What is Input Tax?

Input tax in relation to a registered person means, the CGST, SGST/UTGST or IGST charged on any supply of goods or services or both made to him and includes-

⇒ IGST charged on import of goods.

⇒ Tax payable under the provision of RCM.Utilize ITC

{INPUT TAX CREDIT IS A BENIFIT GIVEN BY STATUTE, IT IS NOT A RIGHT}

Every Registered person entitled to take credit of on supply of goods or services or both to him in the course of furtherance of business subject to such conditions as follow:

GST RETURN IS FILED BY SUPPLIER

TAX INVOICE IS IN THE POSSESSION

GST ON SUCH SUPPLY PAID BY SUPPLIER

GOODS OR SERVICES OR BOTH SHOULD BE RECEIVED

PAYMENT MADE TO SUPPLIER WITH IN 180 DAYS (ONLY NCM)

IMPORTANT POINT

1. In case of goods or services or both received in installment then ITC can be claimed only after receipt of last installment

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. (But no ITC on short supply of input received)

4. No ITC if Depreciation charge on such tax amount.

TIME LIMIT TO CLAIM INPUT TAX CREDIT

CLAIM INPUT TAX CREDIT

ELIGIBLE Input Tax Credit

EXEMPT SUPPLY INCLUDES:

* Supply taxable under RCM

* Telecommunication Tower

* Sale of Land

* Services given in sub item (b) of item 5 of Schedule II

CONDITIONS WHERE A PERSON CAN NOT CLAIM INPUT TAX CREDIT

Block Credits:

  • Motor Vehicle for transportation of passenger (Seating capacity 13 or less including driver)
  • Vessel or Aircraft for transportation of passenger
  • General Insurance, Servicing, Repair and Maintenance of Motor Vehicle, Vessel, Aircraft
  • Food, Beverages, Outdoor Catering, Health Services, Beauty Treatment, Cosmetic and Plastic Surgery, Life Insurance, Health Insurance.
  • Membership of Club & Health Centre
  • Travel benefit extended to employee on leave or vacation
  • Work contract services supplied for construction of immovable property (except Plant and machinery)
  • Goods or services received by a taxable person for construction of immovable property (other than plant and machinery on his own account whether used in the course or furtherance of the business or not
  • GST paid under composition scheme.
  • Goods or services or both received by non-resident taxable person except goods imported by him/her.
  • Goods or services or both used for personal purpose
  • Goods lost, stole, write off, destroyed, free sample and gift 

Exceptions: ITC ALLOWED

  • All supply eligible for ITC when used for making outward supply of same category of goods and service.
  • For motor vehicle, vessel & aircraft when they are making taxable supply for (i) Further supply of motor vehicle (ii) Transportation of passenger (iii) Imparting training of driving, navigation or flying
  • ITC on Demo vehicle for used for promotion is eligible
  • Leasing, renting, hiring of motor vehicle also not eligible for ITC except for aforesaid purpose specified
  • All supply eligible for ITC if inward supplies are due to statutory obligation
  • If expenses of renovation, repairs, reconstruction or alteration are not capitalised in books of accounts of taxable person, ITC is allowable.(the term addition and construction not included)
  • ITC can be availed on sub contract.
  • ITC of construction of immovable used for providing output service of renting is eligible
  • Free sample given to related person then ITC will be eligible but not for brand promotion, sale promotion, gift on achieving target sale

Other:

* No ITC on advance payment

* No ITC on short supply of input received

* No ITC if GST paid in terms of section 74(Fraud), 129(Detention) and 130(Confiscation)

* No ITC on post sale discount

* No ITC for motor vehicle used for transportation of cash. (Cash in not goods)

* Shed to protect plan and machinery is civil structure, no ITC allowed

Some eligibility/ ineligibility:

  • Expenses related to guest house, transit house and training hostels-Eligible for ITC
  • Input services for CSR activity- Eligible for ITC
  • Brokerage services related to renting of building- Eligible for ITC
  • Lease rent for pre operative period- Not eligible for ITC
  • Gardening expenses, hospital expenses- Not eligible for ITC

Plant and Machinery:

  • 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 include such foundation and structural support.

But exclude:

  • Land, building or other civil structures
  • Telecommunication tower
  • Pipeline laid outside the factory

civil structures

Construction Includes:

  • Reconstruction
  • Renovation
  • Repair
  • Addition
  • Alteration
  • Warehouse constructed using pre-fabrication  structure is immovable property

Construction Includes

Section 18(1)
Availability of credit

Availability of credit

Provided that the ITC on capital goods shall be claimed after reducing the tax paid on such capital goods by 5% per quarter or part thereof from the date of invoice. Immediately preceding the date

  • For claiming ITC U/s 18 taxable shall within 30 days from the date when he become eligible shall make an declaration in form GST ITC-01. Extension can be provided by commissioner.
  • Above declaration shall be duly certified by Practicing CA/ CMA if aggregate value of ITC exceeds Rs. 2,00,000.

Section 18(3)

When change in constitution of a registered person due to sale, merger, demerger, amalgamation, lease or transfer of business with the specific provision of transfer of liabilities then such registered person allowed to transfer ITC available in electronic credit ledger to transferee.

[In case of demerger ITC shall be apportioned in the ration of value of asset]

Reversal of ITC

Notes:

  • 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.
  • If invoice not available the registered person estimate the amount based on prevailing market value.
  • Such amount shall be added to output tax liability of registered person, such details shall be furnished in form GST ITC-03 and also furnished details certified by practicing CA/ CMA.
  • Remaining balance of ITC in electronic credit ledger shall be laps.
  • IGST, CGST and SGST/UTGST shall be determined separately.
  • Reversal of ITC if payment not made to supplier.

Section 18(6)
Supply of capital goods or plant and machinery on which ITC

Supply of capital goods or plant and machinery on which ITC taken the registered person shall pay an amount equal to HIGHER of following:

ITC on such capital goods or plant and machinery reduced by 5% per quarter or part thereof from the date of invoice.

OR

Tax on transaction value of capital goods or plant and machinery determined as per section 15.

In case of 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 as per section 15.

Author Bio

Qualification: CA in Practice
Company: N/A
Location: Bundi, Rajasthan, IN
Member Since: 05 Mar 2020 | Total Posts: 1

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One Comment

  1. Mayank says:

    In second point you have wrote that in case of post sales discount , ITC shall not be allowed , however as per circular no. 92/11/2019 heading secondary discount it is written that commercial credit note can be issue , and it has no impact in the value of supplies ,means no reversal of ITC.
    Kindly correct your point.

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