I. Introduction
An Indian registered taxpayer must fulfil various criteria as stipulated in Section 16(2) of the Central Goods and Services Tax Act, 2017, to be eligible for the utilization of input tax credit. The term ‘Input Tax Credit‘ or ‘ITC’ refers to the Goods and Services Tax (GST) paid by a taxable person on the acquisition of goods and/or services intended for business use. The value of ITC can be deducted from the GST liability on sales by the taxable person, contingent upon the fulfilment of specified conditions. A recent amendment introduced by the Finance Act of 2022 has incorporated an additional condition that the registered taxable person must adhere to in order to access input tax credit. Significantly, this newly inserted condition is currently causing considerable confusion within the trade and industry. It is crucial to emphasize that the Finance Act of 2022 received presidential assent on March 30, 2022.
The conditions outlined in the CGST Act of 2017 closely align with those existing in the pre-GST regime, with only a handful of additional requirements, such as the inclusion of GSTR-2B. These rules are explicit and potentially stringent in nature.
Ii. Current Provisions For Utilization Of ITC
Section 16(1)
In accordance with this provision, each registered individual is granted the right, subject to conditions and restrictions as specified in the prescribed manner under section 49, to claim credit for the input tax charged on any supply of goods or services, or both, that is provided to them. This input tax should be associated with the usage or intended usage in the course or advancement of their business activities. The credited amount is then recorded in the electronic credit ledger of the respective person.
Section 16(2)(a)
Condition 1, as articulated in section 16(2)(a) of the CGST Act 2017, necessitates that the recipient of goods or services, or both, must hold a pertinent tax invoice, debit note, or any other document validating the payment of tax, as issued by the supplier.
By way of illustration, ABC seeks to avail an Input Tax Credit (ITC) amounting to Rs. X, having identified the ITC entry in the GSTR-2B for January 2023 as of March 14, 2023. However, despite the discovery of the ITC entry, ABC has not received the corresponding invoice until March 20, 2023, which is the date for filing returns. Consequently, he is precluded from claiming the Rs. X amount as ITC when filing the GSTR-3B for January 2023 due to the unavailability of the invoice.
Section 16(2)(b)
The recipient is required to have physically received the pertinent goods or services, or both. However, if the goods or services are delivered or supplied to another person at the direction of the recipient, it will be deemed as having been received by the recipient. In Section 16(2)(b)(ii), the provision states that input tax credit (ITC) is deemed to have been received by the registered person when goods are delivered by the supplier to the recipient or any other person at the direction of the registered person, whether acting as an agent or in any other capacity, either before or during the movement of goods. This can occur through the transfer of documents of title to goods or any other method.
In Section 16(2)(b)(iii), the provision stipulates that ITC is deemed to have been received by the registered person when services are provided by the supplier to any person at the direction of and on behalf of the said registered person.
Section 16(2)(c)
The supplier is required to have genuinely settled the applicable tax, charged on the supply of goods or services, to the Government. This payment of GST tax by the supplier can be accomplished through either an electronic cash ledger or an electronic credit ledger.
Section 16(2)(d)
In this condition, The taxpayer has submitted the return in accordance with section 39. In instances where goods are received in multiple lots or instalments based on an invoice, the registered individual is eligible to claim credit upon the receipt of the final lot or instalment. In the event that a recipient fails to settle the amount, including the tax, to the supplier for goods or services (excluding those subject to reverse charge tax), within one hundred and eighty days from the issuance of the supplier’s invoice, an amount equivalent to the input tax credit previously claimed by the recipient must be added to their output tax liability. This addition should be made along with the applicable interest, as determined by the prescribed method. It is further noted that the recipient has the right to avail input tax credit on payments made towards the value of the supplied goods or services, inclusive of the corresponding tax amount.
III. Time Limit for Filing ITC returns
The period within which Input Tax Credit (ITC) can be claimed against an invoice or debit note is constrained by the earlier occurrence of one of the following two dates:
1. The 30th of November of the subsequent financial year.
2. The date of submission of the annual returns in Form GSTR-9 pertaining to that particular financial year.
For Illustration on the basis of the provided criteria, XY Corp, having a purchase invoice dated 8th December 2021 for FY 2021-22, is eligible to claim the Input Tax Credit (ITC) within the time limit determined by the earlier occurrence of the following two dates:
1. 25th November 2023: The 30th of November of the next financial year.
2. 31st December 2023: The date of filing the GST annual return for FY 2021-22.
The preceding of these two dates establishes the deadline for XY Corp to claim the ITC of FY 2022-23. Consequently, XY Corp is entitled to claim this Input Tax Credit in any of the tax periods spanning from April 2022 to October 2023.
