Article explains about Input tax Credit (ITC) unbder GST, Taxes under GST to claim ITC, Conditions to claim ITC, Eligible persons to claim ITC, Manner to claim ITC, Manner to utilise ITC, Tenure to avail ITC, Allowance of ITC, Diallowance of ITC, Allowance / Disallowance of ITC – special points, ITC under reverse charge mechanism (RCM), Reversal of ITC, Inverted  duty structure, Refund of excess ITC, Special cases under ITC, Forms for ITC under GST, Due date of ITC forms, ITC in GST returns, Notices in relation to ITC and  Recent judgement in relation to ITC.

Input tax Credit (ITC) is a major element of understanding which has various implications under GST. In changing scenario, the government keeps on making various amendments to the GST Law. There are different rules defined under GST Law in relation to ITC for all categories of taxpayers.

Input Tax Credit

Article cover all the possible aspects in the below article in relation to INPUT TAX CREDIT ( ITC) under GST.

1. Introduction to ITC

Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs. Input tax credit in realtion to GST to a registered person means, the CGST, SGST/UTGST or IGST charged on any supply of goods or services or both made to him. It includes IGST charged on imports & tax payable under reverse charge mechanism.

If you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned , registered under GST, you are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

For example,

If you have purchased goods worth Rs 100.00 and paid Rs 5.00 as GST on it @ of 5% . When these goods are sold at Rs 150 and GST attracted is Rs 7.50  @ 5% so the net tax liability will be Rs 7.50 less Rs 5.00 ie Rs 2.50.

2. Taxes under GST to claim ITC

There are four types of taxes under GST on which ITC is claimed

1. Integrated GST (IGST)

2. Central GST (CGST )

3. State GST (SGST) / Union territory GST (UTGST)

4. GST Composition Cess

Integrated GST (IGST) is for inter state movement of goods whereas Central GST (CGST ) & State GST (SGST) / Union territory GST (UTGST) is for intra state movement of goods. GST Compensation cess is for notified goods.

3. Conditions to claim ITC under GST

The conditions need to be fulfiled to claim ITC:

1. One having a tax invoice (of purchase) or debit note issued by registered dealer

2. One should have received the goods / services

3. The tax charged on your purchases has been deposited / paid to the government by the supplier in cash or via claiming input credit

4. Supplier has filed GST returns

Therefore, to allow you to claim input credit on purchases all your suppliers must be GST compliant as well.

Note :

1. Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of  last lot or installment.

2. ITC is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated.

4. Eligible person to claim ITC under GST:

ITC in case of regular business:

1. All registered personare allowed to take input tax credit other than person who are paying tax under composition scheme.

2. A person who has applied for registrationwithin 30 days from the date on which he is liable for registration is allowed to take input tax credit 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. ITC is not allowed for purchases made for exempted supplies.

3. A person who hast taken voluntarily registrationis allowed to take input tax credit 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 grant of registration. ITC is not allowed for purchases made for exempted supplies.

4. A person who has ceased to pay tax under composition schemeis entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he ceases to pay tax under composition scheme. ITC is not allowed for purchases made for exempted supplies.

5.  A person when his exempt supply becomes taxable supply is entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods relatable to such exempt supply on the day immediately preceding the date from which such exempt supply becomes taxable.

ITC in case of Import:

1. For importers, the ITC of IGST and Compensation cess is available. However, the ITC of basic customs duty (BCD) would not be available.

2. In order to claim IGST and Compensation cess, an importer has to mandatorily declare GSTIN in Bill of Entry.

3. The customs EDI system would be inter connected with the GST portal for validation of ITC.

ITC in case of Composition:

1. ITC is not allowed in case of composition dealers.

5. Manner to claim ITC

For IGST, CGST , SGST & UTGST

The tax paid while the goods are lying in stock (from pre gst phase to gst phase or non gst registered to gst registration ), goods are purchased ,services are received, goods are imported or capital goods are purchased can be taken as input tax credit while paying the output tax liabilty.

It has been stated below with an example:

Mr A sells goods to Mr B and issues supply invoice. Mr A files GSTR 1 with all the details of Mr B.

Mr B  purchases goods from Mr A  and issues purchase invoice. Mr  B files GSTR 2 (till date GSTR 2 filing has not be brought into action).

Information from GSTR 1 gets transmitted to GSTR 2A of Mr B (current senario). The amount of tax paid on purchases gets credited to Electronic Credit Ledger of Mr B. Mr B can use the credit received to pay his output tax liability.

The input tax credit can be availed after satisfying the conditions to avail ITC.

For GST Compensation Cess

The tax is to be paid on notified goods like pan masala, tobacco and tobacco products, cigarettes, aerated water, motor vehicles, coal, etc. Input tax credit can be availed on GST compensation cess paid on inward supplies. This credit can be utilised only for the payment of GST compensation cess liability.

