Input Tax credit under GST regime

Ankita Khetan | Aug 10, 2017 |

Input Tax credit under GST regime

Input Tax credit under GST regime

Government has been trying to make people familiar with GST by explaining that there will be free flow of credit for taxes paid. GST will replace the multiple cascading taxes levied by the central and state governments.Input credit of taxes paid will flow uninterrupted and seamlesslythroughout the supply chain. Input tax credit is the backbone for the success of GST.Input Tax credit under GST regime

ITC being the backbone of GST and a major matter of concern for the registered persons, conditions for eligibility to ITC and eligible ITC have been prescribed which in majority in line with pre- GST regime. These rules are also quite particular and stringent in its approach.
But that doesn’t seem to be happening in reality. Government is going to be very particular & stringent in their approach looking at the rules/conditions and restrictions which are imposed. Understanding of ITC properly is very important for any registered taxpayer as it is directly linked to the output GST liability, and any mistake might result is fines and penalties.

Input Tax credit under GST regime

What is Input

Under GST law, the term input means goods except capital goods used by a supplier during his business to make outward supplies.

What is Input Service

Under GST law, the term input service means any service used by a supplier during his business to generate outward supplies.

What is Input Tax

Under GST law, the term input tax means tax imposed on the person when he receives supply of goods & services which are used for his business.

What is Input tax credit

Under GST law, the term input tax credit reduces the tax liability on output by utilizing the credit of tax which has already been paid while acquiring the inputs.
In other words, when you buy raw materials or take services to be used as inputs/input servicesyou pay tax on those inputs/input services. Those inputs/input services are then used tocreate and sell your output(finished product)/output service on which you have to again pay tax(output tax). Input tax credit helps in reduction of this tax burden to the extent of tax which has already been paid by you while acquiring those inputs/input services.

Net liability = Output liability – Input tax credit

How is Input Tax Credit to be utilized for payment

Input tax credit in form of

1st priority for set off2nd priority for set off

Last priority for set off

IGST

IGSTCGST

SGST/UTGST

CGST

CGSTIGST

Note: ITC of CGST cannot be used to pay SGST/UTGST.

SGST

SGSTIGST

Note: ITC of SGST cannot be used to pay CGST.

UTGST

UTGSTIGST

Note: ITC of UTGST cannot be used to pay CGST.

What are the pre-requisites for availing credit by registered person

The pre-requisites for availing credit by registered personare:
1.) He is in possession of tax invoice or any other specifiedtax paying document.
2.) He has received the goods or services. Bill to shipscenarios also included.
3.) Tax is actually paid by the supplier.
4.) He has furnished the return.
5.) If the inputs are received in lots, he will be eligible toavail the credit only when the last lot of the inputs isreceived.
6.) He should pay the supplier, the value of the goodsor services along with the tax within 180 days fromthe date of issue of invoice, failing which the amountof credit availed by the recipient would be added tohis output tax liability, with interest [rule 2(1) & (2)of ITC Rules]. However, once the amount is paid, therecipient will be entitled to avail the credit again. Incase part payment has been made, proportionatecredit would be allowed.

What documents are needed to avail the input tax credit

1.) Invoice issued by a supplier of goods or services orboth
2.) Invoice issued by recipient along with proof ofpayment of tax
3.) A debit note issued by supplier
4.) Bill of entry or similar document prescribed underCustoms Act
5.) Revised invoice
6.) Document issued by Input Service Distributor

What is Electronic Credit Ledger

It is an electronic credit ledger for ITC(Input tax credit)to be maintained on the common portal.

What is Electronic Cash Ledger

It is an electronic cash ledger to be maintained at the common portal for each taxable person registered under GST.

What are the instances when the input tax credit will not be allowed

A few instances whereITC will not be allowed/will not be available as mentioned under section 17(5) of CGST Act, 2017 are as follows:
1.) Motor vehicles and other conveyances except underspecified circumstances.
2.) Goods and/or services provided in relation to:

a.) Food and beverages, outdoor catering, beautytreatment, health services, cosmetic and plastic

b.) surgery, except under specified circumstances;

c.) Membership of a club, health and fitness center;

d.) Rent-a-cab, life insurance, health insuranceexcept where it is obligatory for an employer under any law;

e.) Travel benefits extended to employees onvacation such as leave or home travel concession

3.) Works contract services when supplied forconstruction of immovable property, other than plant & machinery, except where it is an input servicefor further supply of works contract;
4.) Goods or services received by a taxable person forconstruction of immovable property on his own account, other than plant & machinery, even whenused in course or furtherance of business;
5.) Goods and/or services on which tax has been paidunder composition scheme;
6.) Goods and/or services used for private or personalconsumption, to the extent they are so consumed;
7.) Goods lost, stolen, destroyed, written off, gifted, orfree samples;
8.) Any tax paid due to short payment on accountof fraud, suppression, mis-declaration, seizure, detention

Is there any time limit to avail the input tax credit

Yes, ITC will not be allowed beyond September of the following financial year to whichinvoice pertains or date of filing of annual return,whichever is earlier.

Can Input service distributor distribute the credit available anytime

No, The Input Service Distributor (ISD) has to distribute thecredit available for distribution in the same month inwhich, it is availed. The credit of CGST, SGST, UTGST andIGST shall be distributed as per the provisions of Rule 4(1)(d) of ITC Rules. Input Service Distributor (ISD) shall issue invoice in accordance withthe provisions made under Rule 9(1) of Invoice Rules. For eg.If the head office has received credit in July it can be passed on to the branches in the month of July only.

When should one register under GST Act, after becoming liable for registration And will the input tax credit be allowed in such cases

After becoming liable for registration under the GST Law, A person should apply forregistration within 30days. And if such personapplies for registration within 30days of becoming liable for registration is also entitledto ITC of input tax in respect of goods held in stock(inputs as such and inputs contained in semi-finishedor finished goods) on the day immediately precedingthe date from which he becomes liable to pay tax.

Can a person claim ITC if he isswitching over to normal scheme fromcomposition scheme

Yes,A person switching over to normal scheme fromcomposition scheme u/s 10 is entitled to ITC in respect of goods held in stock (inputs as suchand inputs contained in semi-finished or finishedgoods) and capital goods on the day immediatelypreceding the date from which he becomes liable topay tax as normal taxpayer.

Can a person claim ITC if the goods or services he deals in were exempt earlier becomes taxable now

Yes, Where an exempt supply of goods or services or bothbecome taxable, the person making such suppliesshall be entitled to take ITC in respect of goodsheld in stock (inputs as such and inputs contained insemi-finished or finished goods) relatable to exemptsupplies. He shall also be entitled to take crediton capital goods used exclusively for such exemptsupply, subject to reductions for the earlier usage asprescribed in the rules.

What is to be done in the case ofgoods or services which were taxable earlier have become exempt now

If thegoods or services which were taxable earlier have become exempt now and for such goods or services ifthe ITC is already availed/ utilized.Then inrespect of such goods held in stock (inputs as such andinputs contained in semi-finished or finished goods)as well as capital goods, you have to make payment under GST.

Can a person claim ITC if there is change in constitution of registered person

Yes, In case of change of constitution of a registeredperson on account of sale, merger, demerger etc, theunutilized ITC shall be allowed to be transferred tothe transferee.


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