Input Tax Credit under GST Law, How to Claim ITC as per GST Law 2017

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Input Tax Credit under GST Law, How to Claim ITC Under GST Law. Check Eligibility and conditions for taking input tax credit as per latest GST Law passed in the month of March 2017. ITC as per Goods and Service Tax Law. Input Tax Credit under Revised GST Law. Before understanding the Input tax credit under GST Law it is essential to understand the changes made in earlier Law i.e. CENVAT under Rule, 2004 to the new law. After giving the due consideration, it is clear from the given table below that except few minor changes, Capital Goods under Rule 2(a) and Section 2[20] are same. Now scroll down below n check more details for “Input Tax Credit under Revised GST Law

There is drastic change in the Capital Goods definition under Revised GST Law from GST Law. Under the GST law definition was very exhaustive though under the Revised GST law It is quite simple. Under GST law , Capital goods was defined under Section- 2(20) and Under CCR,2004 the same was provided under Rule 2(a) and both the definition were almost same except some words here and there. But new definition under section 2(19) of Revised GST law is simple and rational . Now, We can go through all definition related to Input tax Credit under Revised GST Law to understand the input tax credit in detail.

Other Parts of this articles

Input Tax Credit (ITC Under GST)

Input tax credit is a provision of reducing the tax already paid on inputs, to avoid the cascading effect if taxes. This can be understood with the help of the following diagram:

Input Tax Credit (ITC Under GST)

Input Tax Credit (ITC) is considered as a cornerstone of GST. In the current tax regime, there is a nonavailability of credit at various points of supply chain, which leads to a cascading effect of tax and increases the cost of goods and services. This flaw has been removed under GST and a seamless flow of credit throughout the value chain will be provided thus reducing the cascading effect of tax. Under GST, Input tax, means the Central tax (CGST), State tax (SGST), Integrated tax (IGST) or Union territory tax (UTGST) charged on supply of goods or services or both made to a registered person and includes taxes paid on input goods, input services or both. To avail the benefit of ITC, it is required that the person availing such benefit is registered under GST. An unregistered person is not eligible to take the benefit of ITC.

Section 16 of the CGST Act, 2017, states the condition and eligibility to obtain ITC. Following four conditions are required to be fulfilled by a registered taxable person:

  • he should be in possession of tax invoice or debit note or such other tax paying documents as may be prescribed;
  • he should have received the goods or services or both;
  • the supplier should have actually paid the tax charged in respect of the supply to the government; and
  • he should have furnished the return under section 39.

(where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment)

Availability of ITC to recipient has been made dependent on payment of tax by supplier, other than supplies where tax is payable on reverse charge basis. Thus, even if the receiver has paid the amount of tax to the supplier and the goods and/or services so procured are eligible for ITC, no credit would be available, till the time tax so collected by the supplier is deposited to the Government. Also, if a recipient fails to pay the amount of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon.

Input Tax Credit under GST Law

Definition of Capital Goods , Input and Input Services under revised GST Law

Capital Goods -Sec. 2(19)

“Capital good” means goods , the value of which is capitalized in the books of accounts of person claiming the credit which are used or intended to be used in the course or furtherance of business.

Sec. 2(52) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;

Sec.2 (53) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;

Sec. 2(55) “Input Tax” in relation to taxable person , means the IGST , including that on import of goods , CGST and SGST charged on supply of goods and services to him, and include the tax payable under section 8(3) but does not include the tax paid under Section -9

Sec. 2( 56) “Input Tax Credit” mean credit of input tax as defined in sub section 55. Yes, there are drastic changes in the definition of “input” and “Input Services” under GST law than the earlier law .

Yes, there are drastic changes in the definition of “input” and “Input Services” under GST law than the earlier law .

Now, we will discuss the Input tax provision under the Revised GST Law

1. Eligibility and conditions for taking ITC Sec. 16

Eligibility and conditions for taking ITC Sec. 16

Section 16(2)

Payment of invoice for supply of services is to be made within 180 days : ITC availed is to be added to output tax liability of recipient along with interest thereon, when value of services and tax is not paid within 180 days from date of invoice. However, the credit can be reclaimed again when such payment made to supplier, but no credit of interest will be given and hence will be the cost.

Goods received in Lots: ITC entitled on last lot or installment.

ITC made dependent upon payment of tax by supplier: Availability of ITC to recipient has been made dependent on payment of tax by supplier. Thus, even if the receiver has paid the amount of tax to the supplier and the goods and/or services so procured are eligible for ITC, no credit would be available, till the time tax so collected by the supplier is deposited to the Government.

Goods received by third person: It shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise..

Sec  16(3) ITC shall not be allowed if depreciation is claimed on tax component of cost of capital goods.

Sec 16(4) Time limit for availment of credit: ITC shall not be allowed after furnishing of return for September month following the end of financial year to which such invoice or furnishing of relevant annual return (December 31 is the due date for filing annual return), whichever is earlier.

In the absence of any provisions as to eligibility to avail ITC when there is delay in applying for registration under GST, it appears that such credit on inputs would be lapsed and would be available only after the date of registration granted under the GST Law.

2. Availability of credit in special circumstances [Sec. 17]

Apportionment of credit and blocked credits

SEC 17(5) Negative list of goods and/or services on which ITC shall not be admissible:

Motor vehicles and other conveyances: except when used for further supply of such vehicles or conveyances, transportation of passengers and goods, imparting training on driving , flying, navigating such vehicles or conveyances.

