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Who will be entitled to set off Input Tax credit? Will any set off be allowed for credit on Input tax against Output Tax under upcoming GST? What will be the manner of utilisation of unadjusted input tax credit? Any refund??

This article will help in clarifying your doubts about the basic set off procedures and manner of utilisation of input tax credit under GST.

Input tax credit is basically IGST, CGST or SGST paid on the inputs acquired/ services received. Now, when the person is paying Output tax (IGST, CGST or SGST) for goods/ services supplied, he would be entitled to set off Input tax against Output tax and pay the remaining tax in cash.

1.  Every taxable person shall be able to take credit of input tax in respect of a tax period and adjust it against output tax and pay the remaining amount to the credit of the appropriate government subject to the conditions specified. “Appropriate government” means the Central Government in case of IGST and CGST, and the State government in case of SGST.

2. Situation may arise where goods/ services are used partly for business and partly for other purposes. What to do here?

Now, credit will be limited to input tax that is attributable for business purposes. No credit will be available for goods/ services utilised for other purposes.

3. Where goods (other than Capital goods) or services are used for effecting both taxable and non-taxable supplies (including exempt supplies but excluding zero rated supplies):

In this situation Input tax credit will be limited to taxable supplies including zero rated supplies.

4. IGST Input tax credit will first be utilised towards payment of IGST. If amount remains, then it can be adjusted towards payment of CGST and finally for SGST. It means IGST credit can be utilised for all the three taxes. Really good news.....

5. As far as CGST Input tax credit is concerned, situation is not the same. Credit will first be utilised for payment for CGST. If amount remains, then it will be utilised for IGST payment. No concept for SGST utilisation!

6. Like CGST, SGST is somewhat same with regard to credit set off. Input tax credit on SGST will be appropriated first towards SGST and then towards IGST payment.

7. Readers will be able to grasp that cross utilisation is not permitted for CGST & SGST which will be certainly affecting seamless cross credit goal of GST.

8. If Input Tax credit for a tax period exceeds the Output tax, then no reason for worry. Just carry forward your excess credit. It will be available for set off against the Output Tax in the next subsequent period.

9. Where a claim for refund of excess credit has already been made, then no need to carry forward it in the next period. Your refund will be credited to your account.

10. Following is the list of goods or services on which Input tax credit is not allowed  :

a. Motor vehicles, except when they are supplied in the usual course of business or used in providing taxable services i.e., transportation of goods & passengers, imparting training on motor driving skills.

b. High speed diesel oil, motor spirit.

c. Goods or services provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits to employees on vacation, when goods or services are used for private use of any employee.

d.  Goods or services acquired for the execution of works contracts when it results in construction of immovable property other than plant & machinery.

e. Goods acquired by a principal, the property in which is not transferred to any other person and used in the construction of immovable property other than plant & machinery.

f. Goods and services used for personal or private consumption.

11. Further for a taxable person to avail credit, he must be in possession of a tax invoice issued by a supplier registered under this Act and tax charged in respect of such supply has already been paid to the credit of the appropriate government either in cash or through utilisation of input tax credit.

12. Where credit has been wrongly taken, then it will be recovered as per the prescribed rules.

13. Constitution Change:

In case of sale, demerger, amalgamation, lease or transfer of business, there is change in constitution of a taxable person, with specific provision for transfer of liabilities, then unadjusted input tax credit will be allowed to be transferred to such sold, merged, demerged, leased or amalgamated business.

No reason for credit to lapse on account of change in the constitution of the Entity !

Warm Regards
CA. Neha Gupta
B.Com, ACA, AIR (Final) 36
Managing Partner
LNG & Associates
Chartered Accountants
Email: lng.cafirm@gmail.com


Published by

CA Neha Gupta
(Managing Partner, LNG & Associates)
Category GST   Report

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