6. Manner to utilise ITC

The following is the order  of utilsisation of ITC:

Latest w.e.f 01.04.2019

Payment for Order of set off
First Second Later
IGST IGST CGST SGST
CGST IGST (if balance) CGST
SGST IGST (if balance) SGST

ITC on IGST has to be first completely utilised first before making use of ITC on CGST/SGST. The order of setting off ITC of IGST can be done in any proportion and any order towards setting off the CGST or SGST output after utilising the same for IGST output.

01.02.2019 to 31.03.2019

Payment for Order of set off
First Second Later
IGST IGST CGST SGST
CGST IGST CGST
SGST IGST SGST

ITC on IGST has to be first completely utilised first before making use of ITC on CGST/SGST. The order of setting off ITC of IGST is first utilise ITC on IGST then only other ITC can be used.

01.07.2017 to 31.01.2019

Payment for Order of set off
First Second Later
IGST IGST CGST SGST
CGST CGST IGST
SGST SGST IGST

The ITC on IGST has to be first used for payment of liability under IGST, then CGST and then SGST. The ITC on CGST has to be first used for payment of liability under CGST and then IGST. The ITC on SGST has to be has to be first used for payment of liability under SGST and then IGST.

The taxpayers may continue to utilize their input tax credit as per the functionality available on the GST portal. The dealer can’t be penalized for non compliance as the ITC set off order is auto filled by GST portal.

The CBIC has recently introduced Form PMT-09 (i.e. a challan) for shifting wrongly paid Input Tax Credit. This enables a registered taxpayer to transfer any amount of tax, interest, penalty, etc. that is available in the electronic cash ledger, to the appropriate tax or cess head under IGST, CGST and SGST in the electronic cash ledger.

Hence, if a taxpayer has wrongly paid CGST instead of SGST, he can now rectify the same using PMT-09 by reallocating the amount from the CGST head to the SGST head. If the wrong tax has already been utilized for making any payment, then this challan is not useful. This challan only allows shifting of the amounts that are available in the electronic cash ledger. The amount once utilized and removed from cash ledger cannot be reallocated.

7. Tenure to avail ITC :

ITC has to be taken till :

  • Due date of the return for the month of September of next financial year
  • Annual return filed for relevant financial year

Whichever is earlier.

A registered person can avail ITC only upto 1 year from the date of issue of tax invoice and up to 5 years in case of capital goods.

8. Allowance of ITC

1. Since GST is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).

2. Input tax credit is allowed on capital goods.

3. Input tax is not allowed for goods and services for personal use.

As per the new rule , a taxpayer filing GSTR-3B can claim provisional Input Tax Credit (ITC) only to the extent of 10% of the eligible credit available in GSTR-2A. The amount of eligible credit is arrived upon those invoices or debit notes, the details of which have been uploaded by the suppliers in the GSTR-2A only. The new percentage applies from 01.01.2020 onwards only. The ITC claim was earlier restricted to 20% for the period from 09.10.2019 till 31.12.2019. Apart from the 10% of eligible ITC which a taxpayer can claim as provisional credit, the balance tax liability will need to be paid in cash. Even if the GSTR-2A reflected an ITC amount lower than the books of accounts, taxpayers could still make their ITC claim in full in the GSTR-3B, and the unreflected amount was treated as provisional credit.

There are other imporatant pointers which needs to be kept in mind while claiming provisional credit like the 10 % will be of  total eligible ITC from all suppliers based on details uploaded in the GSTR-2A, a taxpayer can avail full ITC in terms of IGST paid on imports, credit that has been received from an Input Service Distributor (ISD), credit from documents received under reverse charge mechanism and any other such credit, etc.

For capital goods

1. No ITC is available for personal purchases or for capital goods used in exempted sales.

2. On normal taxable supplies, the GST included paid while purchasing capital goods will be completely available as ITC.

3. If capital goods are used partly for business and partly for personal use then ITC is calculated on proportionate basis.

4. ITC will be allowed to the principal manufacturer if a capital asset has been sent to a job worker for job work.

5. If the taxable person sells such capital goods on which ITC had been taken then such person is liable to pay GST of higher amountfrom the following:

ITC taken on such capital goods less 5 percentage points per quarter of a year or part thereof from the date of invoice or Sale price of capital goods multiplied by GST rate (transaction value).

6. For capital goods held in stock ITC involved in remaining useful life in month shall be computed on prorate basis, assuming useful life as 60 months i.e. 5 years.

7. 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.

9. Diallowance of ITC

Input tax credit cannot be clamied on following goods and services when purchased or received:

1. Motor vehicles and conveyance

2. Vessels and aircraft, etc

3. Food , beverages , club membership fees, beauty treatement, plastic surgery , rent a cab, life insurance , health insurance and others

4. Services of general insurance , servicing , repair & maintenance

5. Sale of membership in a club, health , fitness centre

6. Travel benifits

7. Works contract

8. Constructing an immovable property on own account

9. Composition scheme

10. Non residents

11. Personal use

12. Goods distrubted as free samples or gift

13 Goods lost , destroyed , stolen or written off

14. Fraud cases

15. Restaurants

The detailed explaination of these is stated below:

1. Motor vehicles and conveyance like vessels , aircraft, etc

Passengers

ITC is allowed if motor vehicles are having seating capacity more than 13 persons ( including driver). Therefore , no ITC is allowed for motor vehicles for transportation of persons if seating capacity is upto 13 persons.

