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Provision of Input Tax Credit and its rules under GST ACT

After implication of GST, Most of query raised related to INPUT TAX CREDIT (ITC) like on which goods and service ITC available or not, if available then how much, Availability of ITC on Motor vehicles, how much ITC available on goods and service which partly used for business or partly used of any purpose.

After implication of GST, Most of query raised related to INPUT TAX CREDIT (ITC) like on which goods and service ITC available or not, if available then how much, Availability of ITC on Motor vehicles, how much ITC available on goods and service which partly used for business or partly used of any purpose.

Now I will discuss about Input Tax Credit (ITC) provision and Rules which are as below:

Section 16

Eligibility and Conditions for Taking Input Tax Credit (ITC)

(1) Every registered person shall, subject to such condition and restrictions as may be prescribed and in the manner as specified in section 49, be entitled to take credit of input tax charged any supply of goods and service or both to him which are used or intended to used in course of furtherance of his business and said amount shall be credit to the electronic Cash Ledger.

(2) Notwithstanding anything contained in the section, no registered person shall entitled to ITC in respect to supply of goods and services or both to him unless

– he is in possession of tax invoice or debit Note .

– he has received the goods and services or both.

Provided that where goods against an invoice are received in lot or installment, receiver (RP) shall entitled ITC upon receipt of last lot or installment.

Provided further that where a recipient fails to pay to supplier of goods or service or both, other than supplies on which tax is payable on RCM Basis, the amount towards the value of supply along with tax payable on thereon within 180 days from the date of invoice by supplier, an amount equal to the ITC availed by recipient shall added to his output liability along with interest.

Provided also Input Tax Credit (ITC) available upon the payment of amount toward value of goods or service or both along with tax payable thereon.

(3) where RP has claimed Depreciation on Input Tax Credit (ITC) component of cost of capital goods and P&M under provision of IT ACT 1961. ITC credit not Allowed.

(4) A RP shall not be entitled to take Input Tax Credit (ITC) in respect of any invoice or debit not after the due date of furnishing of the return for the month of September following the end of financial year to which invoice relates or furnishing of relevant annual return, whichever is earlier.

Section 17 Apportionment of credit and blocked credits

1. where the goods or service or both are used partly business purpose or party for other purpose, amount of credit shall be restricted to so much of input tax as is attributable to purpose of his business.

2. where the goods or service or both are used partly taxable supplies including zero rated supplies and partly exempt supplies, the amount of ITC shall be restricted to so much amount of ITC as Attributable to Said Taxable supplies including Zero rated supplies.

3. Value of Exempt Supplies = Exempt Goods and service + Supplies liable to RCM + Transactions in securities + sales of land + Sales of building subject to clause (b) of paragraph 5 of Schedule II.

4. A Banking Co. or Financial institution including a NBFC, engaged in supply service by the way of accepting deposit , extending loans and advance shall have the option either comply with provision of sub section ( 2), or avail of every month an amount equal to 50% of eligible ITC in the month and rest shall be lapse.

Provided that the restriction of 50% shall not apply to the tax paid on supplies made by One RP to another RP having same PAN.

5. Notwithstanding anything contained in sub section (1) of Section 16 or subsection (1) of section 18, ITC shall not be available in respect of following namely:

(a) Motor vehicles and other conveyances Except when they are used –

(i) For making the following taxable supplies, Namely :

– Further supply of such vehicles or conveyance

– Transportation of passenger

– Imparting training on Driving, Flying

(ii) For transportation of Goods.

(b) Following Supply of goods and service

(i) Membership of a club, health and fitness center.

(ii) Personal service like Food and beverage, outdoor catering, beauty treatment, health service, plastic surgery.

(iii) Rent –a-cab, Life insurance, Health insurance.

(iv) Travel benefit extended to employees on vacations

(c) Work Contract Service when Supplied for Construction of Immoveable Property ( other than P&M), except where it is an input service for the further supply of work Contract Service.

(d) Goods or service or both received by a taxable person for the construction of an immovable property (other than P&M) on his account including when such goods and service or both used in course or furtherance of business.

Here for the purpose of clause (c) and (d) “Construction” Includes Renovation, alternation, re-construction, or alternation, or repairs, to the extent of capitalization, to the said immovable properties.

(e) Goods or service or both used on which tax has been paid U/s 10.

(f) Goods or service or both received by Non-resident Taxable person except on goods imported by him.

(g) Goods or service or both used for personal consumption.

(h) Goods lost, stolen, destroyed, written off, or disposal off by way of gift or free samples and

(i) Any tax paid in accordance with provisions of section 74, 129 and 130.

Here for the purpose of clause (c) and (d) “Construction” Includes Renovation, alternation, re-construction, or alternation, or repairs, to the extent of capitalisation, to the said immovable properties.

  • Goods or service or both used on which tax has been paid U/s 10.
  • Goods or service or both received by Non-resident Taxable person except on goods imported by him.
  • Goods or service or both used for personal consumption.
  • Goods lost, stolen, destroyed, written off, or disposal off by way of gift or free samples and
  • Any tax paid in accordance with provisions of section 74, 129 and 130.

ITC Rules 2017

Manner of determination of ITC and its reversal.

Rule 42 (1) ITC in respect of input or input services, which attracts the provisions of sub section (1) and (2) of section 17,(Given Above) shall be attributed to the purpose of business or for effecting taxable supplies in following manner. Namely,-

(a) Total input tax involved on input and input services in a tax period, be denoted as “T’

(b) The amount of input tax out of ‘T”, attributable to input or input services intended to be used exclusively for the purpose other than business, be denoted as “T1”

(c) The amount of input tax out of ‘T”, attributable to input or input services intended to be used exclusively for effecting Exempt supplies, denoted as “T2”

(d) The amount of input tax out of ‘T”, attributable to input or input services on which credit is not available under sub section (5) of section 17, denoted as “T3”

(e) Amount of ITC credited to Electronic credit ledger of RP, be denoted as “C1”calculated as-

C1 = T-(T1+T2+T3)

(f) The amount of ITC attribute to input or input services intended to be or exclusively for effecting taxable supplies other than exempted but including Zero rated supplies denoted as “T4”

(g) T1,T2,T3, and T4 shall be determined and declared by registered person at the invoice level in GSTR 2 (In the Colum 3&4(B2B) of in GSTR-2 “Äction”.

(h) ITC left after attribution of input tax credit under clause (g) shall be called common credit, be denoted “C2” and calculated as –

C2= C1-T4

(i) Amount of ITC attributable towards exempt supplies, be denoted as “D1”and calculated as

D1= (E/T)*C2

Here – ‘E’ is aggregate value of exempt supplies during the tax period.

‘T’ is aggregate value of total turnover of registered person during the tax period.

(j) the amount of credit attributable to non-business purpose if common input and input services are used partly business or partly non business purpose be denoted as “D2”and shall be equal to 5% of C2(common credit) and

(k) the reminder of the common credit shall be eligible ITC attributable to the purpose of business and Taxable supplies and shall be denoted as “C3” where,-

C3= C2-(D1+D2)

(l) the amount “C3” shall be computed separately for ITC of CGST, SCGS,UGST, and IGST.

(m) The amount equal to aggregate of D1 and D2 shall be added to the output tax liability.

Presentation of ITC rules Summary Rule (42)

Total ITC (Input & input Service) = T1

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