Tr)

Tr= 

Tm’s  of assets introduced to this system in this tax period

+

Tm of assets already existing in this system as on beginning of this tax period.

ITC related to exempt supplies etc. to be reversed (Te)

Te=Tr*F

          E

Total ITC of the particular tax period (Tr.) Total turnover of the that tax period (F)

Exempt turnover of the that tax period (E)

Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ calculated by taking values of ‘E’ and ‘F’ of the last tax period for which details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to calculated;

Te + interest thereon shall, be added to the output tax liability of the person making such claim of credit

This procedure has to be followed every month i.e. on monthly basis
Thereafter ‘D1’ and ‘D2’ shall be calculated finally for the financial year before the due date for filing the return for the month of September following the end of the financial year to which such credit relates. [Rule 7(2)]where annual  D1+D >  ∑ monthly D1+D2such excess along with interest thereon shall be added to the output tax liability of the registered person for a month not later than the month of September following the end of the financial year to which such credit relates

where annual  D1+D <  ∑ monthly D1+D2

such excess amount shall be claimed as credit by the registered person in his return for a month not later than the month of September following the end of the financial year to which such credit relates

This procedure has to be followed every month i.e. on monthly basis

Banking companies or a financial institution including a non-banking financial company

Banking companies or a financial institution including a non-banking financial company are generally engaged in supplying services by way of accepting deposits, extending loans or advances. These companies provides a lot of taxable & tax exempt supplies and it shall be very tedious to  maintain details of taxable & exempt services every month, so the government have provided them an option to

either comply with the provisions of ITC reversal on proper calculations,

or

avail only 50% of the eligible input tax credit on inputs, capital goods and input services and the rest shall lapse [Section 17(4)]

The option once exercised shall not be withdrawn during the remaining part of the financial year: [first proviso to Section 17(4)]

Total Input Tax Credit

Less: ITC on inputs that are used for non-business purposes.

Less: ITC inadmissible on supplies specified under section 17(5)

= eligible ITC ( only 50% of this ITC shall be admissible. [Rule 3]

The restriction of 50% shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number. [second proviso to Section 17(4)]

Input Tax credit on Advance Payments

To claim ITC, you must be in possession  of a valid document may be invoice , debit note etc. and you (including your job worker or direct recipient etc. ) must have actually received the goods or services[Section 16(2)]. Where the goods 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. [First Proviso to section 16(2)]. So it is clear from the above provisions that ITC ON ADVANCE PAYMENTS shall not be available.

Input Tax credit on supplies in regard of which payment is not made within 180 days

Where a recipient fails to pay to the supplier the amount towards the value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon. Registered person shall furnish the details of such supply and the amount of input tax credit availed of in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of issue of invoice. [Rule 2(1)]. The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 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 in Form GSTR-2 is paid. [Rule 2(3)]

 However in case of tax paid under reverse charge, this provision is not applicable and ITC shall be available even if payment of such invoice is not made within 180 days. [Second Proviso to section 16(2)]

ITC on 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. [Section 16(3)].

ITC in case of change in constitution of business

In case of change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the unutilised  input tax credit to such sold, merged, demerged, amalgamated, leased or transferred business. [Section 18(3)]

Such transferor shall furnish details of such change in FORM GST ITC-02 along with

  1. a request to transfer the unutilized input tax credit lying in his electronic credit ledger to the transferee [Rule 6(1)]
  2. a certificate issued by a practicing chartered account or cost accountant certifying that the such change in constitution has been done with a specific provision for transfer of liabilities. [Rule 6(2)]

The transferee shall, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger. [Rule 6(3)]

ITC on Stock held as on date of registration

Where a person applies for registration within 30 days from the date on which he becomes liable to get registered and he has been granted such registration [Section 18(1)(a)]. The registered person shall within such 30 days also file FORM GST ITC-01. [Rule 5(1)(b)]. The details of such ITC furnished shall be duly certified by a practicing chartered account or cost accountant if the aggregate value of claim on account of CGST, SGST, IGST exceeds two lakh rupees. [Rule 5(1)(c)]

OR

Where a person though not liable to get registered under GST but he voluntarily gets himself registered under GST [Section 18(1)(b)]. The registered person shall within 30 days of obtaining registration file FORM GST ITC-01 with details of ITC available as on date of registration. [Rule 5(1)(b)] The details of such ITC furnished shall be duly certified by a practicing chartered account or cost accountant if the aggregate value of claim on account of CGST, SGST, IGST exceeds two lakh rupees. [Rule 5(1)(c)]

Such person shall be entitled to take credit of input tax in respect of inputs held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act.