ITC is allowed even if seating capacity up to 13 persons in case of motor vehicles, etc if:

  • Used for further taxable supply of such vehicles
  • Used for transportation of passengers which are taxable
  • Used for imparting taxable training of motor driving

No ITC  allowed on general insurance, servicing, repair and maintenance services used in relation to the motor vehicles on which ITC is not allowed.

Goods Transportataion

ITC of motor vehicles used in goods transportation is allowed in all type of cases. Also, ITC of general insurance, servicing, repair and maintenance is also allowed for these vehicles.

No ITC for motor vehicle used for transportation of cash since cash is not goods but ITC will be available in respect of motor vehicles if they are used for transportation of money for or by a banking company or a financial institution.

Goods Transport Agency (GTA)

Option 1:

If GTA opts for forward charge and opts to pay GST @ 12% on the services it can avail ITC on motor vehicles.

Option 2:

If GST opts for reverse charge mechanism (RCM) and the receipient pays tax @ 5% then ITC on motor vehicle is not allowed.

2. Vessels, aircraft, etc

ITC is allowed if

  • Used for further taxable supply of such vehicles
  • Used for transportation of passengers which are taxable
  • Used for imparting taxable  training of  flying, navigating such vehicle or conveyances or vessels or aircrafts
  • Used for transportation of goods

3. Food , beverages , club membership fees, beauty treatement, plastic surgery , rent a cab, life insurance , health insurance and others

ITC is not available on food , beverages , club membership fees, beauty treatement, plastic surgery and others.

However, ITC will be available if the category of inward and outward supply is same or the component belongs to a mixed or composite supply under GST. Also it will be available if it is obligatory for an employer to provide the same to its employees under any law for the time being in force.

4. Services of general insurance , servicing , repair & maintenance

ITC is available if:

  • ITC can be claimed if services used in relation to the motor vehicles, vessels & aircraft on which ITC is allowed.
  • ITC can be claimed on manufacturer of motor vehicles, vessels & aircraft, etc.
  • ITC can be claimed on supplier of insurance used for above taxable purposes.

5. Sale of membership in a club, health , fitness centre

ITC is not allowed on any membership in a club, health , fitness centre.

6. Travel benifits

ITC will be allowed on travel for business purposes. ITC is not available in the case of travel benefits extended to employees on vacation such as leave or home travel concession.

7. Works Contract

ITC is allowed only if works contract service is supplied for construction of immovable plant and machinery or when one works contract is input for another works contract.

8. Constructing an immovable property on own account

The person is building such immovable property for the further selling then he is eligible to avail the ITC but if he receives inward supply of goods or service for constructing an immovable property on own account even used in course or furtherance of business then ITC is not available.

9. Composition Scheme

No input tax credit can be claimed by a dealer opting for composition scheme.

10. No ITC on non residents

No ITC shall be available to such person in respect of the goods and services availed by a person who temporarily supplies any goods or services with in India even though they are not a resident of the taxable territory.

However, ITC shall be available on the goods imported by such person.

11. No ITC for personal use

No ITC is available on input tax credit on goods or services used for personal use.

12. Goods distrubted as free samples or gift

No ITC is available for goods distributed as free sample or gift. The objective behind blocking input credit in above cases is to avoid leakage of tax. The government will not be able to  get any tax benefit on the goods lost/ disposed off by way of free gifts etc. if it allows input credit in such cases.

The supplier shall be entitled to avail input tax credit for such inputs, input services and capital goods used in relation to the supply of goods or services or both on such discounts like promotional schemes such as ‘buy one get one free’ (BOGO) and additional quantity for the same price will be eligible for input tax credit.

13. Goods lost , destroyed , stolen or written off

No ITC is available on goods lost including abnormal loss , destroyed  including natural or man made calamity, stolen or written off.

14. No ITC in fraud cases

No ITC can be availed in case of any tax paid due to non-payment or short tax payment, excessive refund or ITC utilized or availed by the reason of fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.

15. ITC in case of restaurants

Standalone restaurants will charge only 5% GST but cannot enjoy any ITC on the inputs. However, restaurants and normal/composite outdoor catering as part of hotels with room tariffs exceeding Rs. 7,500 still continue pay 18% GST and can avail ITC. This covers individuals supplying catering or other services in hotels (having room tariff of Rs 7,500 or more) and not any hotel accommodation services.

Other than stated above ITC can be availed on all input goods, services and capital goods used for business purposes under GST.

