India could face a tax landmine with authorities beginning to question input tax credit claimed by companies in lieu of Goods and Services Tax (GST) paid by their vendors. The authorities have already started sending notices to businesses, confirming fears that scrutiny will increase in the new financial year as the government looks to plug leakages. While paying tax on any output, you can diminish the tax you have already paid on inputs and pay the balance amount referring to input tax credit (ITC). Everyone has to pay taxes on the purchase of a product / service from a registered dealer and collect tax on selling. So adjusting the taxes at the time of purchase with the amount of output tax and balance liability of tax has to be paid to the government which is called utilization of input tax credit.

Who can claim ITC under GST?

A person registered under GST can claim ITC only if he fulfills all the below prescribed conditions as follows:

  • Returns have been filed.
  • Dealer must be in possession of tax invoice.
  • The said goods / services have been received.
  • Tax charged should be paid to the government by the supplier.
  • On receiving goods in installments, ITC can be claimed only when the last lot is received.

ITC will not be allowed on claiming depreciation on tax component of a capital good.

New rules for ITC under GST

The government has changed the input tax credit utilization procedures where the new rules are fairly simple. Taking in consideration, the new sections inserted after section 49 of the CGST Act are as below:

“49A. Notwithstanding anything contained in section 49, the input tax credit on account of central tax, State tax or Union territory tax shall be utilized towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilized fully towards such payment.

49B. Notwithstanding anything contained in this chapter and subject to the provisions of clause (e) and clause (f) of sub-section (5) of section 49, the government may, on the recommendations of the council, prescribe the order and manner of utilization of the input tax credit on account of integrated tax, central tax, state tax or union territory tax, towards payment of any such tax.”

Comparing the old and new law on GST set-off

The below tables highlighted the differences between the old and the new system of set-off of input tax credit:

Following are the existing set off rules:

Payment for First set off from Then set off from
SGST SGST IGST
CGST CGST IGST
IGST IGST CGST and SGST

In contrast to above, below are the new GST rules:

Payment for First set off Then set off
SGST IGST SGST
CGST IGST CGST
IGST IGST CGST and SGST

How the new Input Tax Credit rules impacted business

Indian businesses that paid most of their GST liability using input tax credit or reported significant variation in turnover, a move that has irked industry and prompted it to petition the authorities against such tactics. Even if the credit is available and could have been utilized fully, the new system will not let you use the same for the set-off. Since CGST credit has been not utilized at all, this put an additional burden on the amount of SGST to be paid, as CGST credit cannot be utilized to pay SGST. Moreover, it is noticed that there can arise a possibility of a carry forward of input tax credits of SGST or CGST remaining unutilized during the tax period. This as a result affects the working capital of your business as your cash outflow will increase from month to month due to the new rules of set-off. However, from the Government’s point of view, it is immediate revenue coming in, in the form of cash. Thus, it helps in mobilizing the economy.

If you would like to know more about input tax credit or need any assistance in filing of GST returns, GST assessments and GST audits, our team of experts can assist you in complying with the GST regime.

We can also assist you in setting up your business in India, accounting, bookkeeping, payroll, auditing, taxation, secretarial compliances, and trademark registration, business structuring and advisory services. If you require any assistance in this regard, kindly visit www.ajsh.in or you can mail us at ankit@ajsh.in

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Location: Delhi, New Delhi, IN
Member Since: 17 May 2019 | Total Posts: 15
Ankit is a Bachelors in commerce from Delhi University and a fellow member of Institute of Chartered Accountants of India, New Delhi. He is also certified in IFRS and Forensic Accounting and Fraud Detection. He is the co-founder of the firm. Prior to being associated with AJSH, Ankit worked with th View Full Profile

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7 Comments

  1. Dear Sir,
    Could you please share the source of the below, since we have some invoices which do not reflect in the GSTR-2A and what to claim the ITC

    A person registered under GST can claim ITC only if he fulfills all the below prescribed conditions as follows:

    Returns have been filed.
    Dealer must be in possession of tax invoice.
    The said goods / services have been received.
    Tax charged should be paid to the government by the supplier.
    On receiving goods in installments, ITC can be claimed only when the last lot is received.
    ITC will not be allowed on claiming depreciation on tax component of a capital good.

    Regards
    Nitin Korgaonkar

    1. Ankit Jain says:

      Dear Nitin

      You need to ask your dealer to revise your returns for claiming ITC.

      For more information , you can reach me on mail at ankit@ajsh.in.

      We would be happy to assist you for any sort of business requirements.

  2. Nitin Korgaonkar says:

    Dear Sir,
    Could you please share the source of the below, which is mentioned in your blog, since we have some invoices which do not reflect in the GSTR-2A

    A person registered under GST can claim ITC only if he fulfills all the below prescribed conditions as follows:

    Returns have been filed.
    Dealer must be in possession of tax invoice.
    The said goods / services have been received.
    Tax charged should be paid to the government by the supplier.
    On receiving goods in installments, ITC can be claimed only when the last lot is received.
    ITC will not be allowed on claiming depreciation on tax component of a capital good.

  3. Nilesh says:

    Nice Article.
    Sir, I hv following queries:
    1. ITC utilisaton rule has been changed recently 3-4 time but said changes not appeared in GST portal due to this can Tax payer may face Audit query by GST Auditor ????
    2. How can utilize the accumulated ITC at Head Office. ( In ISD ITC should be Distributed with in That Month only) ….. any udate about Cross chrage ??

    1. Ankit Jain says:

      Dear Nilesh

      Thanks for reading and appreciating our article.

      Kindly find the response for your queries as below:

      1) The rules have been changed recently but GST portal is not updated by government authorities giving the effect of such change.Practically Auditor cannot raise the objection as the registered supplier cannot proceed with set off as per new rule.

      2) As per Section 20 CGST Act read with Rule 39 (1) of CGST rules 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 in accordance with the provisions of Chapter VIII of these rules. Also there has been no change in such rule.

      For more information , you can reach me via mail at ankit@ajsh.in.

      We would be happy to assist you for any sort of business requirements.

    1. Ankit Jain says:

      Dear Biswajit

      Thanks for appreciating our post.

      We will soon be sharing a video on GSTR – 9 and 9A with you . Meanwhile , for a brief description, you can glance my tax guru post for 8 mistakes while filling GSTR-9 by clicking on the link – https://taxguru.in/goods-and-service-tax/common-mistakes-filing-gstr-9.html.

      For more information , you can reach me on call at 9810661322 or via mail at ankit@ajsh.in.

      We would be happy to assist you for any sort of business requirements.

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