We present our understanding with respect to claim and adjustment of Input tax credit under GST regime. As per our understanding there are many changes in respect of availment and utilization of Input Tax Credit under GST regime as compared to present laws. The changes require immediate attention of the tax payers. We have tried to consolidate the change and their impacts through this article. Be it automation, be it matching concept or be it inter-state or intra-state credits, or many other things are bringing the most interesting/transparent system for availing the Input tax credit of input taxes paid as CGST, SGST or IGST.

Currently, as service provider cannot avail the credit of VAT paid on inputs used in the course of business. Further, a trader cannot use the credit of excise duty or service tax paid on inputs or input services, if any. However under GST regime all such tax payer would be entitled to avail the input tax credit.

Also Read: Input Tax Credit Part II : Claim and adjustment under GST regime

Meaning of input tax credit:

“Input tax credit in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section(3) of section 8, but does not include the tax paid under section 9”.

In simple words, Input tax credit means “CGST, SGST or IGST(including IGST paid on import of goods) paid by a taxable person on any supply of goods or services to him and taxes paid under reverse charge. No credit for taxes paid to a composition dealer.”

Electronic Credit Ledger: This will be maintained on the common portal and the input tax credit as self-assessed in the return of a taxable person shall be credit to this ledger on provisional basis and this credit shall be utilized only for payment of self-assessed output tax liability as per the return.

Entitled to input tax credit:

Every registered taxable person shall be entitled to take credit of tax paid on any supply of goods or services received by him which  are  used  or  intended  to  be  used  in  the  course  or  furtherance  of  his business and the said amount shall be credited to the electronic credit ledger of such person.

Further under GST regime there is no restriction to avail proportionate credit in respect of Capital Goods like 50%/33% or in 36 months under different current laws.

Just an exception to above rule in respect of pipelines and telecommunication tower fixed to earth by foundation or structural support that the credit of input tax shall not exceed

  • 1/3rd of total tax credit in first year in which the said goods were received,
  • 2/3rd of total tax credit in second year and
  • remaining can be availed in third year

Conditions to avail input tax credit:

No registered taxable person shall be entitled to the credit of any input tax in respect of any supply of goods and/or services to him unless –

a) he is  in  possession  of  a  tax  invoice  or  debit  note  issued  by  a  supplier registered  under  this  Act,  or  such  other  taxpaying  document(s)  as  may  be prescribed;  – INVOICE RECEIVED

b) he has received the goods and/or services; – GOODS OR SERVICES RECEIVED

c) the tax  charged  in  respect  of  such  supply  has  been  actually  paid  to  the account of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and – SUPPLIER HAS PAID THE TAX CHARGED ON INVOICE

d) he has furnished the return under section 34(return to be filed on or before 20th day of next month): – RETURN HAS BEEN FILED

It is pertinent to note that the all 4 conditions mentioned above is required to fulfilled before availing the Input tax credit.

Special cases for availing the Input tax credit

1) Goods received in lots – where the  goods  against  an  invoice  are  received  in  lots  or instalments,  the  registered  taxable  person  shall  be  entitled  to  take  credit  upon receipt of the last lot or installment,

2) Payment to supplier of services within 3 months – where a  recipient  fails  to  pay  to  the  supplier  of  services, the amount towards the value of supply of services along with tax payable thereon within a period of three months 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, in the manner as may be prescribed. Such condition for payment is not applicable in respect of goods.

3) No input tax credit if tax has been claimed as depreciation – Where  the  registered  taxable  person  has  claimed  depreciation  on  the  tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.

4) Time limit to claim the input tax credit – A taxable person shall not be entitled to take input tax credit after furnishing of the return for the month of September following the end of financial year (i.e. 20th October of the following FY) or furnishing of the relevant annual return(i.e. 31st December of the following FY), whichever is earlier. Therefore all credits should be availed before filing of return for the month of September following the end of financial year

Cases where Input tax credit shall not be allowed: 

1. Input tax credit in respect to motor vehicles and other conveyances, except when they are used

a. For making the following taxable supplies

Further supply of such vehicles or conveyances; (e.g. manufacturers of motor vehicles)

Transportation of passengers; (e.g. cab service providers)

Imparting training on driving, flying, navigating such vehicles or conveyances;(e.g. Motor driving school)

b. For transportation of goods

2. Supply of goods and services, namely

  • Food and beverages,
  • Outdoor catering,
  • Beauty treatment,
  • Health services,
  • Cosmetic and plastic surgery
  • Works contract supply when supplied for construction of immovable property other than Plant & Machinery,

However, input tax credit shall be allowed if the particular category is used by registered taxable person for supplying same category of goods or services.

  • Membership of a club, health and fitness centre,
  • Rent a cab, life insurance, health insurance except which are obligatory in nature under any law,
  • Travel benefits extended to employees on vacation such as leave travel concession,

3. Taxes paid to composition dealer,

4. In case of goods or services used for personal consumption,

5. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples,

Impact on service provider:

Under the current regime, service provider is eligible for Cenvat Credit based on the invoices and payment to supplier within 3 months of invoices. There is no cross matching with the payment of service tax by the supplier. However under the proposed regime, input tax credit would be available only when the same has been paid by the supplier and he has furnished his return properly. Therefore the recipient would require reconciliation of input tax credit as per books and as per the Electronic Credit Ledger.

In the part-II of our article, we have addressed the matching concept laid down in the GST regime in relation to input tax credit and output tax liability.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the authors are personal view and this cannot be quoted before any authority without the written permission of the authors. This article is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as a result of any material contained in this article will be accepted by authors. It is recommended that professional advice be sought based on the specific facts and circumstances. This article does not substitute the need to refer to the original pronouncements on GST.

(Authors – CA Neeraj Kumar and CA Deepak Arya, RAPG & Co. Chartered Accountants from Delhi and can be reached at info@rapg.in, 9999836182/9818449179)

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