Input tax credit under GST confusing

What is Input Tax Credit in GST

What Is Input Tax Credit In GST?

Most of you must have heard about the 'input tax credit' but aren't aware of how it functions or why it even exists in the first place.

One of the primary goals of GST was to eliminate the cascading impact of taxes seen in excise, VAT, and service tax systems. In simpler terms, GST allows for claiming Input Tax Credit under GST regardless of the supplier's location, making buying and selling goods more accessible and streamlined. Read on to find out more about input tax credit in detail.

What Is Meant By Input Tax Credit?

Input Tax Credit, commonly known as ITC, refers to the tax paid by a business on its purchases, which can be utilized later to offset its tax liability when making a sale. Companies can effectively reduce their overall tax burden by claiming input tax credits under GST paid on their purchases.

GST, being a comprehensive tax system, mandates that each business purchase must correspondingly match a sale made by another business. This arrangement ensures a seamless flow of credit throughout the entire supply chain. To delve further into an input tax credit, continue reading the following sections.

Who is Eligible for Claiming ITC?

Under the GST system, a registered individual can be eligible for input tax credit under GST only if they fulfil the following conditions:

  • Possession of a valid tax invoice.
  • Receipt of the goods and services for which the tax credit is claimed.
  • Proper filing of returns as per the GST regulations as per the calculation of input tax credit under GST.
  • Payment of the tax amount charged by a supplier to the government.
  • The blocked input tax credit under GST can only be claimed when the last supply of goods is received, in case the goods were received in installments.
  • The input tax credit will not be permitted if depreciation on the capital good's tax component has already been claimed.

In case of ineligible input tax credit under GST, businesses won’t be able to claim ITC.

What Can You Claim As ITC?

input tax credit under GST can only be claimed for business matters and cannot be utilized for services or goods that are solely used for the following:

  • Personal use
  • Exempt supplies
  • Supplied where the input tax credit is not available explicitly

How Can You Claim ITC?

Regular taxpayers must disclose the reversal of input tax credit under GST amount in their monthly GST returns using Form GSTR-3B. Provisional ITC, which is twenty percent of the eligible ITC amount reported by the suppliers in the GSTR-2A return, can be claimed by any taxpayer in their GSTR-3B.

Before filing the GSTR-3B, the taxpayer needs to verify the figures in the GSTR-2A. Before 9th October 2019, the taxpayer could claim an input tax credit under GST for a certain amount of the provisional ITC. However, the Central Board of Indirect Taxes and Customs (CBIC) subsequently announced that only eligible ITC, amounting to twenty percent of the ITC accessible in GSTR-2A, can be claimed as the provisional ITC.

Consequently, in GSTR-3B, the reported input tax credit under GST India from 9th October 2019 onwards would be the actual input tax credit's total reported in the GSTR-2A, along with the provisional input tax credit amounting to twenty percent of the eligible ITC in GSTR-2A. It is crucial to reconcile the expense ledger or purchase register using GSTR-2A to ensure accurate reporting and compliance.

Documents Required for Claiming ITC

The following documents are required to avail input tax credit provisions under GST:

  • Supply bill or invoice issued for the supply of goods or services.
  • Invoices issued by the supplier for the transaction are eligible for an input tax credit under GST conditions to claim.
  • Bill of Entry or equivalent documents for imported goods.
  • Input Service Distributor (ISD) provides documents such as invoices or credit notes.
  • Debit notes received from the supplier.
  • Bill of Supply issued by the supplier for exempt supplies or composition scheme transactions.

The Time Limit for Claiming Input Tax Credit (ITC)

It is possible to claim an input tax credit on services under GST against a debit note, invoice, or credit note, depending on which date comes earlier.

  • The input tax credit under the GST time limit or deadline for filing GST returns is September of the following financial year.
  • The ITC claim period for FY 17-18 was extended to March 2019, which is also the day when the annual return for that financial year was due.

However, any unclaimed credit would expire and cannot be claimed even in the GSTR-9 annual return if it was not claimed by the filing deadline of March 2019.

Therefore, it is evident that if an input tax credit on closing stock under GST format has not been claimed through another GST return, the adjustment of input tax credit under GST cannot be claimed through the GSTR-9 annual return.

Special Cases Of ITC

The special types of input tax credits under GST are:

1. ITC for the Capital Goods

Under GST regulations, the Input Tax Credit (ITC) can be claimed forcapital goods, but certain restrictions must be considered. ITC cannot be claimed for capital goods exclusively used for manufacturing exempted products or non-business circumstances.

2. ITC on Job Work

If a manufacturer doesn't complete the entire production process and sends the goods to the job worker for further processing, they can still claim an Input Tax Credit (ITC) for the tax paid on the purchased goods. Whether the goods are sent directly from the supplier's supply point or the manufacturing facility, they remain eligible for ITC in both scenarios.

3. ITC Provided by Input Service Distributor

Within the GST system, the Input Service Distributor plays a vital role in distributing Input Tax Credit (ITC) to each recipient, classifying it under different categories, such as SGST/UTGST, CGST, IGST, and cess, for all the purchases made by the registered person. The Input Service Distributor can be either the registered person's head office, branch office, or registered office.

4. ITC on Transfer of Business

In the context of amalgamations, mergers, or transfer of a business, the transferor has the right to claim Input Tax Credit (ITC), and this ITC will be transferred to the transferee while carrying out the business transfer.

In Conclusion

Input Tax Credit (ITC) is a crucial aspect of GST. It allows taxpayers to avail themselves of the advantages of deducting the non-taxable amount they have already paid. This mechanism is commonly referred to as the GST input tax credit. To determine the GST payable, taxpayers can consider the input and output tax credits and deduct the input credit from the output tax.

Are you looking for a professional to help you with the input tax credit under GST? Look no further than Manoj Kumar D & Associates. With their speedy and updated ITC services and highly experienced consultants, dealing with your requirements will be a breeze.

Frequently Asked Questions

How Can You Claim Input Tax Credit Under GST?

To claim an input tax credit under GST, an individual must

  • Possess a credit or debit note, tax invoice, supplementary invoice etc.
  • They must have received the services/goods
  • They should have filed the returns via GSTR 3
  • They should ensure that the supplier has paid the charged tax to the government.

What Is ITC Eligibility?

A business is eligible for ITC if registered under GST and filed the GSTR 3 return. They should also possess the supplier's tax invoice or debit note.

What Is the Rule of Input Tax Credit?

To claim ITC, the buyer must pay the supplier for the supplies received (including tax) within 180 days from the invoice issuance date. If the buyer fails to meet this deadline, the credit amount they would have availed will be added to their output tax liability.

Who Gets GST Input Tax Credit?

The eligibility for input tax credit claim period under GST is limited to individuals or entities with GST registration who have also filed the GSTR-2 returns. Additionally, the dealer must possess the tax invoice or debit note issued by the supplier for the input or input services. Moreover, the claimant should have received the goods or services, or both, for which the credit is being claimed.

What Are the Conditions for ITC Eligibility?

The input tax credit eligibility under GST can be claimed if the goods or services purchased are utilized for business purposes, not personal use. To be eligible for the credit, the buyer must possess the tax invoice, debit note, or any document that serves as evidence of the payment made for the purchase.

Who cannot claim an input tax credit?

Input Tax Credit (ITC) will not be available in cases where taxes have been paid due to non-payment or short tax payment, excessive refunds, or ITC utilized or claimed through fraud, willful misstatements, suppression of facts, or in situations involving confiscation and seizure of goods.