Article explains Meaning of ‘Input Tax & Input Tax Credit under GST, Eligibility of Input Tax Credit (ITC) under GST, Documents/Conditions for taking ITC, List of Eligible ITC under GST, Zero-rated / Exports, List of Ineligible ITC under GST, Claim of ITC as self-assessed, Matching of ITC, Furnishing of ITC, both eligible and ineligible and GST Return for ITC.
Page Contents
- Meaning of ‘Input Tax & Input Tax Credit’
- Eligibility of “Input Tax Credit”
- Documents/Conditions for taking ITC:
- List of Eligible ITC under GST:
- Zero-rated / Exports:
- List of Ineligible ITC under GST:
- Claim of ITC as self-assessed:
- Matching of ITC:
- Furnishing of ITC, both eligible and ineligible:
- GST Return for ITC:
Meaning of ‘Input Tax & Input Tax Credit’
A tax charged on the tax invoice by a registered person on his outward supply of goods or services or both is an “input tax” for the buyer of such goods or services or both. The tax charged by the supplier on the tax invoice could be either Central Tax (CGST) and State Tax (SGST) / Union Territory Tax (UT) or Integrated tax (IGST). The taking of credit of the said input tax by the buyer is called as “Input Tax Credit”.
Eligibility of “Input Tax Credit”
Input Tax Credit (ITC) of the taxes paid on the inward supplies of inputs, capital goods and services which are used in the course or furtherance of the business, subject to certain restrictions, can be taken by a registered person effecting taxable supplies.
A person who is not registered under GST cannot take the benefit of ITC. A person registered under GST but has opted for composition scheme also cannot take the benefit of ITC.
Documents/Conditions for taking ITC:
1. A registered taxpayer must have a tax invoice on hand at the time of taking credit.
2. The goods must have been received or service must have been taken.
3. A buyer must have paid the value of invoice along with the tax to the supplier of goods or services or both within a period of 180 days from the date of invoice.
4. The supplier must have paid the tax so collected through tax invoice into the Govt. account.
5. The supplier must also have uploaded the tax invoice details in the GST return.
6. In case of import of goods the bill of entry is a document based on which credit can be taken. An IGST paid challan on the import should also be attached to the bill of entry.
7. In case of import of service the invoice and the payment of IGST via table 3.1 of GSTR-3B is the basis for taking credit.
8. A credit note is a document based on which the supplier can reduce his tax liability. The supplier must give a copy of credit note to the customer so that the buyer can do the reversal of already taken ITC.
9. A debit note (or supplementary invoice) is a document based on which the customer can take ITC.
10. A tax invoice based on which credit has been taken must be addressed to the location where goods / services are supplied.
List of Eligible ITC under GST:
Inputs:
1. raw material,
2. packing material,
3. engineering spares,
4. consumables,
5. printing and stationery etc.
Capital goods:
1. plant and machinery,
2. support structure to plant and machinery,
3. motor vehicle used for transportation of goods e.g. truck, forklift etc.,
4. repairs to motor vehicle used for transportation of goods.
5. computers / laptop,
6. printers,
7. air conditioner,
8. furniture and fittings etc.
Services:
1. factory rent,
2. godown rent,
3. housekeeping charges,
4. manpower supply,
5. loading unloading,
6. professional fees for audit, tax assessments,
7. clearing and forwarding,
8. internet service,
9. mobile used for office purpose,
10. bank charges,
11. postage and courier,
12. repair and maintenance,
13. freight inward and outward,
14. advocate fees,
15. advertisement,
16. research and development expense,
17. conference expense etc.
18. works contract services when supplied for construction of a plant and machinery.
Zero-rated / Exports:
ITC of inputs, capital goods, services used for effecting zero-rated supplies is allowed to take credit even if the goods exported are exempted from GST.
List of Ineligible ITC under GST:
1. Proportion of goods and services used for exempted supply,
2. Proportion of goods and services used for other than business purpose,
3. motor vehicle having seating capacity of up to 13 persons (including driver). However, if they are used for further supply, as such, or used for transportation of passengers or used for imparting training on driving vehicles, the ITC is allowed.
4. Vessels and aircraft. However, if they are used for making further supply, as such, or are used for transportation of passengers or for imparting training on navigating such vessels or imparting training on flying such aircraft or for transportation of goods, the ITC is allowed.
5. General insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft as referred here in point no.3 & 4. However, if these services are used for the purposes mentioned in the said points, the ITC is allowed. These services are also eligible for credit if the taxable person receiving the service is engaged in the manufacture of such motor vehicles, vessels, aircraft. These services are also eligible for credit if the taxable person receiving such service is in the service of supply of general insurance in respect of such motor vehicles, vessels or aircraft insured by him.
6. Food and beverages
7. Outdoor catering
8. Beauty treatment
9. Health services
10. Cosmetic and plastic surgery
11. Leasing, renting or hiring of motor vehicles, vessels or aircraft as referred here in above point no. 3 & 4 except when used for the purposes specified therein
12. Life insurance and health insurance:
However, if these goods and services are used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply ITC is allowed
13. Membership of a club, health and fitness centre
14. Travel benefits extended to employees on vacation such as leave or home travel concession. However, if the same is obligatory for an employer to provide the same to its employees under any law for the time being in force, ITC is allowed.
15. Works contract services when supplied for construction of an immovable property. However, if this service is used for plant and machinery the ITC is allowed. Also, if this service is an input service for further supply of works contract service ITC is allowed.
16. Goods or services or both on which tax has been paid under composition scheme. In any case, the composite supplier cannot / do not charge GST on his invoice. So, buyer should not apply back working method to bring out the GST component from the invoice value to take credit. This is not permitted.
17. Goods or services or both received by a non-resident taxable person except on goods imported by him
18. Goods or services or both used for personal consumption
19. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
20. Any tax paid u/s 74 i.e. tax paid on account of tax not paid, short paid, erroneously refunded or input tax credit wrongly availed or utilised by reason of fraud or any wilfull-misstatement or suppression of facts is not eligible for ITC.
21. Any tax paid u/s 129 i.e. tax paid on account of detention, seizure and release of goods and conveyances in transit is not eligible for ITC.
22. Any tax paid u/s 130 i.e. tax paid on account of confiscation of goods or conveyances and levy of penalty is not eligible for ITC.
Claim of ITC as self-assessed:
Every registered person is entitled to take credit of eligible inputs, capital goods and services on self-assessed basis. Thus, it is the responsibility of the registered person to assess the eligibility of ITC on his inputs, capital goods and service keeping into mind the nature and function of his business. The credit so assessed can be taken through the returns. The ITC so furnished in the return gets reflected in the Electronic Credit Ledger in the Govt. Portal www.gst.gov.in.
Matching of ITC:
Section 42 of the CGST Act, 2017 states that the inward invoices based on which the registered person claimed the credit need to be matched with the invoices uploaded by their supplier. So, the registered person claiming ITC must match his inward invoices appearing in his GSTR-2A report.
Furnishing of ITC, both eligible and ineligible:
The eligible ITC are to be furnished in table 4A & 4B of GSTR-3B. The ineligible ITC are to be furnished in table 4D.
GST Return for ITC:
Presently, GST credit is taken through the filing of return in Form GSTR-3B. Presently, the invoice-wise details of inward supplies is not required to be furnished. However, the details of such inward invoices need to be kept in record safely as they will play a very essential role in future at the time of assessments.
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