Article explains Conditions under which Input Tax credit can be availed under GST Regime, Conditions under which Input Tax credit can’t be availed, Other items on which ITC is not eligible in certain cases, Other points regarding Input Tax Credit Availment, Some Important Provisions related to ITC, Transitional Provisions  Based on Input Tax Credit (ITC) and Cases where ITC transition provisions will be applicable (Closing balance of credit on Inputs, Credit on Capital Goods, Credit on Stock, Registered persons who were not registered under previous law and ITC on Goods Sent Before 1st July.).

Input Tax Credit means the Central tax ( CGST ) , State tax ( SGST ) , Integrated Tax ( IGST ) or Union territory tax ( UTGST ) charged on supply of goods or services or both made to a registered person . It also includes tax paid on reverse charge basis and integrated tax goods and services charged on import of goods. It does not include tax paid under composition levy.

1. Conditions under which Input Tax credit can be availed under GST Regime:-

  • The person claiming input tax credit must be a registered person under the GST regime.
  • The inputs must be used in or it is intended to be used for the furtherance of Business. The inputs for personal or non – business purpose are not eligible for ITC.
  • Similarly, if inputs are used partly for the purpose of other than business use the same shall be restricted to the input tax attributable to the business purpose.
  • If inputs are partly taxable supplies and / or zero – rated supplies or partly for exempted supplies, then same would be restricted to the input tax credit attributable to taxable supplies and / or zero – rated supplies or exempted supplies.
  • There must be a tax invoice or any other document relevant for the purpose of evidencing of payment of tax.
  • The input receiver and input supplier both must have filed valid return for the relevant period.
  • Where the goods against the invoices are received in lots or installments, the registered person shall be entitled for ITC upon the basis of last lot or installment received.

2. Conditions under which Input Tax credit can’t be availed under GST Regime:-

  • Input use for personal or non – business purpose.
  • Input used for supplies on which recipient is liable to pay tax on reverse charge basis.
  • Person who has opted for composition scheme is not eligible for ITC.
  • Non- resident taxable person is not eligible for ITC
  • Goods given as gift, lost, destroyed by fire, Stolen etc. are not eligible for ITC.
  • In case of capital goods if depreciation is claimed under Income tax provisions of the input component, then no ITC available on the said tax component.
  • If the recipient the supply fails to pay value of the supply within 180 days, the ITC claimed shall be reversed. But, the recipient shall again become eligible for ITC on making Payment to the Supplier.

3. Other items on which ITC is not eligible under GST Regime in certain cases:-

  • ITC shall not be available in respect of motor vehicles, except when they’re used for making taxable supplies of such vehicles or for transportation of passengers or goods.
  • Food & beverages, Outdoor Catering, Health services and Cosmetic and Plastic surgery shall not be available for ITC except when they’re used for making outward taxable supplies of same kind of supplies or as a part of taxable, composite or mixed supply.
  • Membership of Club, Health & Fitness Center is not eligible for ITC except when it is used by a registered person for making same category of supply.
  • Membership of trade and professionals corporations cannot be treated as membership of club, and therefore should not be covered by this exclusion clause.
  • Rent a cab, life insurance and health insurance shall also not be eligible for ITC except when the same is used for making outward supply of the same category, or as a part of a taxable, composite or mixed supply.
  • Travel benefits extended to employees are also not eligible for ITC.

4. Other points regarding Input Tax Credit Availment under GST Regime:-

  • IGST paid on inward supplies inter-state supplies shall be eligible for ITC. Similarly, IGST paid on import of goods and services shall be eligible for ITC.
  • Stationery, office equipment, furniture & fixtures, etc. should also be eligible for ITC, if they are intended for the use in the course of furtherance of business.

5. Some Important Provisions That come across the daily Practices :-

  • ITC in respect of any supply can be claimed in any subsequent month also, but not after due date for filing return for September of the next financial year, or the date of furnishing of relevant annual return, whichever is earlier.
  • ITC on Capital Goods including Plant and Machinery shall be allowed at the rate of 5% points per quarter after proportionate reduction of input tax pertaining to us of Capital Goods for other than business purposes.
  • In case of new registration, if registration is applied is applied within prescribed period of 30 days, or if the person has obtained voluntary registration, the ITC shall be available on inputs held in stock and Inputs contained in semi – finished or finished goods held in stock on the day immediately preceding the effective date of registration i.e. Date from which liability arises.