However then also he shall not be entitled to take ITC in respect of any supplies made to him after the expiry of one year from the date of issue of tax invoice relating to such supply. [Section 18(2)] i.e. ITC in such cases can be claimed within 1 year of date of issue of invoice.

Input tax credits in some special cases

In case a registered person ceases to pay tax under composition scheme, he shall be entitled to take credit of input tax in respect of inputs held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under normal provisions. [Section 18(1)(c)] However the credit on capital goods shall be reduced by five percentage 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. [proviso to Section 18(1)(c)] & [Rule 5(1)(a)].  The registered person shall within thirty days file FORM GST ITC-01. [Rule 5(1)(b)] The details of such ITC furnished shall be duly certified by a practicing chartered account or cost accountant if the aggregate value of claim on account of CGST, SGST, IGST exceeds two lakh rupees. [Rule 5(1)(c)]

In case a registered person who was dealing in such goods/services  which were exempt under the provisions of GST where eventually these goods or services or both supplied by him become taxable, such person shall be entitled to take ITC in respect of inputs held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable. [Section 18(1)(d)] However the credit on capital goods shall be reduced by five percentage 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. [proviso to Section 18(1)(d)] & [Rule 5(1)(a)]. The registered person shall within thirty days file FORM GST ITC-01. [Rule 5(1)(b)] For determining the value of an exempt supply the value of land and building shall be taken as the same as adopted for the purpose of paying stamp duty; and the value of security shall be taken as 1% of the sale value of such security. [Rule 10(2)]. The details of such ITC furnished shall be duly certified by a practicing chartered account or cost accountant if the aggregate value of claim on account of CGST, SGST, IGST exceeds two lakh rupees. [Rule 5(1)(c)]

In case a registered person who was already paying tax under normal provisions and was availing benefit of ITC on Inputs and capital goods, opts to pay tax under composition scheme, then the ITC in respect of stock /Capital goods held by him on the day immediately preceding the date of exercising of such option as reduced by such percentage points as may be prescribed, shall be paid by him either by debiting his electronic credit ledger or by paying such amount in cash. [Section 18(4)] Also after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse . [proviso to Section 18(4)]. The ITC on inputs shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input. [Rule 9(1)(a)] The ITC on capital goods or plant and machinery involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years. [Rule 9(1)(b)]

In case a registered person who was dealing in such goods/services which were taxable under the provisions of GST where eventually these goods or services or both supplied by him become wholly exempt, ITC in respect of stock / Capital goods held on the day immediately preceding the date of such exemption as reduced by such percentage points as may be prescribed, shall be paid by him. [Section 18(4)] Also after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse . [proviso to Section 18(4)]. The ITC on inputs shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input. [Rule 9(1)(a)] The ITC on capital goods or plant and machinery involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years. [Rule 9(1)(b)]

Input Tax Credit in case of cancellation of registration

Every registered person whose registration is cancelled shall pay an amount equivalent to the ITC in respect of inputs held in stock on the day immediately preceding the date of such cancellation or the output tax payable on such goods, whichever is higher. [Section 29(5)] The ITC shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered taxable person on such input. [Rule 9(1)(a)] The ITC on capital goods or plant and machinery involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years. [Rule 9(1)(b)]

Every registered person whose registration is cancelled shall pay an amount equivalent to ITC taken on capital goods or plant and machinery, reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery under section 15, whichever is higher. [Proviso to Section 29(5)].  The ITC involved in the remaining residual life in months shall be computed on pro-rata basis, taking the residual life as five years. [Rule 9(1)(b)]

Illustration regarding Rule 9(1)(b)

Capital goods have been in use for 4 years, 6 month and 15 days.

The residual remaining life in months= 5 months ignoring a part of the month

Input tax credit taken on such capital goods=Ç

Input tax credit attributable to remaining residual life=C multiplied by 5/60

Input Tax Credit in case of Sale of second hand goods being capital goods or plant and machinery: [Section 18(6)]

In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay, higher of the two:

  • an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed

or

  • the tax on the transaction value of such capital goods or plant and machinery determined under section 15(Value of Taxable Supply).

