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Unclear for ITC utilisation under GST?

Shrijay Sheth 
on 08 March 2018

LinkedIn


The mechanism of GST includes payment of taxes under Integrated GST or Central GST & State GST mechanism based on the place of supply of services. Already paid tax under GST to the supplier of goods or services should be available for credit subject to the eligibility to claim.

The concept of Input Tax Credit is not completely new to taxpayers already registered under earlier regime of VAT or Service Tax. The concept of Input Tax Credit remains same in the new tax regime of Goods and Service Tax with minute changes.

First, let us know what is Input tax Credit?

Input Tax Credit is the part of tax paid by the registrant on input of goods or services. The said payment of Tax on input of goods or services will be reduced from the liability of payment of taxes on output while the taxpayer files the GST Return online.

Utilisation of Input Tax Credit:

The eligible utilisation of Input tax Credit, commonly known as ITC can be utilised by way of reducing the liability towards government for payment of taxes collected on supply of goods or services or both.

For Example, Trader X has purchased goods from distributor amounting Rs 100,000/- by paying Tax of Rs 18,000/- for retail sale. Here, the amount of Rs 18,000 paid is input tax. Further, trader sales the said goods at the price of 150,000/- where GST collected is Rs 27,000/-. Hence, Rs 27,000 collected shall be payable by trader to Government.

In given case, the liability of Trader is Rs 27,000, however, by availing the benefit of input tax credit the net tax payable will be Rs 9,000 (27,000-18,000) only.

Utilisation of Credit under different GST Laws:

As GST Laws provide payment of tax under three different heads being IGST or SGST & CGST, it is important to understand the utilisation mechanism of tax paid under different heads.

Utilisation of IGST paid:

The Integrated Goods and Service Tax (IGST) will be paid or collected when transaction includes taxable interstate supply of goods or services or both. In case, the utilisation relates to IGST collected only, no error or confusion arises.

The IGST paid can be utilised in following manner:

  • IGST paid shall first be utilised against IGST collected.
  • When an amount of Input Tax is unutilised even after adjustment against liability of IGST payment, the said amount can be adjusted against the liability of Central Goods and Service Tax (CGST).
  • Only after adjustment against CGST, if any credit is unutilised, it will be adjusted against State Goods and Service Tax (SGST).

Utilisation of CGST paid:

Payment of Central Goods and Service Tax (CGST) is applicable in case of taxable intrastate supply of goods or services or both.

Utilisation of CGST shall be made in following manner and order:

  • CGST shall first be utilised against output tax liability of CGST.
  • One may utilise the excess amount against output tax liability of under Integrated Goods and Service Tax (IGST).
  • Utilisation of CGST cannot be made against tax liability of State Goods and Service Tax (SGST) or Union Territory Goods and Service Tax (UTGST).

Utilisation of SGST paid:

The collection or payment of State Goods and Service Tax (SGST) is applicable in case of taxable intrastate supply of goods or services or both.

Utilisation of SGST shall be made in following manner and order:

  • SGST shall first be utilised against output tax liability of SGST.
  • One may utilise the excess amount against output tax liability of under Integrated Goods and Service Tax (IGST).
  • Utilisation of SGST cannot be made against tax liability of Central Goods and Service Tax (CGST) or Union Territory Goods and Service Tax (UTGST).

Eligibility to claim Input Tax Credit:

A Taxpayer can claim Input Tax Credit of the tax while filing of GST Return in the manner prescribed above, if he fulfils following criteria:

  • If one is registered under GST Law as taxable person;
  • Taxpayer has a valid invoice or debit note issued in accordance with provisions of law;
  • The taxpayer has filed returns;
  • Goods or services or both are used for the business purpose of furtherance thereof;
  • The goods or services or both are actually received by the taxpayer;

Below listed are the conditions, when the Input Tax Credit is now allowed:

  • When goods or services or both are used for wholly personal use or consumption;
  • Goods or services or both are purchased from dealer registered under composition scheme;
  • Further, ITC cannot be claimed if the tax is paid to unregistered dealer as he is not eligible to collect tax;
  • When the tax is collected by a registered person, however, the GST paid is not separately provided in the invoice.

With respect to capital goods, the registrant can either claim depreciation in the books of accounts or Input Tax Credit under Goods and Service Tax.

When goods or services or both are received in parts or instalments, the Input Tax Credit can be claimed only after receipt of last instalment.

Stipulated Time Limit to avail ITC:

The GST Laws have prescribed the time and manner in which a registered person can claim the Input Tax Credit.

The registered taxable person can claim credit in respect of goods held on immediately preceding the following days:


A person is liable for registration

The day from which a person is liable for registration

Person applying for voluntary registration

The day on which registration is granted

A taxable registered person stops paying taxes under composition levy scheme

The day from which he becomes liable to tax normally u/s 7


In abovementioned cases, the credit can be claimed only if it does not exceed a period of one year from the date of tax invoice date related to supply.

In situations other than those prescribed above, the last date to claim ITC is earlier of following conditions:

  • Before filing of a return for the month of September succeeding the end of F.Y. to which invoice of such supply is related; or
  • Before filing of Annual Return for concerned invoice of supply (the due date being 31st of December following the end of F.Y.)

In addition to matters discussed above, number of aspects relating to Input tax Credit are yet to be discussed such as reconciliation of ITC, reversal of ITC and ITC in case of special cases such as transfer of business and job work are yet to be discussed. For such topics and queries related thereto, feel free to contact the out team of experts at support@legalwiz.in


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