Conditions to Claim Input Tax Credit under GST

Sakshi Jain
Sakshi Jain at January 28, 2023

Claim Input Tax Credit under GST

Goods and Services Tax (GST) has made conditions for claiming ITC Input Tax Credit (ITC) a lot simpler. However, there are certain conditions of input tax credit which must be fulfilled before claiming Input Tax Credit (ITC).

The topics covered in this article are conditions for claiming Input Tax Credit and what is Input Tax Credit.

1. What is Input Tax Credit?

Input Tax Credit (ITC) is basically the credit which is received by a taxpayer after paying input tax. These inputs act as building blocks of goods and thus the tax paid on them is credited to the taxpayers in due time under given conditions. Availing ITC or its refund helps determine the accurate working capital at any point. This information is extremely crucial from the standpoint of business liquidity.

ITC can only be claimed under GST if its conditions are followed properly. ITC is the backbone of GST and a very important subject for registered taxpayers. Thus, its eligibility is also a matter of concern for them. Next we'll know what are the conditions to be fulfilled to avail input tax credit .

2. Conditions to Claim ITC Input Tax Credit

ITC can be claimed by any registered person if the following Input Tax Credit conditions are fulfilled:

  • Taxpayer has an evidence documenting tax payment like tax invoice or debit note
  • Receipt of goods and services
  • Furnished Return
  • Supplier has delivered goods to another person after being asked to do so by a registered person through a document indicating transfer in title of goods
  • ITC can be availed only after the last installment is received while receiving goods in many installments
  • If supplier fails to supply goods within 180 days from invoice date, the output tax liability will be added with ITC already claimed by receiver and the interest required to be paid on such tax will be included. Once supplier receives payment, ITC will be claimable again.
  • If depreciation has not been claimed on tax component of capital good
  • ITC can be claimed against invoice either on the due date of GST return filing for next financial year’s September, or the date when annual returns relevant for the current financial year were filed, whichever is earlier. For debit notes the same condition applies but with respect to the original date of invoice.
  • The common uses of common credit under ITC are for any business or non-business activity, and to affect taxable and exempt supplies.

3. Situations when ITC Cannot Be Claimed

Input Tax Credit (ITC) cannot be claimed if condition for claiming ITC Input Tax Credit are not met. However, there are other situations when ITC is unavailable. These are:

  • For conveyance and motor vehicles, except:

           (I)  Ones which are being supplied

         (II)  Ones used for transporting goods or passengers

        (III)  Ones used for training purposes

         (IV)  Ones used to deliver services or goods in same category or composite supply

  • Membership sale for clubs, fitness centers, etc.
  • Renting cabs and life/health insurance, except when made obligatory by government to be provided by employers to employees
  • Employee travel benefits on vacation such as leave, home travel concession, etc.
  • Service of works contract to construct immovable property except for:

           (I)  Providing further supply of service under works contract

         (II)  Supplying plant and machinery items

  • Goods and services to construct immovable property for personal or business use
  • When tax has been paid under composition scheme for the goods and services
  • Goods and services for personal use
  • Apart from imports, any good or service received by a non-resident taxpayer
  • Goods which are lost, stolen, written off, destroyed, or gifted as free samples
  • Frauds like excessive refund on ITC availed, wrong statements made on purpose, facts suppressed, goods confiscated or seized.
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