Input Tax Credit – How To Claim ITC

Input Tax Credit – How to Claim ITC

Input Tax Credit (ITC) is Goods & Services Tax (GST) paid or payable by the supplier of registered person and which is to be used in the course or in continuation of business activities by the receiver.

The ITC shall be available on IGST, CGST, SGST & UT-SGST subject to eligibility and conditions as may be stipulated under GST Laws and Rules framed thereunder.

Criteria To Claim Input Tax Credit

1.You must be a registered person i.e a taxable person.

2.The goods or services must have been acquired in the course or furtherance of the business activities.

ITC can be also availed on acquisition of capital assets used in the business (such as equipment, furniture, etc)

3.ITC is available only on those goods or services which are acquired for making taxable supplies or zero-rated supplies.

4.One must hold a valid tax invoice and it should be in the name of registered person.

6.ITC can be availed on tax invoice within 1 year from the date of the invoice .

7. Returns have been filed and ITC matching has been done with the Supplier of such supplies. 

FAQ’s On ITC – Released By CBEC 

CBEC had released an exhaustive FAQ’s on GST. We are reproducing the most relevant to ITC, but the final laws may have some other provisions .

Q 1. What is input tax?

Ans. “Input tax” has been defined in section 2 (57) of the MGL and section 2 (1) (d) of the IGST Act. Input tax in relation to a taxable person, means the {IGST and CGST} in respect of CGST Act and {IGST and SGST} in respect of SGST Act, charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7.

Under the IGST Act, input tax is defined as IGST, CGST or SGST charged on any supply of goods and / or services.

Q 2. What is the implication of different definition of “input tax” in three acts viz CGST, SGST and IGST Acts?

Ans. It implies that input tax consists of IGST & CGST in CGST Act and IGST & SGST in SGST Act. In the IGST Act, input tax consists of all three taxes namely, IGST, CGST and SGST. It further implies that credit of all three can be used for discharging IGST liability, whereas only credit of IGST & CGST can be taken in CGST Act and that of IGST & SGST can be taken under SGST Act. Further the credit of CGST & SGST cannot be cross-utilized.

Q 3. Can GST paid on reverse charge be considered as input tax?

Ans. Yes. The definition of input tax includes the tax payable under sub-section (3) of section 7 (Reverse Charge). The credit can be availed if such goods and/or services are used, or are intended to be used, in the course or furtherance of his business.

Q 4. Does input tax includes tax (CGST/ IGST/SGST) paid on input goods, input services and/ or capital goods?

Ans. Yes, in terms of section 2(54), 2(55) & 2(20) of the MGL respectively. It may be noted that credit of tax paid on capital goods also is permitted to be availed in one installment.

Q 5. What is the ITC entitlement of a person who has applied for registration under the Act within thirty days from the date on which he becomes liable to registration and has been granted such registration? (Section 16(2)

Ans. He shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act. It may be noted that the credit on pre-registration stock would not be admissible if the registration has not been obtained within a period of 30 days from the date on which he becomes liable to registration.

Q 6. A person becomes liable to pay tax on 1st August, 2017 and has obtained registration on 15th August, 2017. Such person is eligible for input tax credit on inputs held in stock as on …….?

Ans. 31st July, 2017.

Q 7. What is the eligibility of input tax credit on inputs in stock for a person who obtains voluntary registration?

Ans. As per section 16(2A) of MGL, the person who obtains voluntary registration is entitled to take the input tax credit of input tax on inputs in stock, inputs in semi finished goods and finished goods in stock, held on the day immediately preceding the date of registration.

Q 8. Where goods and/or services received by a taxable person are used for effecting both taxable and non-taxable supplies, whether the input tax credit is available to the registered taxable person?

Ans. As per section 16(6) of MGL, the input tax credit of goods and / or service attributable to only taxable supplies can be taken by registered taxable person. The amount of eligible credit would be calculated in a manner to be prescribed in terms of section 16(7) of the MGL read with GST ITC Rules (yet to be issued). It is important to note that credit on capital goods also would now be permitted on proportionate basis.

Q 9. Where goods and/or services received by a taxable person are used for the purpose of business and non-business supplies, whether the input tax credit is available to the registered taxable person?

Ans. As per section 16(5) of the MGL, the input tax credit of goods and / or service attributable to only supplies effected for business purpose can be taken by registered taxable person. The amount of eligible credit would be calculated in a manner to be prescribed in terms of section 16(7) of the MGL read with GST ITC Rules (yet to be issued). It is important to note that credit on capital goods also would now be permitted on proportionate basis.

Q 10. What would be input tax eligibility in cases where there is a change in the constitution of a registered taxable person?

Ans. As per section 16(8) of the MGL, the transferor shall be allowed to transfer the input tax credit that remains unutilized in its books of accounts to the transferee provided that there is a specific provision for transfer of liabilities.

Q 11. What would be input tax eligibility in case where the goods and/or services supplied by a registered taxable person become absolutely exempt?

Ans. As per section 16(12) of the MGL, the registered taxable person who supplies goods and / or services which become absolutely exempt, has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such exemption. It has also been provided that after payment of the amount on such goods, the balance, if any available in electronic credit ledger would lapse. The amount, required to be paid, is to be calculated as per GAAP in terms of section 16(13) of the MGL.

Q 12. What would be input tax eligibility in cases where taxable person paying tax under section 7 opts to pay tax under Compounding Scheme under Section 8?

Ans. As per section 16(12) of the MGL, the registered taxable person, who was paying tax under section 7 opts to pay tax under Compounding Scheme under Section 8, has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over. It has also been provided that after payment of the amount on such goods, the balance, if any available in electronic credit ledger would lapse. The amount, required to be paid, is to be calculated as per GAAP in terms of section 16(13) of the MGL.