Supply of Goods and/or services relating to

  • Food and beverages, outdoor catering, beauty treatment, health services, cosmetic    and plastic surgery except where inward supply of particular category is used for making outward taxable  supply of same category.
  • Membership of a club, health and fitness centre.
  • Rent-a-cab, life insurance  and health insurance except wher
    • a) it is obligatory for an employer under any law in force
    • b) inward supply of particular category is used for making outward taxable supply of same category.
  • Travel benefits extended to employees on vacation such as leave or home travel concession .

Construction Service /Works contract services when supplied for construction of immovable property (other than plant and machinery) except where it is  an input service for further supply of works contract service.

“construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said IP.

  • Goods and/or services on which tax is paid under composition scheme.
  • Goods and/or services used for personal consumption.
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
  • Goods and/or services received by a non-resident taxable person except on goods imported by him

Note : “Plant and Machinery” means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes-  (i) land, building or any other civil structures;  (ii) telecommunication towers; and (iii) Pipelines laid outside the factory premises.

3. Availability of credit in special circumstances [ Sec.18]

Application of registration to be made within 30 day: In order to avail ITC on inputs held in stock and inputs contained in semi- finished/ finished goods held in stock on the day immediately preceding the date from which a person becomes liable to pay GST, application for registration has to be made within 30 days.

A person who takes registration under sub-section (3) of section 25 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 of grant of registration.

where any registered person ceases to pay tax under section 10 (Composition Scheme), he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed

where an exempt supply of goods and/or services by a registered person becomes a taxable supply, such person 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 relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.

where an exempt supply of goods and/or services by a registered person becomes a taxable supply, such person 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 relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable: Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.

Input Tax Credit under GST Law

SEC 18(3) – Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific Provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains unutilized in his electronic credit ledger to such sold merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.

SEC 18(4) – Where any registered person who has availed of ITC opts to pay tax under section 10 or, where the goods and/or services supplied by him become wholly exempt, he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption: Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.

SEC 18(6) – In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher: Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.

4. Taking Input Tax Credit in respect of inputs sent for JOB WORK [ Section 19]

Taking Input Tax Credit in respect of inputs sent for JOB WORK

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Taking Input Tax Credit in respect of inputs sent for Job Work IMG 2

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Taking Input Tax Credit in respect of inputs sent for JOB WORK IMG 3

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Taking Input Tax Credit in respect of inputs sent for JOB WORK img 4

5. Taking input tax credit in respect of input sent for job work [ Section 20]

Where the inputs/capital goods sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker in accordance with clause (a) or clause (b) of sub-section (1) of section 43 within 1 year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the jobworker on the day when the said inputs were sent out:

Provided that where the inputs/capital goods are sent directly to a job worker, the period of 1 year shall be counted from the date of receipt of inputs by the job worker.

SEC 19(7) – Nothing contained in subsection (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.

6. Manner of distribution of credit by Input Service Distributor

  • ISD can distribute the ITC as prescribed , credit of CGST as CGST or IGST or IGST as IGST or CGST by issuing documents containing the amount of ITC where the ISD and Recipient is located in different states …………………….> Under CGST Act. 
  • ISD can distribute the ITC as prescribed , credit of SGST as SGST or IGST by issuing documents containing the amount of ITC where the ISD and Recipient is located in different states. ………………………………..> Under SGST Act. 
  • ISD can distribute the ITC as prescribed , credit of CGST and IGST as CGST by issuing documents containing the amount of ITC where the ISD and Recipient is located in same states. .………………………………> Under CGST Act. 
  • ISD can distribute the ITC as prescribed , credit of SGST and IGST as SGST by issuing documents containing the amount of ITC where the ISD and Recipient is located in different states. ………………………………..> Under SGST Act.
  • ISD can distribute the ITC subject to the following :
    • I. only on prescribed document containing the details as prescribed.
    • II. The amount of credit distributed can not exceed the amount of credit
    • III. ITC can be distributed only to that recipient eligible.
    • IV. Can be distributed to attributable recipient . If more than one recipient , it shall be on pro rata based on the turnover of the state, of the relevant period. Recipient should be operational in that relevant period.

Where the ISD distribute any credit without following the provisions of Sec. 21 resulting in excess distribution of credit , the same shall be recovered from such recipient along with interest, and the provision of sec. 66 or 67 [ demand and recovery ] shall apply mutatis mutandis for such recovery.

About the Author:

CA MUKTA AGGARWAL
Mobile/ Whatsapp no : 8587976865
Email ID : camuktaaggarwal@gmail.com

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If you have any query regarding “Input Tax Credit under GST Law” then please tell us via below comment box….

4 COMMENTS

  1. q1: whether automaticalli can i avail the credit available in my last return automatically. are am i ti file any return to avail tjhe same:

    q2: what about the intransit goods/ service credit?

  2. If I am Constructing a Factory Buiding in Gujarat. As per GST provisions , no credit is admissible to my customer.
    Their Head Office is at Mumbai. If we raise an invoice to Mumbai, HO, and they claim credit and pass it through ISD route. Is it possible legally. ?

  3. Sir
    I have a GST registered office in Delhi, want to purchase goods from Ahmedabad based supplier through MCX Exchange which will be kept in MCX designated vault in Ahmedabad & supplier will give invoice charging CGST & SGST as location of supplier & place of supply is same.
    At the time of sale from my Delhi office, I shall charge IGST from the customer because the goods are supplied from MCX designated Ahmedabad vault to Ahmedabad customer(here location of supplier is Delhi & place of supply is Ahmedabad).
    Please suggest if I shall get Input credit in this transaction.
    Regards
    Anubhav

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