However where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15(Value of Taxable Supply). [proviso to Section 18(6)]

[Explanation to section. 17] “plant and machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes—

(i) land, building or any other civil structures;

(ii) telecommunication towers; and

(iii) pipelines laid outside the factory premises.

Input Tax Credit in case of Goods sent for job work.

Principal may under intimation, send any inputs or capital goods, without payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise. Such goods shall be sent to the job worker under the cover of a challan issued by the principal.[ Rule 10(1)]  However the principal shall:

  • bring back or directly supply inputs(other than moulds and dies, jigs and fixtures, or tools), after completion of job work or otherwise, within one year of their being sent out, to any of his place of business, without payment of tax;
  • bring back or directly supply such capital goods(other than moulds and dies, jigs and fixtures, or tools), after completion of job work or otherwise, within three years, of their being sent out, to any of his place of business, without payment of tax; [Section 143(1)]

In case job worker is not registered under GST act, principal shall declares the place of business of the job worker as his additional place of business except in a case where the principal is engaged in the supply of such goods as may be notified by the Commissioner. [proviso to Section 143(1)]

The principal shall be allowed input tax credit on inputs sent to a job worker for job work. [Section 19(1)]

Where the inputs (other than moulds and dies, jigs and fixtures, or tools) sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out by the principal to the job worker. [Section 19 (3)]. However, where the inputs are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker. [proviso to Section 19 (3)].

Where the capital goods (including plant & Machinery)(other than moulds and dies, jigs and fixtures, or tools) sent for job work are not received back by the principal within a period of three years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out by the principal to the job worker. [Section 19 (6)]. However, where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker. [proviso to Section 19 (6)].

Any waste and scrap generated during the job work may be supplied by the job worker directly from his place of business on payment of tax, if such job worker is registered, or by the principal, if the job worker is not registered. [Section 143 (5)]

Input Tax Credit in case of distribution by Input Service Distributor.

The ISD shall distribute the credit of CGST as CGST or IGST and IGST as IGST or CGST, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed. [Section 20 (1)]. The input tax credit available for distribution in a month shall be distributed in the same month and the details thereof shall be furnished in FORM GSTR-6 [Rule 4(1)(a)]

The input tax credit on account of CGST, SGST, UGST, IGST shall be distributed separately. [Rule 4(1)(c)]

The input tax credit on account of IGST shall be distributed as IGST only [Rule 4(1)(e)]

In case the ISD & the recipient are located in same state, the input tax credit on account of CGST and SGST shall be distributed as input tax credit of CGST and SGST respectively. However where recipient located in a State other than that of the ISD, the input tax credit on account of CGST and SGST shall be distributed as IGST and the amount to be so distributed shall be equal to the aggregate of the amount of input tax credit of CGST and SGST. [Rule 4(1)(f)]

The amount of the credit distributed shall not exceed the amount of credit available for distribution. [Section 20(2)(b)]

The credit of tax paid on input services attributable to a recipient of credit shall be distributed to that recipient only. [Section 20(2)(c)]

The credit of tax paid on input services attributable to more than one recipient of credit  shall be distributed amongst such recipients to whom the input service is attributable and  such distribution shall be pro rata  on the basis of the turnover in a State or turnover in a Union territory of such recipient,  during the relevant period,  to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period [Section 20(2)(d)]

As per [Rule 4(1)9(d)] ITC to be distributed to a particular recipient i.e. C1  = (t1÷T) × C

where,

“C” is the amount of credit to be distributed,

“t1” is the turnover, as referred to in section 20, of  the receipent during the relevant period, and

“T” is the aggregate of the turnover of all recipients during the relevant period;

If the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed, the “relevant period” shall be the said financial year; [Explanation a(i)  to Section 20 ]

If some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the “relevant period” shall be the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed [Explanation a(ii)  to Section 20 ]

‘‘turnover’’ means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule. [Explanation   to Section 20 ]

Seventh Schedule  List-I (Union List)

Entry no. 84.

Duties of excise on tobacco and other goods manufactured or produced in India except—

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics,

but including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.

Entry no. 92A.

Taxes on the sale or purchase of goods other than newspapers, where such sale or purchase takes place in the course of inter-State trade or commerce.