10. Allowance / Disallowance of ITC – special points

1. At the time of cancellation of registration and filing GST REG 16, the details of inputs, semi-finished, finished goods held in stock on the date on which cancellation of registration is applied must be included and any balance lying the electronic credit ledger shall lapse.

2. Post sale discount shall not be deemed as payment to supplier hence no ITC claim on such amount.

3. In case of manufacturing unit entire ITC available even if part of input goes in by-product, waste, process loss, handling loss, natural loss, loss in transit due to natural causes and atmospheric changes are allowed and ITC need not to be reversed even if waste is not returned by job worker.

4. No ITC on advance payment.

5. No ITC on short supply of input received.

6. No ITC allowed on shed under to protect plant and machinery in civil construction.

7. ITC is allowed on input services for CSR activity.

8. ITC is allowed on brokerage services related to renting of building.

9. ITC is not allowed on Lease rent for pre operative period.

10. ITC is not allowed on gardening expenses and hospital expenses.

11. ITC is allowed on Expenses related to guest house, transit house and training hostels

12. If invoice not available the registered person can take estimated amount based on prevailing market value.

11. ITC under reverse charge mechanism (RCM)

A supplier cannot take Input Tax Credit of GST paid on goods or services used to make supplies on which the recipient is liable to pay tax under reverse charge. Tax paid on reverse charge basis will be available for input tax credit if such goods and/or services are used, or will be used, for business. The recipient (i.e., who pays reverse tax) can avail input tax credit. The tax under reverse charge has to paid through cash only.

12. Reversal of ITC

ITC on the goods can only be claimed only if stated conditions are followed. If not folowed, there are certain other situations where ITC will be reversed.

1. Non payment within 180 days

ITC will be reversed for invoices which were not paid within 180 days of issue. If part of the invoice is paid the ITC will be reversed on a proportionate basis. The ITC reversed has to be added to output liability along with interest thereon. This rule doesn’t apply where the recipient is liable to pay tax on reverse charge basis. The amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess.

2. In case of Input service distrubtor (ISD)

If a credit note was issued by the seller to the HO then the ITC subsequently reduced will be reversed in case of input service distributor (ISD). The dealers to whom the credit was distributed also have to reverse this ITC. This reversal of input tax credit shall be in the same proportion as in the original ITC distribution by the ISD.

3. Inputs partly for business purpose and partly for exempted supplies or for personal use

ITC used in the portion of input goods/services used for the personal purpose must be reversed proportionately.

4. Capital goods partly for business and partly for exempted supplies or for personal use

ITC on capital goods used for the supply of exempt supplies and non-business purposes will also be reversed.The calculation will be similar to the calculation for ITC on inputs used for exempt supplies and personal use.

Input tax credit of tax component of capital goods is not allowed if the person has claimed depreciation in income tax act for GST component. In other words ,a person can either take input tax credit of GST on capital goods or claim depreciation on tax component. If taken reversal is required at the time of closing Books of accounts for that year.

5. Reversal of ITC on inputs used for exempted/non-business purpose is more than the ITC reversed during the year

After filing GSTR 9 – Annual Return the total ITC on inputs used for non-business or exempt supplies can be more than the total ITC reversed during the year. In that case, the differential amount must be reversed. The difference will be added to output tax liability.  Also, amount of ITC to be reversed should be further segregated into IGST, CGST, SGST and Cess.

6. ITC reversed during the year is more than ITC on inputs used for exempted / non-business purpose

If ITC reversed during the year is more than ITC on inputs used for exempted / non-business purpose the differential amount can be reclaimed as ITC. The amount should be reduced from output liability.  The amount of ITC to be reclaimed has to be segregated into IGST, CGST, SGST and Cess.

7. In case of bank and financial institutions

When any bank, financial institution or NBFC is separately registered as a business vertical, it is required to reverse 50 % of the ITC if it opts for 50 % of ITC at the time of filing regular returns.

8. ITC has been availed on blocked credits or any kind of input tax credit which was not to be availed

If ITC has been availed on block credits or any kind of input tax credit which was not to be availed it has to be reversed at the time of filing regular returns upto the date of filing annual return.

13. Inverted duty structure:

The term ‘Inverted Tax Structure’ refers to a situation where the rate of tax on inputs purchased (i.e.GST Rate paid on inputs received) is more than the rate of tax (i.e. GST Rate Payable on outward supplies) on outward supplies. In case of inverted duty structure the taxpayer can claim refund of excess ITC available. Normally, there should always be a liability to pay GST due to value addition made by the taxable person. However, due to multiple tax rates, despite value addition, there might arise a situation that there is accumulation of input tax credit wherein GST rate on inputs is higher than the GST rate on outputs which is termed as Inverted Duty Structure. The few industries facing this issue are utensils, e – rickshaw, non woven fabric bags, textile industry, etc. No refund of the unutilized input tax credit shall be allowed in case of a supply of Construction Services.

