Input Tax Credit is the tax that a business pays on a purchase and it can be used to reduce the tax liability at the time of sale.
What is Input Tax Credit?
Section 2(63) of Central Goods and Service Tax Act, 2017 defines Input Tax Credit as “Credit of Input Tax”.
Input Tax Credit (ITC) is tax, which is paid at the purchase and is reduced from liability payable on outward supplies.
According to the Input Tax Credit Mechanism, registered persons under GST can claim ITC for tax paid by them on purchases.
In other words, the Input Tax Credit allows GST registered businesses to claim credit of GST at the time of sale of goods, which was paid on the purchases of such goods to prevent the cascading taxation effect.
In case you are a manufacturer
|Tax payable on output||Rs 500|
|Tax paid on input||Rs 300|
You can claim INPUT CREDIT of Rs 300 & you only have to deposit Rs 200 in taxes.
What are the documents & forms required to claim Input Tax Credit (ITC)?
Every registered Assesse requires the following documents to claim an input tax credit under GST
- A tax invoice issued by the registered supplier.
- Bill of entry in a prescribed document.
- An invoice or credit note issued by an Input Service Distributor (ISD).
- Bill of supply issued by the supplier of goods, services or both.
What are the conditions prescribed to claim Input Tax Credit (ITC) under GST?
As per Section 16 of CGST ACT, 2017
- Both Buyer & Supplier, must be registered under GST Law & supplies should be made to the registered persons.
- The Buyer must have a tax invoice of purchase or debit note issued by the registered dealer.
- Recipient of goods or services (Buyer) should have received the goods/services.
- The taxes charged on purchases have been deposited/paid to the government by the supplier.
- When goods are received in parts or in installments, ITC may be claimed on receipt of the last slot or installment.
- The seller must have filed GST return i.e. GSTR 1. The detail filed by seller in GSTR1 will automatically reflect in GSTR 2A of buyer.
Note: If seller fails to file GSTR1 on time, buyer can claim only 10% of total ITC.
- Where the recipient does not pay the value of services or tax within 180 days of issue of invoice & has already availed input credit will be added back to output tax liability.
- If the tax on the purchase is higher than a tax on the sale, in such a case, buyer is allowed to carry forward balance input tax or claim a refund.
When a registered Assesse is not allowed to claim Input Tax Credit (ITC)?
- ITC cannot be taken on purchase invoices that are more than one year old
- ITC cannot be claimed on the items listed in the exempted/ negative list under section 11 of CGST Act, 2017.
- ITC is not allowed for goods & services used for personal use.
- ITC is not available on Composition scheme Under Section 10 of the CGST Act, 2017 & Chapter 2 of CGST Rule, 2017.
What is the Input Tax Credit Set off Rules?
|To pay IGST||Input Tax Credit from IGST, CGST & SGST paid on purchases.|
|To pay CGST||Input Tax Credit from CGST & IGST paid on purchases.|
|To pay SGST||Input Tax Credit from SGST & IGST paid on Purchases.|
**CGST & SGST ITC CANNOT BE USED TO SET OFF EACH OTHER
Latest Amendments in Input Tax credit
New Rule 36(4) has been inserted in the CGST Rules, 2017
As per Rule 36(4) of CGST Rules, Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been uploaded by the suppliers under sub-section (1) of section 37, shall not exceed 10 percent of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers under sub-section (1) of section 37.
Amendment in Section 16(4)
A taxable person shall not be entitled to take ITC in respect of any invoice or debit note for the supply of goods or services after the filing of the return for the month of September following the end of the financial year to which such invoice or invoice relating debit notes pertain or furnishing of the relevant annual return, whichever is earlier.
Input Tax Credit is one of the takeaway concepts of GST as it benefits the registered taxpayers to claim credit while paying tax on outputs which was already paid on inputs. Claiming ITC is a tedious process that requires the filing of numerous documents and GSTR forms, thus it is always preferred to seek assistance from a professionals’ team thereto. If you are looking for an experts’ team to undertake the process of ITC on your behalf, you can contact us in one click.