Seventh Schedule  List-II (State List)

Entry no. 51

Duties of excise on the following goods manufactured or produced in the State and countervailing duties at the same or lower rates on similar goods manufactured or produced elsewhere in India:—

(a) alcoholic liquors for human consumption;

(b) opium, Indian hemp and other narcotic drugs and narcotics,

but not including medicinal and toilet preparations containing alcohol or any substance included in sub-paragraph (b) of this entry.

Entry no. 54

Taxes on the sale or purchase of goods other than newspapers, subject to the provisions of entry 92A of List I.

Suggestions are invited at khatrimithun@hotmail.com

Disclaimer: This article includes general information about legal issues and developments in the proposed law of GST in India. Such materials are for informational purposes only and may not reflect the most current legal developments. These informational materials are not intended, and must not be taken, as legal advice on any particular set of facts or circumstances.

We disclaim all liability in respect to actions taken or not taken based on any or all the contents of this article to the fullest extent permitted by law. Do not act or refrain from acting upon this information without seeking professional legal counsel.

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11 responses to “All about Input Tax Credit under GST”

  1. Manojkumar says:

    June month 2017 carry forward itc next month July gstr3b return submitted wronglyrics mention the amount in eligible itc all other itc the amount mention in igst column please solution Sir

  2. augustine CR says:

    sir, if we purchase from an unregistered person and we are raising supply bill with GST and the same we are sell it out with a GST, shall we avail input tax credit ?

  3. Jay says:

    Thanks for the article. Please make a small but important correction however. In the table for Rule 7, it should be D1=C2*E/F, not F/E.

    • augustine CR says:

      if we purchases from an unregistered person and we are paying tax to Govt. and we are selling it out. shall we have the right to get input tax credit.

  4. Naveen says:

    hy,
    Sir we are a manufacturer of fabric. Can I use ITC accumulated on Fabric be used against trading of yarn??

  5. Raghav kundra says:

    Sir there is a a query that for a professional say CA plant and machinery also includes car say he capitalises it and also takes depreciation on same in books then will the input tax credit will be available to only professionals lyk that of Ca’s on motor cars.Please explain with a valid explanation!

    • G.Jayaprakash says:

      Input tax credit shall not be available in respect of the following:—

      S.No. ITC not available for Exceptions
      1. Tax paid on purchase of motor vehicles and other conveyances used for

      (A) further supply of such vehicles or conveyances

      (B) transportation of passengers; (C) imparting training on driving, flying, navigating such vehicles

      or conveyances;

      (D)for transportation of goods;

      Hence no credit can be availed on motor vehicles purchased by anyone other than for cases excepted

  6. Sandesh Karwa says:

    1) We are manufacturing company and we have 2-3 vehicle for transport of goods. Whether we will get credit of existing tax paid? And if we purchase new vehicle after 1st July 2017 for transport of goods whether we will get GST credit?
    2) If we purchase Ambulance which is required as per Factory Act to maintained in Factory whether we will get credit?

  7. Ashish Choudhary says:

    Sir,
    Two Queries.
    A person who is exempt to charge C.S.T against C-Form situated @ U.T. having Exemption valid till 31-12-17.
    1) Will be valid to C/f Input Vat Cr. Bal.in books as on 30/6/17.
    2) Will be allowed to charge CGST/IGST to his customers after 1/7/17.

  8. Sanjeev Kumar Mishra says:

    Sir, artile is good but for me, please reply
    I want to know whether a assessee/unit is not registered with excise as manufacturer but registered as DEALER in excise and also registered in state VAT Act.
    This assessee/unit is having excisble goods and its invoices in his name and Cenvat Credit balance in DEALER book and its buyer have the same dealer bills whether both are eligible for credit under CGST even they are not registered with excise

  9. CA Lalit Munoyat says:

    ISD
    “If some or all recipients of the credit do not have any turnover in their States or Union territories in the financial year preceding the year during which the credit is to be distributed, the “relevant period” shall be the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed [Explanation a(ii) to Section 20 ] ”

    How will one determine the “relevant period” if one or more of the recipients units of ISD don’t have any turnover in any month comprised in a quarter because as per definition,for distribution of ISD, it is a pre-condition that all the recipients units must have some turnover. (Nil turnover is not envisaged.)

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