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Input Tax Credit in GST: Basic points to be remembered

Since GST Act promises seamless flow of credit, it is very important to understand the concept of input tax credit. Section 16-21 broadly covers various aspect relating to input tax credit such as eligibility, conditions, apportionment of credit availed, blocked credit as well as various other concepts.

Who can Avail Input Tax Credit?

Section 16 specifically enumerates various conditions for availment of input tax credit which are as under:

I. Every registered person shall be entitled to take credit of input tax charged on supply of goods or services or both to him which are used or intended to be used in course or in the furtherance of his business.

II. Documentary evidence: The registered person must be in possession of any of the following documents to avail input tax credit

  • Invoice Issued under Section 31.
  • Debit note issued under section 34.
  • Bill of entry
  • Invoice prepared in respect of supplies made under reverse charge basis u/s section 9(3) and 9(4) issued u/s 31(3)(f).
  • Invoice or credit note issued by Input service distributor.

III. The supplier must have uploaded the relevant invoice on the GSTN

IV. The supplier has paid the said amount of tax to an appropriate government in cash or by way of utilization of Input tax credit, as admissible.

V. The claimant must furnish the GST return.

VI. Time period within which payment must be made to supplier to avail input tax credit: Failure to pay to supplier of goods or services or both, the value of supply and tax thereon within 180 days from the date of invoice will be added to output liability of the recipient. The said input tax credit can be re-availed on payment of the value of supply and tax payable thereon.*

*this condition does not apply for supplies which are payable under reverse charge basis.

VII. Where a registered person has claimed depreciation on tax component of the cost of capital goods and plant and machinery under the provisions of income tax Act,1961, the input tax credit on the said tax component shall not be allowed.

VIII. ITC cannot be availed after the due date of filing the return for September month of the next financial year or on furnishing the annual return whichever is earlier.

Section 17 specifically enumerates various cases where input tax credit would not be allowed which are as under


Sr No

Input tax credit not allowed for GST paid on

Exceptions(Gst allowed only in these cases)

1

Motor vehicle & other conveyances

Allowed only when they are supplied in the normal course of business (ex-car dealers) or are used for providing following taxable services

  • Transportation of passengers, or
  • Transportation of goods, or
  • Imparting training on motor driving skills

2

Food & beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery

Allowed only when an inward supply of goods or services or both of a particular category is used for making an outward supply of the same category of goods or services or both or as an element of taxable composite or mixed supply.

An example can be an event organized by event management company wherein catering service as well as other mentioned services are provided as a part of the entire package.

3

Membership of club, health and fitness centre

4

Rent-a-cab service, Health Insurance and Life Insurance

Allowed only if

  • The government makes it obligatory for the employers to provide it to their employees

For e.g. if govt makes it obligatory for employers to provide female employees cab service post 7 in the evening

  • Allowed only when an inward supply of goods or services or both of a particular category is used for making an outward supply of the same category of goods or services or both or as an element of taxable composite or mixed supply

5

Travel benefits to employee Eg Leave travel allowance

6

Work Contract service, when supplied for the construction of immovable property,

Allowed only if

  • Works contract services supplied for construction of plant and machinery
  • One work contract service is input for another work contract service

7

Goods or services for construction of immovable property, whether to be used for personal or business use

8

Goods/services on which GST has been paid under the composition scheme

9

Goods or services received by a Non-resident taxable person

Allowed for goods/services imported by a non-resident person

10

Goods or services or both used for personal consumption

11

Goods which are lost/stolen/destroyed/written off/disposed off by way of gift or free sample

12

Any tax paid due to a) Nonpayment of tax, b) short payment of tax c) excessive refund

13

ITC utilised or availed by way of a) fraud. or b) Will full mis-statements c) suppression of facts


  • When goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of ITC as is attributable to the purpose of his business.
  • When the goods or services or both are used by the registered person partly for effecting taxable supplies including zero rated supplies and partly for exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero rated supplies.    

Usage of credit


Credit of

To be utilised first for the payment of

Maybe  utilised further for payment of

CGST

CGST

IGST

SGST/UTGST

SGST/UTGST

IGST

IGST

IGST

CGST,then SGST/UTGST



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Category GST, Other Articles by - CA PARTH BHATT 



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