What is Input Tax Credit (ITC)?
Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.
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.
Further we can say Input tax credit means the tax paid on by the purchases of goods or services and the same can be settled against the liability on the sale of goods or services. The credit was claimed under the pre-GST regime based on the purchase invoices available with the taxpayer. But in case the seller raised tax invoices on which the purchaser availed credit but the seller did not pay taxes, the Government would lose money and hence, it was necessary to introduce a mechanism where credits are available to the purchaser only when the seller pays tax to the Government.
How to Claim ITC under present GST return filing system
Present scenario to claim ITC under GST is as follows:
- Seller uploads the month wise invoice details in GSTR 1 form on the GST portal by 10th of the succeeding month;
- The purchaser can claim input tax credit on a provisional basis in the GSTR 3B form based on the tax invoices provided by the seller by 20th day of the month following the month (tax period) for which the return pertains;
- Invoices uploaded by the seller in GSTR 1 can be viewed by the purchaser in his GSTR 2A form.
Note: If the provisional input tax credit claimed on purchases in GSTR 3B is more than the input reflecting in GSTR 2A, then department might issue a notice seeking an explanation for the same. The credit can be denied by the department for the invoices for which tax is not paid by the seller.
Types of new/simplified returns
Annual Turnover
1. Less than 05 CR.
a. Regular Quarterly Returns
b. GST Sugam Return
c. GST Sahaj Return
2. More than 05 CR.
a. Regular Monthly Return
Assesses with a turnover of less than 5 crores will have an option to file quarterly returns and one of the returns mentioned above.
How to Claim ITC under new/simplified GST return filing system
1. The supplier will have a facility of continuously uploading invoices anytime during the month which will be continuously visible to the recipient;
2. Invoices uploaded by the corresponding suppliers will be auto-populated in an annexure for inward supplies of the recipient on a real-time basis, and the recipient will be able to view these invoices in the “viewing facility” enabled on the portal;
3. The recipient will be able to take specific actions against the invoices available in the “viewing facility” after 10th of the next month:Accept – If he wants to avail the credit
I. Accept – If he wants to avail the credit
II. Reject – If he does not want to avail the credit or the transaction does not belong to him
III. Pending – If he wants to take the credit in the subsequent period
4. The credit with respect to inward supplies accepted by the recipient shall be posted in the relevant field of the input tax credit table of the return to be filed by the recipient.
5. Once the recipient has accepted the invoices, such invoices will be considered as locked and no changes can be effected in respect of such invoices. In cases where the recipient has a large number of invoices, taking action against each of the invoice could be difficult and hence all the invoices will be treated as accepted and locked except those invoices which are marked as pending/rejected.
There shall not be any automatic reversal of input tax credit at the recipient’s end where the invoice is uploaded but tax has not been paid by the supplier. In case of supplier failed to pay tax on the supply, recovery shall be first made from the supplier and in some exceptional circumstances like missing taxpayer, closure of business by the supplier or supplier not having adequate assets or in cases of input claimed by the recipient in an illegal way, etc.
Invoices not uploaded by the supplier
In the initial phase of six months, the recipient will have an option to avail ITC on self-declaration basis even on the invoices not uploaded by the supplier by 10th of the next month by using the facility of availing ITC on missing invoices.
The input claimed on the missing invoices by the recipient shall be filed by the seller within next two tax periods from the input claimed by the recipient. If the same is not filed by the supplier, the input claimed by the recipient shall be reversed with interest and penalty.
Ex- A purchased goods from B in the month of April 2018, B failed to report the same in the April 18 returns. A has an option to claimed the credit in April 2018 returns and B has to report the same by June 18 returns. If B missed reporting the same by June 18 then the ITC claimed by A shall be reversed in July 18 returns with interest and penalty.
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