However, ITC shall not be allowed in respect of invoice of a date prior to one year from the date of effective of registration.

The person who has applied for registration after prescribed period of 30 days shall not be eligible for ITC on such stocks, nor shall he be eligible for ITC on his Inward supplies made prior to the effective date of registration.

  • In case of cancellation of Registration, ITC pertaining to stocks on the date of cancellation of registration shall be reversed.
  • If an exempt supply becomes a taxable supply, only shall be eligible for ITC on stock of such goods on the day when they becomes Taxable.
  • If a person opts for composition, ITC pertaining to stocks of inputs contained in semi – finished of finished goods held in stock and on capital goods held on the day preceding to the date of composition shall be revised by debit to his electronic credit ledger or cash ledger.

6. Transitional Provisions  Based on Input Tax Credit (ITC):-

Provisions have been made for the smooth transition of Input Tax Credit available under VAT, Excise Duty or Service Tax to GST.  A registered dealer opting for composition scheme will not be eligible to carry forward ITC available in the previous regime.

7. Cases where ITC transition provisions will be applicable:

a. Closing balance of credit on Inputs:-

a) The closing balance of ITC as per the last return filed before GST can be taken as credit in the GST regime.

b) The credit will be available only if the returns for the last 6-months i.e. from January 2017 to June 2017 were filed in the previous regime (i.e. VAT, Excise and Service Tax returns had been filed).

c) Form TRAN 1 has to be filed by 27th December 2017 to carry forward the Input Tax Credit. Also, TRAN 1 can be rectified only once.

b. Credit on Capital Goods:-

Before GST, only a part of input tax paid i.e. 50% on Capital Goods could be taken as credit. In such cases, there could be some amount of un-utilized credit available on the capital goods. This credit can be carried forwarded to GST by entering the details in Form TRAN 1.

c. Credit on Stock:-

A manufacturer or a service provider who has goods lying in the closing stock on which duty has been paid can also take the credit for the same. The dealer has to declare the stock of such goods on the GST Portal. The dealer should have the invoices for claiming this credit. Also, the invoices should be less than 1 year old. 

What to do if you don’t have invoices? 

Manufacturers or service providers who do not have an invoice evidencing payment of duty, cannot claim the credit under the GST regime.

Only traders can claim credit in case invoice is unavailable, subject to the following conditions: –

  • The stock should be identified separately
  • The credit can be taken by the trader only if the benefit of the same is passed on to the final consumer

The allocation of Credit is on the following Basis:-

Rate of GST on Goods Intra-state  Credit to CGST Inter-state Credit to IGST
18 % or more 60% 30%
Less than 18% 40% 20%

d. ITC on Goods Sent Before 1st July

Input tax credit can be claimed by the manufacturer/dealer for those goods received after the appointed day, the tax on which has already been paid under previous law. Above credits would only be allowed if the invoice/tax paying document is recorded in the accounts of such person within 1st August 2017.

e. Registered persons who were not registered under previous law :-

Every person who is

A registered dealer and was unregistered under previous law

1. Who was engaged in the manufacture of exempted goods or provision of exempted services

2. Who was providing works contract service and was availing abatement

3. A first stage dealer or a second stage dealer

4. A registered importer

Can also enjoy ITC held in stock on 1st July, 2017

The following conditions must be fulfilled –

1. Inputs or goods are used for making taxable supplies

2. Such benefit is passed on by way of reduced prices to the recipient

3. Taxable person is eligible for input tax credit on such inputs

4. The person is in possession of invoices evidencing payment of duty under the earlier the law

5. The invoices are not older than 12 months

6. The supplier of services is not eligible for any abatement under GST

All the above stated conditions need to be fulfilled by the registered Taxpayer in order to obtain the benefit of Input Tax Credit.

Author Bio

Qualification: Student - CA/CS/CMA
Company: Narendra Bhandari & Co.
Location: Indore, Madhya Pradesh, IN
Member Since: 16 Apr 2019 | Total Posts: 12
Experienced Practitioner with a demonstrated history of working in the higher education industry. Skilled in Business Implementation Management Consultancy, Statutory Audit, and Goods and Services Tax (GST). Strong healthcare services professional with a Bachelor of Commerce - BCom focused on Taxat View Full Profile

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One Comment

  1. Sumanta nayak says:

    when purchases are made for two products but one product is supplied and another is yet to supply,Can all ITC be utilised for payment of gst of one product?

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