14. Refund of excess ITC:

In following cases no refund of the unutilized input tax credit shall be allowed:

  • If output supplies are nil rated or fully exempt supplies.
  • If supplier claims refund of output tax paid under IGST Act
  • If the goods are exported out of India are subject to export duty.
  • If the supplier of goods or services or both avails of drawback in respect if the central tax or claims a refund of IGST on such supplies.

With retrospective effect from 1st July 2017 ,refund is allowed only for the inputs of goods. Input doesn’t include input services and capital goods for this purpose. Net ITC includes ITC of all inputs whether or not used directly consumed in the manufacturing process. An input tax credit of the GST paid on inputs shall be available to a registered person as long as he/she uses or intends to use such inputs for the purposes of his/her business and there is no specific restriction on the availment of such ITC  and thus ITC on stores and spares, packing materials, materials purchased for machinery repairs, printing and stationery items are thus included in Net ITC for calculation of refund.

Maximum Refund Amount = (Turnover of inverted rated supply of goods and services X Net input tax credit / Adjusted total turnover) – Tax payable on such inverted rated supply of goods and services.

The terms in the above formula have been specfically stated and defined.

For claiming refund there are various conditions like :

1. GSTR 1 and GSTR-3B has to be filed for the relevant tax period for which you want to file refund application of the accumulated ITC.

2. RFD-01A is similar to RFD-01 which is introduced as a temporary solution for application till such time the online facility is enabled for claims of refund.

3. RFD-01A has to be filed within 2 years from the end of financial year in which such claim for refund arises.

15. ITC under special cases:

1. Job work

The taxpayer ie the principal is allowed to take ITC of the goods or capital goods sent to a job worker for job work. Input is allowed even if the inputs are directly sent to a job worker for job-work without their being first brought to his place of business. If such goods are not received back by principal or supplied from place of job worker within one year from the date of sending goods to job worker or three years from the date of sending capital goods to job worker, then 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 .

This rule of deemed supply  shall not apply to moulds and dies, jigs and fixtures, or tools sent out to a job-worker for job-work.

ITC need not to be reversed even if waste is not returned by job worker but no ITC can be availed on short supply of input received.

2. Input Service distributor (ISD)

The ISD issues of a document called an ISD invoice containing the amount of input tax credit and distributes the credit to the branches (having the same PAN)  on a proportional basis in the ratio of the turnover of all such recipients that are operational during the year .The tax credit available against any specific input services used entirely by one of the recipients can be allocated only to that recipient for utilization of such credit and not to other recipients. No differentiation is made to whether the unit is registered or not, and therefore, credit attributable to the unregistered unit is distributed to that unit which implies, it is a loss of credit. For this Input Service Distributor has to compulsorily register as “ISD” apart from its registration as a normal taxpayer under the Act. ISD cannot distribute credit on inputs (eg: raw materials and capital goods) and to outsourced manufacturers or service providers.

The credit of tax paid under reverse charge mechanism is not available for distribution to the recipients. So, the ISD has to utilize such credit only as a normal taxpayer.

3. Bank and Financial Institutions

Banks, financial institutions and non banking financial companies (NBFC) have an option to avail an amount equal to 50 per cent of the eligible input tax credit on inputs, capital goods and input services in that month or to take input tax credit only on purchases made for selling taxable or zero rated goods or services and leave out the tax paid on purchases made for exempted supplies. Option once exercised can not be changes during the financial year. Also restriction of 50% doesn’t apply where the tax is paid on supply from one registered person to another registered person having the same Permanent Account Number.

When the bank, financial instition or NBFC opts to pay for 50 % then 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.

4. Pipelines and Telecommunication Tower

There is a special provision made under the act for availing input tax credit in case of pipelines and telecommunication tower fixed to earth by foundation or structural support. The input tax credit shall not exceed:

– 1/3rdof the total ITC in the financial year in which the said goods are received

– 2/3rdof the total ITC, including the credit availed in the first financial year, in the financial year immediately succeeding the year referred to above  in which the said goods are received,

– the balanceof the amount of credit in any subsequent financial year.

16. Forms for ITC under GST

There are 4 types of ITC Forms, which are as follows:-

ITC 01 – ITC for new GST Registration

This form is to be filed when

  • an application for GST registration is made within 30 days of becoming liable to pay GST
  • any person opts forvoluntary registration
  • any person opts out of composition scheme but continues to be registered as a regular taxpayer
  • an exempt supply of goods/services becomes taxable supply

Input tax credit is allowed in respect of inputs held in stock, inputs contained in semi-finished/finished goods, capital goods on the cut-off date. Invoice wise details of ITC has to be filled. The ITC in respect of services cannot be claimed in Form ITC 01. ITC in respect of capital goods can only be claimed in case composition dealer opts out of composition scheme and where exempted supply becomes taxable supply. If the ITC claim is more than Rs 2 lakhs, Chartered Accountant certificate or Cost Accountant certificate must be uploaded.