Q 13. A dealer paying tax on compounding basis crosses the compounding threshold and becomes a regular taxable person. Can he avail ITC and if so from what date?

Ans. As per section 16(3) of the MGL, he can avail ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under section 7.

Q 14. Mr. B, a registered taxable person was paying tax under composition rate up to 30th July, 2017. However, w.e.f 31st July, 2017. Mr. B becomes liable to pay tax under regular scheme. Is he eligible for ITC?

Ans. Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 30th July,2017.

Q 15. Mr. A applies for voluntary registration on 5th June, 2017 and obtained registration on 22nd June, 2017. Mr. A is eligible for input tax credit on inputs in stock as on …………..?

Ans. Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 21st June, 2017.

Q 16. When shall a taxable person be not entitled to take input tax credit under sub-section (2), (2A) or sub-section (3) of Section 16 in respect of any supply of goods and / or services to him?

Ans. As per section 16(4) of the MGL, he cannot avail ITC after the expiry of one year from the date of issue of tax invoice relating to such supply.

Q 17. Whether the principal is eligible to avail input tax credit of inputs sent to job worker for job work?

Ans. Yes, the principal is eligible to avail the input tax credit on inputs sent to job worker for job work in terms of Section 16A(2) of the MGL.

Q 18. What is the time period within which the inputs sent for job work has to be received back by the principal?

Ans. 180 days.

Q 19. Whether principal has to reverse the input tax credit on inputs which have not been received back from the job worker within 180 days?

Ans. Yes, the principal has to reverse the credit along with interest on inputs which have not been received back from job worker within 180 days but he can reclaim the credit on receipt of inputs.

Q 20. Which of the following is included for computation of taxable supplies for the purpose of availing credit: (a) Zero-rated supplies; (b) Exempt supplies; (c) Both?

Ans. Zero rated supplies.

Q 21. What is the time period within which the capital goods sent for job work has to be received back by the principal?

Ans. Two years.

Q 22. What is the liability of the principal if the capital goods sent to job worker have not been received within 2 years from the date of being sent?

Ans. Principal has to pay an amount equal to credit taken on such capital goods along with interest. But he can reclaim the credit on receipt of inputs.

Q 23. A Taxable person is in the business of information technology. He buys a motor vehicle for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such motor vehicle?

Ans. No. As per section 16(9)(a) of the MGL, ITC on motor vehicles can be availed only if the taxable person is in the business of transport of passengers or goods or is providing the services of imparting training on motor vehicles.

Q 24. Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, will ITC be allowed in such cases?

Ans. As per section 16(10) of the MGL, the input tax credit shall not be allowed on the said tax component.

Q 25. What are the conditions necessary for obtaining ITC?

Ans. As per Section 16(11) of the MGL, following four conditions are stipulated:

(a) The registered taxable person should be in possession of tax paying document issued by a supplier;

(b) The taxable person must have received the goods and / or services;

(c) The tax charged on such supply has been actually paid to the government either in cash or through utilization of input tax credit; and

(d) The taxable person should have furnished the return under section 27.

Q 26. Where the goods against an invoice are received in lots or installments, how will a registered taxable person be entitled to ITC?

Ans. As per proviso to section 16(11) of the MGL, the registered taxable person shall be entitled to the credit upon receipt of the last lot or installment.

Q 27. Who will get the ITC where goods have been delivered to a person other than taxable person (‘bill to’- ‘ship to’ scenarios)?

Ans. As per explanation clause to section 16(11) of the MGL, for this purpose of receiving the goods, it would be deemed that the taxable person has received the goods when the goods have been delivered to a third party on the direction of such taxable person. So ITC will be available to the person on whose order the goods are delivered to third person.

Q 28. What is the time limit for taking ITC?

Ans. As per Section 16 (15) of the MGL, ITC cannot be taken beyond the month of September of the following FY to which invoice pertains or date of filing of annual return, whichever is earlier. The underlying reasoning for this restriction is that no change in return is permitted after September of next FY. If annual return is filed before the month of September then no change can be made after filing of annual return.

Q 29. Is there any negative list on which ITC is not permitted?

Ans. Section 16 (9) of the MGL provides for the negative list 100 101 with respect to the admissibility of ITC. It has been provided that the ITC on following items cannot be availed:

(a) motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services—

(i) transportation of passengers, or

(ii) transportation of goods, or

(iii) imparting training on motor driving skills;

(b) goods and / or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness center, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/ or services are used primarily for personal use or consumption of any employee;

(c) goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;

(d) goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;

(e) goods and/or services on which tax has been paid under section 8; and (f) goods and/or services used for private or personal consumption, to the extent they are so consumed.

Q 30. Section 29 of the MGL provides that the ITC would be confirmed only if the inward details filed by the recipient are matched with the outward details furnished by the supplier in his valid return. What happens if there is a mismatch?

Ans. In case of mismatch between the inward and outward details, the supplier would be required to rectify the mis-match within a period of two months and if the mis-match continues, the ITC would have to be reversed by the recipient.

Q 31. What will be the tax impact when capital goods on which ITC has been taken are supplied by taxable person?

Ans. As per section 16(15) of the MGL, in case of supply of capital goods on which input tax credit has been taken, the registered taxable person shall pay an amount equal to the input tax credit taken on the said capital goods reduced by the percentage points as may be specified in this behalf or the tax on the transaction value of such capital goods, whichever is higher.

Q 32. What is the recovery mechanism for wrongly availed credit?

Ans. As per section 16(16) of the MGL, the wrongly availed credit would be recovered from the registered taxable person in terms of section 51 of MGL.

To know more on  Input Tax Credit – How to Claim ITC in your business, please connect with gst@amlegals.com.