All About ITC under GST | An analysis

Input credit means at the time of paying tax on output, one can reduce the tax payable by taking the credit for tax paid on inputs. If you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned, registered under GST, you are eligible to claim Input Tax Credit.

Conditions to claim ITC under GST

The following are the conditions required to be met claim ITC:

1. One should have a tax invoice (of purchase) or debit note issued by registered dealer
2. One should have received the goods / services
3. The tax charged on your purchases has been deposited / paid to the government by the supplier in cash or via claiming input credit
4. Supplier has filed GST returns. Therefore, to claim input credit on purchases all your suppliers must be GST compliant as well.
5. No ITC will be allowed if depreciation has been claimed on the tax component of a capital good
6. Common credit of ITC used commonly for effecting exempt and taxable supplies, business and non-business activity.
7. A regular taxpayer can claim provisional ITC in GSTR-3B only to the extent of 5% of the ITC available in GSTR-2B. It means the amount of ITC reported in GSTR-3B will be a total of actual ITC in GSTR-2B and provisional ITC being 5% of actual ITC in GSTR-2B. Hence, matching purchase register or expense ledger with GSTR-2B becomes crucial.

Note:

1. Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of the last lot or installment.
2. ITC is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated.

Manner of utilisation of ITC

The following is the order  of utilisation of ITC:

Time Limit for claiming ITC

Time limit to claim ITC against an Invoice or Debit Note is earlier of below dates:

1. The due date of filing GST Return for September of next Financial year (OR)
2. Date of filing the Annual Returns relevant for that Financial year. 

Recent Updates

1st May 2021

The CGST Rule 36(4) restricting provisional ITC claims to 5% of GSTR-2B in GSTR-3B is relaxed for April 2021. The taxpayer can apply this rule cumulatively for both April and May while GSTR-3B for May 2021.

1st February 2021

 Section 16 amended to allow taxpayers’ claim of the input tax credit based on GSTR-2A and GSTR-2B. Henceforth, the input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.

22nd December 2020

Following are the changes in Rule 36(4) from 1st January 2021:

1. The ITC shall be available as per the invoices uploaded by respective suppliers either in their GSTR-1 or by using the Invoice Furnishing Facility (IFF).
2. The recipients can claim provisional input tax credit in GSTR-3B to the extent of 5% instead of earlier 10% of the total ITC available in GSTR-2B for the month.

Certain taxpayers cannot make payment from their electronic credit ledger in excess of 99% of the total tax liability for the tax period as per a new rule 86B.

3rd April 2020

The CBIC has notified that taxpayers can claim input tax credit in the GSTR-3B return from February 2020 to August 2020, without applying the rule of capping provisional ITC claims at 10% of the eligible ITC as per GSTR-2A.

While filing the GSTR-3B of September 2020, the taxpayers must cumulatively adjust ITC as per the above rule from February 2020.