ITC 02 – Transfer of ITC in case of sale/merger etc.

A registered taxpayer can apply for transfer the matched ITC available to another business entity in case of transfer of business by way of sale of business / merger / demerger by filing of ITC declaration in Form  ITC-02. The acquired entity must file ITC declaration for transfer of ITC in the Form ITC-02. ITC shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.

The acquiring entity (transferee) and acquired entity (transferor), both should be registered under the GST regime. The acquired entity (transferor) must have validly filed all the returns for the past periods. All transactions categorized as pending for action of merging entity should be either accepted / rejected / modified, and any liabilities arising out of the returns filed by the transferor must be paid. It should be accompanied by the certificate issued by Chartered Accountant or Cost Accountant.

The process of filing this form is the  acquired entity (transferor) files declaration in Form ITC -02 on the GST portal, specifying the available matched ITC in each major head. The acquiring entity (transferee) then accepts / rejects the same on the GST portal.

ITC 03 – Reversal of ITC

Form ITC 03 is to be filed when

  • The taxpayers opts to composition scheme from normal scheme
  • The taxable supply becomes exempt supply

This form is filed so that input tax availed earlier and lying as credit has to be reversed in the above cases. For this the taxpayer must have availed ITC. In case of composition scheme, he should file this form once in a financial year. This is because once he opts for composition scheme in the beginning of the financial year, it cannot be changed till the next financial year where as if a taxpayer is filing ITC 03 on account of products or services becoming exempt, he should file the form as and when the notifications are issued. In case invoice details are not available, a certificate from a Chartered Accountant is required certifying the value of goods and the input tax credit on the same.

ITC 04 – ITC on goods sent to Job Worker

Form ITC -04 is filed by the taxpayer who sends goods to job worker. To elaborate by a taxpayer whose :

  • Goods dispatched to a job worker
  • Received from a job worker
  • Sent from one job worker to another

The taxpayer who sends the goods is called a principal manufacturer and he is allowed to take input tax credit on the goods purchased and sent to job worker. The place of supply will be the principal place of business or directly from the place of supply of the supplier of such goods.

The input tax credit can be availed on if these goods are received within the stipulated time, in case of inputs – 1 year and in case of capital goods – 3 years otherwise the such goods will be treated as supply from the effective date and tax will be payable.

17. Due Date of ITC forms

Sr No Particulars Due Date Periodicity

FORM GST ITC -01

1. an application for GST registration is made within 30 days of becoming liable to pay GST Date immediately preceding the date when he becomes liable to pay tax. Once in life time of that business  of that event
2. any person opts for voluntary registration Date immediately preceding grant of registration Once in life time of that business of that event
3. any person opts out of composition scheme but continues to be registered as a regular taxpayer Date immediately preceding day when he opts to pay tax under regular mode. Once in a financial year
4. an exempt supply of goods/services becomes taxable supply Date immediately preceding the date when the supply becomes a taxable supply Once when notification are issued

FORM GST ITC -02

1. Transfer of business by way of sale of business / merger / demerger Filed by the transferee/successor before filing the application for cancellation of such registration Once in life time of that business of that event

FORM GST ITC -03

1. The taxpayers opts to composition scheme from normal scheme Filed within 180 days of commencement of the scheme Once in a financial year
2. The taxable supply becomes exempt supply Filed as and when the notifications are issued Once when notification are issued

FORM GST ITC -04

1. Goods sent to Job worker 25th of the month of succeeding the quarter Quarterly

18. ITC in GST returns

Tran 1 :

Form TRAN-1 should be filed by every person having ITC on closing stock and migrated to GST form VAT, Service Tax, or Central Excise. The balance of closing stock held by a business as on 1st July 2017 has to be disclosed in TRAN-1 to claim ITC on the old stock in the GST regime.

Tran 2 :

Form TRAN – 2 can be filed by a dealer/trader who has registered for GST, but was unregistered under the old regime. Such a dealer who does not have a VAT or excise invoice for stocks held by them on 30th June 2017, can use TRAN -2 to claim tax credit on the stock with them.

GSTR 1 : 

Form GSTR – 1 is a monthly / quarterly return filed by the taxpayer for sales summary stating details invoice wise . ITC is not impacted here in this return.

GSTR 2A:

Form GSTR – 2A is an auto-populated form generated in the recipient’s login, covering all the outward supplies (Form GSTR – 1) declared by his suppliers. The details of  input tax credit can be cross verified and needs to be reconciled with the actual input tax credit. In case the supplier has not recorded the outward supplies in Form GSTR – 1, communication can be sent out to the supplier to ensure that the discrepancies are corrected.

GSTR 3B: 

Form GSTR – 3B is a monthly summary return of all the transactions during the month filed by the taxpayer which has been brought in temporarily instead of GSTR 2 & GSTR 3. Taxpayers are allowed to take the input tax credit (ITC) based on the details declared by the taxpayer in Table 4 of Form GSTR – 3B.

