Goods and Services Tax (GST) is considered as the biggest reforms in India. However, one thing that has become the talking point is – the mechanism of input credit under GST.

In simple words, Input credit means that at the time of paying taxes on sales made, you can reduce the tax from the tax paid on purchases.

In this article, we’ll cover all you need to know about the Input Tax Credit (ITC), time limit to avail ITC, how to claim ITC, restriction on ITC and much more.

Input Tax Credit

What is Input Tax Credit (ITC)

Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.

Say for instance, you are a manufacturer: Tax payable on final product (Output) is Rs 500. Tax paid on purchases (Input) is Rs 300. You can claim input credit of Rs 300 and you only need to deposit Rs 200 in taxes.

The concept is not entirely new as it already existed under the pre-GST indirect taxes regime (service tax, VAT and excise duty). Now its scope has been widened under GST.

Who can avail ITC:

ITC is available to an entity only when it is covered under the GST Act. Any manufacturer, supplier, agent or e-commerce operator aggregator must be registered under the GST if it is to become eligible to claim the ITC on their purchases which are used in the course and furtherance of business.

Which type of supplies are eligible for availing ITC

S.No. Nature of Supply Availability of ITC
1 Taxable Supply Yes
2 Zero Rated Supply (Export+SEZ) Yes
3 Exempt Supply No
4 Non- Taxable Supply No

Time Limit for availing ITC:

ITC must be claimed earlier of the following:

  • due date of furnishing of the monthly return (GSTR-3B) for the next financial year’s month of September

or

  • furnishing of the relevant annual return.

Conditions for claiming ITC:

ITC is allowed to a person only if following conditions are satisfied

  • he is in possession of a tax invoice or debit note issued by a supplier registered under GST
  • he has received the goods and/or services
  • the tax charged in respect of such supply has been actually paid to the account of the appropriate Government
  • he has furnished the return under section 39

No ITC if Deprecation: Input tax credit of GST component of capital goods is not allowed if the person has claimed depreciation in income tax act for GST component. In other words, a person can either take input tax credit of GST on capital goods or claim depreciation on tax component.

Documents required for claiming ITC

One or more of the following key documents are required for claiming input tax credit:

  • Invoice provided by supplier of goods/services
  • Debit note issued by the supplier to the recipient (if applicable)
  • Bill of entry
  • Bill of supply (may be a replacement for tax invoice in certain cases)
  • Credit note/invoice issued by input service distributor (ISD) as GST invoicing rules
  • A bill of supply issued by supplier of goods/services

Further, vide Notification No. 39/2018 dt 4th September,2018 a proviso has been inserted which stated that:

If the said document does not contain all the specified particulars under Rule 36 but contains the details of the

  • amount of tax charged,
  • description of goods or services,
  • total value of supply of goods or services or both,
  • GSTIN of the supplier and recipient and
  • Place of supply in case of inter-State supply,

Then input tax credit may be availed by such registered person.

Restriction on availment of ITC:

ITC can be availed if the conditions for availing ITC have been fulfilled. However, CBIC has amended the rule and put a restriction on availment of ITC.

From now onwards, ITC to be availed in respect of invoices or debit notes, which are not uploaded by the suppliers while filing their GSTR-1, shall not exceed 10% (w.e.f 01.01.2020) of eligible credit available in respect of uploaded invoices or debit notes in GSTR-1 of suppliers.

Hence, every tax payer shall be entitled to 1.1 times of eligible credit in respect of invoices or debit notes reflected in GSRT-2A. However, it shall not exceed the total eligible credit in respect of invoices or debit notes hold by the tax payer.

The tax payer may have to ascertain the same from his auto populated FORM GSTR 2A as available on the due date of filing of FORM GSTR-1.

Those invoices on which ITC is not available under any of the provision [say u/s 17(5)] would not be considered for calculating 10 % of the eligible credit available.

The above restriction is applicable for the eligible credit @ 20% w.e.f 09.10.2019 and then 10% w.e.f 01.01.2020.

Due to the pandemic of Corona Virus, the Ministry of Finance vide a notification has also deferred the application of 10% restriction for availing input tax credit for the period February, to August, 2020 and rolling over the cumulative applicability to the month of September, 2020.

Hence, the return in Form GSTR-3B for the tax period September 2020 shall be furnished with the cumulative adjustment of input tax credit for the said months in accordance with the condition of restriction.

Furthermore, ITC of the below transactions can be availed in full:

  • IGST paid on import
  • Documents issued under RCM
  • Credit Received from ISD etc.

Order of Utilization of ITC:

Input tax credit on account of integrated tax shall first be utilised towards payment of integrated tax, and the amount remaining, if any, may be utilised towards the payment of central tax and State tax or Union territory tax, as the case may be, in any order.

Provided that the input tax credit on account of central tax, State tax or Union territory tax shall be utilised 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 utilised fully.

In short,

ITC on account of IGST Tax Liability CGST Tax Liability SGST / UTGST Tax Liability
IGST ITC (I) (II)- In any order and in any proportion
(III)- ITC on account of Integrated tax to be completely exhausted mandatorily
CGST ITC (V) (IV) Not Permitted
SGST/UTGST ITC (VII) Not Permitted (VI)

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2 Comments

  1. RAMESH CHANDRA JENA says:

    You Can add
    Time limit is not applicable for :
    1. Import of goods – Tax paid under Bill of entry.
    2. Tax paid under RCM – self invoice.

    1. CA Shubhi Khandelwal says:

      Ramesh Jena Ji

      I disagree with your view and the same is explained below.

      1. By combine reading of Section 16 of CGST Act with Rule 36 of CGST Rules, the time limit gets applicable in respect of ITC on Import of Goods through Bill of Entry.
      i.e. Sec 16 of the CGST Act (Conditions for claiming ITC ) specifies that the registered shall be entitled to claim ITC if he “is in possession of tax invoice/debit note issued by a supplier registered under this Act or such other documents as may be prescribed” And Rule 36(1)(d) of CGST Rules (Documentary Requirement & conditions for claiming of ITC) specifies bill of entry as the documentary evidence for claiming ITC. Hence, the time limit is applicable here.

      2. Proviso to Rule 46 of CGST Rules (Mandatory contents of tax invoice) includes an RCM Self Invoice too. And also Rule 36(1) (Documentary Requirement & conditions for claiming of ITC) includes invoice issued under the provisions of Section 31(3)(f) i.e. RCM Self Invoice. Hence, invoice u/s 16 appears to include invoice raised for reverse charge.

      Therefore, in my view the time limit is applicable for both cases.

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