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Goods and Service Tax is being imposed on all business transaction. Thus every transaction shall attract GST. If input tax credit is availed efficiently, it will reduce the burden of GST on the business only to the tax percentage of value addition. Any loss of input tax credit shall result in corresponding higher tax burden on the supplier. In view of this it is important to understand input tax provisions prescribed in GST laws.

Every supplier is required to pay GST. In view of this, every supplier is entitled to take input credit of all inward supplies. Section 16(1) says that every registered person be entitled to take credit of input tax charged on any supply of goods or services or both, used or intended to be used in course of furtherance of his business. Thus there is no restriction on availing input tax credit in general. The availment of credit is subject to certain conditions:

  • The registered person is in possession of tax invoice or debit note as prescribed in the GST law.
  • He has received the goods or services or both. In case of supplies of goods through transfer of documents before or during movement of goods, if the goods are supplied to a recipient.
  • Tax charged on the supplied has been paid to the Government.
  • He has furnished return under Section 39 of the CGST Act.

Thus input tax credit is available only to those persons who follow the prescribed procedure by paying the tax on time, filing of return etc. In this regime vendor management becomes extremely crucial. If vendor of a registered persons does not issue proper invoices, or pay tax on supplies on time or do not file return as prescribed; input tax credit of the registered person shall be affected adversely.

Input tax credit is restricted in certain circumstances. These restrictions are:

  • Motor Vehicles and other conveyances except when they are used for further supplies, or transportation of goods or passenger or training in driving, flying etc.
  • Input tax credit on certain supplies like food and beverages, beauty treatment, health services, membership of club, health or fitness centre, rent a cab, life insurance or health insurance, travel benefits extended to employees for vacation or leave concession etc. is not available.
  • Input tax credit on goods used in construction or construction services related to immovable property is not available. Input tax credit on work contract related to construction of immovable property is available is not available except when used for providing further such work contract service.
  • Input tax credit on goods and services on which GST has been paid on composition scheme.
  • Goods of services received by non-taxable person or when used for personal consumption.
  • Goods lost, stolen, destroyed, written off or disposed off by way of gifts or free samples.
  • If the tax is paid under demand, if there is fraud, willful mis-statement or suppression of facts under Section 74, 129 or 130 of the CGAT Act.

Input Tax credit is required to be taken within one year from the date of invoice related to such inward supply.

Input tax credit can be taken even when inputs or capital goods are sent directly to the premises of job worker without being first brought to his place of business. The inputs or capital goods sent to job work must be returned to the principal supplier within a period of one year or three years respectively.

Capital goods has been given a simple definition. Whatever is capitalized in the books of accounts of registered person claiming input tax credit shall be treated as capital goods.

The provisions are simple and easy to implement. However the registered person and supplier to the registered person claiming input tax credit must follow procedures like proper invoices, uploading of invoices, payment of taxes on such supplies, timely filing of return etc. If these procedures are properly followed, Input tax credit can be availed seamlessly leading to smooth flow of credit in the tax system.  

The author can also be reached at custom.excise@gmail.com


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Category GST, Other Articles by - Rajesh Kumar 



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