GSTR 7 / 8:

The taxpayer can avail GST TDS/TCS and for availing GST TDS/TCS deducted by the deductors/collectors all the deductee need to file ‘TDS/TCS credit received’ tab on the portal. The deducted amount will appear in cash ledger which can be used for payment of balance amount of tax after setting off with the Input tax credit.

GSTR 9:

The ITC availed in current financial year but pertaining to invoices belonging to previous financial year can be declared in Table 8C of the GSTR-9. Further, it would require reporting in Table 13 of GSTR-9 as well if the same is accounted in the books of accounts but credit was claimed in current financial year. There is no separate field in Table 8 to declare the IGST credit on import of goods for example for F.Y. 17-18, claimed in F.Y. 18-19. Taxpayers were worried they might lose out the IGST credit availed in F.Y. 18-19 but related to F.Y. 17-18 completely for not being declared in GSTR-9. However, the government has clarified that such credit for July 2017 till March 2018 which has been claimed in the financial year 2018-19 be reported in Table 6(E) of the GSTR-9 form. The input tax credit which is declared/computed in Table 8D is basically credit that was available to a taxpayer in Form GSTR-2A but was not availed by him between July 2017 to March 2019. There is no question of lapsing of any such credit since this credit never entered the electronic credit ledger of any taxpayer. Therefore, taxpayers need not be concerned about the values reflected in this table. This is merely information that the Government needs for settlement purposes. In both table 8E – ITC available but not availed – The credits reflecting in GSTR-2A which was not availed from July 2017 to March 2019 and hence the time limit for availing the same has lapsed and table 8F – ITC available but ineligible – The credits which are not eligible under the law like the blocked credits etc. Table 6B needs a declaration of inward supplies on which ITC is claimed successfully and was never reversed and reclaimed anytime. Whereas, the table 6H needs declaration of those inward supplies where ITC was availed once and reversed and reclaimed later. In either of the tables, there cannot be overlapping of figures.

GSTR 9C:

Part IV of GSTR 9C contains he reconciliation of input tax credit availed and utilised by taxpayers as reported in GSTR-9 and as reported in the Audited Financial Statement. Further, it needs a reporting of expenses booked as per the audited accounts, with a breakup of eligible and ineligible ITC and reconciliation of the eligible ITC with that amount claimed as per GSTR-9. This declaration will be after considering the reversals of ITC claimed, if any.

The auditors can give their recommendation in Part V on the same.

Other:

When the supplier files GSTR – 1 in any particular month disclosing his sales, the corresponding details are captured in GSTR – 2A of the recipient.While the filing of Form GSTR – 2 has been kept in abeyance, it is still important under the GST framework for the taxpayers to reconcile the ITC claimed in Form GSTR – 3B and Form GSTR – 2A. GSTR – 3B is a summary return. Hence, the amount of ITC available as disclosed in Table 4(a) must match with tax details disclosed in Form GSTR – 2A .Even at the time of filing an Annual return in Form GSTR – 9, reconciliation of ITC as per GSTR – 3B and GSTR – 2A is required to be done in Table 6 and Table 8 across months. In tables 6B, 6C, 6D & 6E, a taxpayer has the option to report input tax credit (ITC) under the “inputs” row only instead of reporting the break-up under inputs, capital goods and input services. In tables 6C and 6D, a taxpayer will have the option to either report the details separately (i.e. inward supplies received from unregistered and registered persons liable to reverse-charge), or report the consolidated details in table 6D only.

The ITC in relation to GSTR 5/5A (Non resident), GSTR 6 (Input service distributor- ISD ) and GSTR 10 (cancellation of registration ) have been covered under various other heads and for the procedural filing, please refer forms available on GST portal.

19. Notices in relation to ITC

GST authorities have issued notices to a large number of taxpayers asking them to reconcile the ITC claimed in a self-declared summary return Form GSTR – 3B with the auto-generated Form GSTR – 2A. Such notices are issued in Form GST ASMT – 10. The taxpayer would be required to reply to such notices or pay the differential amount.

Tax evaders claiming ITC on the basis of fake invoices have also been penalised.

20. Recent judgement in cases in relation to ITC

1. The Delhi High Court has ruled that time limit for collection of transitional credit or input tax credit (ITC) is a directive and not mandatory. The transitional credit is the tax credit (value-added tax (VAT), excise duty, service tax) accumulated till June 30, 2017, before the new goods and services tax (GST) was put in place. However, many aspects remained unresolved and petitioners moved to court, filing reaching the high court, seeking to scrap Rule 117 of CGST Rules 2017 which provides a time limit to carry forward tax credit from the previous regime. The court clearly mentioned that this benefit of transitional credit will be applicable for three years — that is, the period mentioned in the limitation act ,applicable not only qua the petitioners but to all other petitioners who are facing the hardship of transitional credits. The judgement now allows assessees to claim pending ITC till June 30, 2020.

