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 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.
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|
|2||Zero Rated Supply (Export+SEZ)||Yes|
|4||Non- Taxable Supply||No|
Time Limit for availing ITC:
ITC must be claimed earlier of the following:
Conditions for claiming ITC:
ITC is allowed to a person only if following conditions are satisfied
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:
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
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:
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.
|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)|