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Claiming Input Tax Credit under GST Regime

CA Santhosh Gupta Kethepalli 
on 07 September 2020

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1) Introduction:-

Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on output. When any supply of services or goods is supplied to a taxable person, the GST charged is known as Input Tax.

The concept is not entirely new as it already existed under the pre-GST indirect taxes regime (service tax, VAT and excise duty). Now its scope has been widened under GST. Earlier, it was not possible to claim input tax credit for Central Sales Tax, Entry Tax, Luxury Tax and other taxes. In addition, manufacturers and service providers could not claim the Central Excise duty.

During the pre-GST regime, cross-credit of VAT against service tax/excise or vice versa was not allowed. But under GST, since these taxes will be subsumed into one tax, there will not be the restriction of setting off this input tax credit.

"Input Tax" means the GST Taxes (CGST, SGST, IGST) charged on any supply of goods or services or both made to a registered person in the course or furtherance of his business and includes such tax payable on reverse charge basis— but excludes tax paid under composition levy.

Claiming Input Tax Credit under GST Regime

2) Eligibility for taking ITC {Sec.16 of CGST Act, 2017}:-

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

Registration under GST

3) Conditions for taking ITC {Sec.16 of CGST Act, 2017}:-

Conditions for availing ITC

a) Possession of Tax Invoice:-

ITC can be claimed on the basis of any one of the following:-

i. Tax Invoice issued
ii. Debit Note
iii. Bill of Entry
iv. Invoice prepared in respect of Reverse Charge basis
v. Document issued by Input Service Distributor for distribution of Credit.

b) Receipt of the Goods or Services:-

If goods are received in instalments against a single invoice, credit can be taken upon receipt of last instalment of goods.

Example: - Ram makes an advance payment in August andorders 100 MT of a particular product which is inshort supply. The supplier of the product raises abill for the entire amount in August and collects GST from Ram on the advance paid. The product isdelivered in lots over a period of three months andthe supply is completed in November. Though Ram paid some tax in advance as early as August, he cantake the ITC only on receipt of last instalment ofthe product in the month of November.

c) Tax leviable on Supply actually paid to Government:-

Tax should actually have been paid, by cash orthrough utilization of ITC, on the goods and / orservices for which ITC is being taken.

Payment for the invoice to be madewithin 180 days from DOI:

• The registered person must pay the supplier, the value of the goods and/or services along with the tax within 180 days from the date of issue of invoice.

• In the event of failure to do so, such credits availed by the registered person should be reversed in GSTR -3B. Interest will be paid @ 18% from the date of availing credit till the date of reversal of credit.

• However, once the payment is made to supplier later, the recipient will be entitled to avail the credit again without any time limit.

Exception to this:-

This condition of payment of value of supply plustax within 180 days does not apply in the followingsituations:

(i) Supplies on which tax is payable under reverse charge

(ii) Deemed supplies without consideration

That means in above 2 cases, eventhough paymentis not made to supplier, ITC can be availed

 

Example: Mr. A sells goods worth Rs 100000 to Mr. B. on 01.08.2019 on credit. GST, assuming, 5 % comes to Rs 5000. The invoice value, thus, is Rs. 105000. Mr. B decides to pay the invoice amount later on. Now, while filing the GST returns for August 2019, Mr. B can claim the input tax credit of Rs 5000.00. Now 180 days (from 01.08.2019) lapses, the date being 27.01.2020. If Mr. B does not pay the invoice amount by this date then the ITC of Rs 5000 will be reversed in the return and added to output tax liability. If subsequently, he pays the invoice amount, such ITC will be re-availed.

Provisional ITC can be taken initially, prior tomatching in the common portal, and used forpayment of self-assessed tax on outward supply [Rule 36(4)]:-

 

• Invoices not uploaded shall not exceed 20% of Eligible credit [w.e.f.01/01/2020, shall not exceed 10% of Eligible Credit (Notn 75/2019 dt.26.12.2019)] -

• 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 20 % / 10% of the eligible credit available in respect of invoices or debit notes the details of which have been uploaded by the suppliers in GSTR-1.

Note: -If depreciation claimed on taxcomponent, ITC not allowedin respect of the tax paid on such items, dualbenefit cannot be claimed under Income-tax Act, 1961 and GST laws simultaneously. In other words,either depreciation on the tax component can beclaimed under Income Tax Act or ITC of such taxpaid can be availed under GST laws.

d) Claim ITC by filing GSTR-3B:-

To claim the input tax credit shall be claimed by filing with the govt by the 20th of the next month in GSTR 3B.

4) Time Limit for availing ITC{Sec.16 of CGST Act, 2017}:-

ITC on invoices pertaining to a financial year or debit notes relating to invoices pertaining to afinancial year can be availed any time till the

a) Due date of filing of the return for the month of September of the succeeding FY or

b) The date of filing of the relevant annual return,

[Whichever is Earlier]

• It may be noted that the return for the month of September is to be filed by the 20th October.

• Annual return of a F.Y is to be filed by 31st December of the succeeding FY

• The time limit u/s 16(4) does not apply to claim for re-availing of credit that had been reversed earlier.

Example- For the invoice dated 10/11/2017, ITC must be availed earlier of the following dates -

Due date for September 2018 return - 20th October 2018

Annual return filed (assumed) - 10th November 2018

Thus till 20th October 2018, ITC must be availed.

5) Manner of Utilization of ITC {Sec.49 of CGST Act}:-

• Changes in availment of ITC {New Sec.49B r.w.rule 88A}

• ITC of IGST should first be utilized towards payment of IGST

• Remaining ITC of IGST, if any, can be utilized towards the payment of CGST and SGST/UTGST in any order, i.e. ITC of IGST can be first utilized either against CGST orSGST.

• ITC of CGST, SGST/UTGST can be utilized towards payment of IGST, CGST, and SGST/UTGST only after the ITC of IGST has first beenutilized fully.

6) Other Relevant Points regarding GST Input Tax Credit:-

• Input Tax Credit can be availed by a registered person only if all the applicable particulars as prescribed in the Invoice Rules are mentioned in the Invoice.

• If the tax paid on inputs is more than the tax paid on output, the ITC can either be carried forward or claimed as refund.

• The balance tax after claiming the input tax credit shall be deposited with the govt by the 20th of the next month in GSTR 3B.

• Claiming of ITC would not be allowed beyond September of the following Financial Year to which the invoice pertains or the date of filing of Annual Return whichever is earlier.

• A person who has applied for GST Registration within 30 days of becoming liable for Registration is entitled to claim ITC in respect of goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax.

• A person switching over to the normal scheme from the composition scheme under Section 10 is entitled to ITC in respect of goods held in stock and capital goods on the day immediately preceding the day from which he becomes liable to pay tax as a normal taxpayer.

• Where an exempt supply of goods or services or both becomes taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock relatable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply.

• In case of change of constitution of a registered person on account of sale, merger, demerger etc. the unutilized ITC shall be allowed to be transferred to the transferee.

• GST paid under the Reverse Charge Mechanism can also be claimed as Input Tax Credit.

• Details of GST paid on inputs would be auto-populated in the GSTR 2. However, the details of GST paid on Inputs on Reverse Charge basis would not be auto-populated. The details of GST paid on Reverse Charge Basis would be manually required to be furnished in the GSTR 2.


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