2. The Authority for Advance Ruling (AAR), Maharashtra, has ruled against input tax credit for the gold schemes, offered by companies to its customers to encourage them to meet the business targets. Input tax credit on gifts will not be available when no GST is paid on its disposal. Authority of advance ruling (AAR) relied on the Section 17(5)(h) of the Central GST Act, which says, “…input credit shall not be available in respect of goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.”

There are other judgements too in relation to ITC but we have tried to cover the landmark judgement.

In the above article , it is tried to explain the concepts in a simplar manner from the understanings taken from the section of the GST Law.

For further details,

Mansi Bhojani | M D B & Associates | Chartered Accountants | E-mail : info@mdbassociates.in / mansi@mdbassociates.in | Practicing in Mumbai, India.

Author Bio

Qualification: CA in Practice
Company: M D B & ASSOCIATES
Location: MUMBAI, Maharashtra, IN
Member Since: 07 May 2020 | Total Posts: 4
Mansi Bhojani has 5+ years of professional experience, excellence in the field of operations and management of professional services. She specializes in Tax & Business advisory and possesses extensive expertise in Direct Taxation ,GST, Statutory and Tax Audit, Corporate matters, etc. View Full Profile

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10 Comments

  1. Amar Nath Gupta says:

    Very Good and useful Article. Please Guide
    One person having a Hotel ,restaurant,banquet out door catering services etc.
    Room rent is below Rs 7500/- ,in restaurant charges 5% and in out door catering 18%.can
    ITC on Hotel and Out door Catering may use for payment of liability of Restaurant service

    1. MANSI BHOJANI says:

      Thank you for your appreciation and encouraging words.
      The GST rate is 5% on restaurant services but the input tax credit is not allowed .

      The rate chart related to the services mentioned are :
      1. Restaurants (Stand Alone) -5% without Input Tax Credit
      2. Restaurant being a part of a Hotel (where the declared tariff of the accommodation is not exceeding Rupees 7500) – 5% without Input Tax Credit
      3. Restaurant being a part of a Hotel (where the declared tariff of the accommodation exceeds Rupees 7500) -18% with Input Tax Credit
      4. Regular Catering at say Company premises – 5% without Input Tax Credit
      5. Outdoor catering service – 18% with Input Tax Credit

  2. B C BHAT says:

    Article is very excellent and gives full information. Clarification requested on the following issues :-
    1. Can we adjust ITC credit paid under RCM in the same month for the output liability. Different views are expressed that credit should take in the next month of payment.
    2. Is ITC available for Canteen, Health Insurance provided to employees under Statutory obligation.
    Your valued opinion is requested pl.

    1. MANSI BHOJANI says:

      Thank you so much for your appreciation and acknowledgement.

      For the first point, there have been many discussions and opinions but the most accepted view and according to my understanding it is that yes ITC can be availed in the same month (subject to the conditions of availing credit under RCM like payment , etc are satisfied)

      For the second point, in case of canteen & health Insurance provided to employees, the ITC can be availed provided it is a statutory obligation under the rules laid down by government enabling provisions in the law.

      For precise answer it requires better understanding of the facts as it is case specific.

  3. VIVEK says:

    5. A person when his exempt supply becomes taxable supplyis entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he ceases to pay tax under composition scheme. ITC is not allowed for purchases made for exempted supplies.( I GUESS THERE IS TYPO ERROR. THIS DOES NOT PERTAIN TO COMPOSITION)

    1. MANSI BHOJANI says:

      Yes , there is a typing error. Sorry for the inconvenience. The sentence should have been “A person when his exempt supply becomes taxable supply is entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods relatable to such exempt supply on the day immediately preceding the date from which such exempt supply becomes taxable.”

  4. Ashok Herma says:

    A good and detailed analytical article, thanks for sharing, however i have doubt on below mentioned of your suggestion, according to my view ITC may not be available , as claimed in your article :

    – ITC is allowed on input services for CSR activity.
    – ITC is allowed on Expenses related to guest house, transit house and training hostels

    Further ITC may eligible on below mentioned :
    – ITC is not allowed on gardening expenses.

    1. MANSI BHOJANI says:

      Thank you for your encouraging words and going through the article.
      In respect to your suggestions I would like to add a few words:

      In respect of CSR activity , it was held in Essel Propack Ltd. Vs Commissioner of CGST, Bhiwandi case that ITC is allowed on CSR activity. The case details are available online.

      In respect of ITC in case of expenses related to guest house, transit house and training hostels, in an application was filed and case was in favor and AAAR has granted to take input tax credit. The case details are available online.

      However these issues are still debatable and still there are considerations going on.

      In respect of gardening expenses it is stated that it is not a statutory obligation nor compulsory business requirement so it is not allowed. However, it depends on case to case like exceptional cases upon their nature of business.

      These issues are very disputable, however have tried to give a general view on the same.

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