IV. Financial and Corporate Items On Which Income Tax Credit Cannot Be Claimed-:
Some of the major items which do not have accessibility for ITC Rebate are as follows-:
|
Sr. No |
Item | Exceptions |
| 1. | Motor Vehicles | 1. Extended supply of such vehicles or conveyances;
2. Transportation of passengers. |
| 2. | Other Conveyances | 1. Providing training on driving, navigating such vehicles;
2. Conveyances for transportation of goods; 3. Motor vehicles for transportation of persons having an approved capacity of more than thirteen persons, including the driver, when used for business purposes; 4. Buses for pick and drop of employees (if the approved capacity is more than 13 persons, including the driver) – part of the above. |
| 3. | Expenses related to insurance, repairs, and maintenance for motor vehicles and conveyances are prohibited from being considered for Input Tax Credit. | Input Tax Credit (ITC) is permissible, except in cases where an inward supply of goods or services, or both, belonging to a specific category is utilized by a registered person for generating an outward taxable supply of the same category of goods or services, or as a constituent of a taxable composite or mixed supply. However, ITC is available for expenses related to food and beverages or health services if the provision of such goods or services is mandatory for an employer to provide to employees under the current law. |
| 4. | Life Insurance & Health Insurance | Pursuant to Schedule I of the Central Goods and Services Tax Act, 2017, and with reference to Section 7, gifts provided to employees are granted an exemption from Goods and Services Tax (GST) up to a value of Rs 50,000 per employee. |
| 5. | Travel benefits extended to employees on vacation such as leave | – |
| 6. | Travel benefits on home travel concession (LTA) | – |
| 7. | The exemption from Goods andServices Tax (GST) for gifts to employees extends up to a value of Rs 50,000 per employee, as stipulated in Schedule I of the Central Goods and Services Tax Act, 2017 (reference to Section 7). | With the exception of goods or services received for one’s own account, including instances where such goods or services are utilized in the course or advancement of business and for plant and machinery. |
| 8. | Goods or services, or a combination thereof, acquired by a non-resident taxable person. | Except of Goods Imported by assessee. |
| 9. | Goods Lost | – |
| 10. | Goods Written Off | – |
| 11. | Goods Destroyed or Stolen | – |
| 12. | Any tax paid in accordance with the provisions of sections 74, 129 and 130. | Fraud or Mis-statement. |
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IV. The Post-Finance Act, 2022 Landscape: Conditions for Availment of Input Tax Credit
Pursuant to clause 100 of the Finance Act, 2022, the sixth condition for the utilization of input tax credit was incorporated. The said condition, articulated within the purview of section 16(2)(ba), specifies that the information pertaining to input tax credit, conveyed through Form GSTR-2B, is not subject to constraints imposed by section 38.
In parallel fashion, pursuant to clause 104 of the Finance Act, 2022, the stipulations outlined in section 38 of the Central Goods and Services Tax Act, 2017, have been wholly replaced through the Finance Act, 2022. Consequently, the novel provisions can be delineated as follows –
1. In accordance with section 38(1), the particulars of outward supplies provided by the supplier in Form GSTR-1 will be accessible to the recipient in Form GSTR-2B, subject to the conditions and restrictions as prescribed; and
2. Pursuant to section 38(2), Form GSTR-2B will encompass the subsequent two segments –
Section 38(2) of the Finance Act, 2022, introduces Part 1 of Form GSTR-2B, encompassing information on the available input tax credit. This part delineates the specifics of inward supplies for which the recipient is eligible to claim input tax credit.
Part 2 of Form GSTR-2B, as per section 38(2) of the Finance Act, 2022, pertains to the restricted input tax credit. This section includes details of supplies for which the input tax credit is limited due to the following reasons:
1. The supplier undertakes the supply within the prescribed period of obtaining GST registration.
2. The supplier defaults in tax payment continuously for the prescribed duration.
3. The output tax payable, as per the supplier’s Form GSTR-1, exceeds the output tax paid in Form GSTR-3B, surpassing the prescribed limit.
4. The registered person claims input tax credit in Form GSTR-3B beyond the limit reflected in Form GSTR-2B.
5. The registered person defaults in meeting the tax liability.
6. The supplier belongs to the prescribed class of persons.
V. Conclusion
In the aftermath of the Finance Act, 2022, this compendium strives to furnish businesses with a comprehensive comprehension of the intricacies associated with the facilitation of Input Tax Credit (ITC). By elucidating the intricacies brought forth by legislative modifications, this resource empowers stakeholders to adeptly traverse the post-Finance Act milieu with assurance and exactitude. As businesses persist in acclimating to the ever-changing regulatory framework, this compendium stands as an invaluable reference, delivering discernments and counsel for the judicious utilization of ITC, ensuring adherence to regulatory requisites, and fostering fiscal efficacy.
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