Input Tax Credit under GST

Prakash Matre
Prakash Matre at May 20, 2022
Input Tax Credit under GST

What Is Input Tax Credit?

The tax on the purchase of goods or services which is reduced from the tax payable on outward supplies is known as an input tax credit in the GST code. In other words, the tax deducted from the output tax payable on the supply of goods and services is known as an input tax credit which is ITC full form in GST as well.

 

What is Input GST?

ITC meaning in GST is that the integrated tax(IGST), central tax(CGST), union territory tax(UTGST) or state tax(SGST) charged on supply of goods or services or both. Tax paid on a reverse charge basis and integrated tax charged on import of goods are also included under Input tax in GST search. Input tax in GST does not include tax paid under composition levy.

 

What Is Input Tax Credit in GST With Example?

Input tax credit under GST means that at the time of paying output tax liability on supply of goods and services you can deduct the tax you have already paid on purchases and the remaining amount must be paid as tax to the Government. For example: When you purchase a product or service you pay the tax on purchases and on selling you collect the tax. Now the tax you paid on purchases has to be deducted from the amount of output tax i.e. tax collected on sales and the remaining tax has to be paid to the government this process is known as utilization of Input tax credit in GST in eway bill. Now let’s understand what is input tax credit practical questions in GST entry with an example: Suppose Mr Amit purchased goods worth Rs. 25000 on which GST is 18% i.e. Rs. 4500 and, MR. Amit sold goods worth Rs.30,000 on which GST payable is 18% i.e. Rs.5,400. Let us understand the Net GST payable and input tax credit under GST:

Description in Rs.
Outward GST Payable 5,400
Less: GST paid on purchase 4,500
Net GST Payable 900

From the above ITC example, it is clear that input tax credit is the reduced amount of Rs.4,500 which was paid during the purchase of goods by Mr Amit.

 

Who is eligible to claim input tax credit in GST?

Every registered individual is qualified to take credit of input GST calculator charged on any delivery of goods or services purchased by him that are used or supposed to be used in course of his business based on any of the following documents:

  • Tax Invoice issued
  • Debit note
  • Bill of entry
  • Invoice organized concerning reverse charge basis
  • Document issued through Input Service Distributor for distribution of input tax credit under GST.

 

Things to keep in mind while claiming Input Tax Credit under GST:

  • The goods or services or both must be used or intended to be used in the course of business.
  • One must have a tax invoice/debit note issued by a supplier registered under the GST Act.
  • Submit the relevant invoice on the GST online portal.
  • The supplier has paid the relevant amount of tax to the government in cash or paid by utilization of ITC.

In case all the above-mentioned conditions are met but the supplier is not able to furnish the invoice in his GSTR-1, then provisional input tax credit can be taken upto 5% of the credits that are eligible and furnished by the supplier in his GSTR-1.

  • In case of goods received in instalments, the input tax credit can be taken on receipt of the last installment of goods.
  • In case, a person receiving the goods or services or both has not paid the supplier within 180 days from the date of invoice, then an amount equal to input tax credit availed along with the interest will be added to the output liability of the person receiving the goods or services or both. The said ITC in GST can be reclaimed on payment of the value of supply and tax thereon. However, this condition is not applicable for the supplies which are payable under a reverse charge basis.
  • No ITC shall be allowed in case the depreciation has been claimed on the tax component of the cost of plant and machinery and capital goods under the Income Tax Act.
  • Input tax credit under GST has to be availed before the due date of filing of return of September of the subsequent year, or providing of annual return, whichever is earlier.
  • ITC is available in case of taxable/ zero-rated supplies.
  • No ITC is available in case of non-taxable/ exempt/ nil rated supplies
  • One must submit declaration in FORM GST ITC-1 within 30 days from the date of becoming eligible for the input tax credit under GST
  • According to Rule 5, a declaration must be submitted containing details of stocks and capital goods along with a certificate from a Chartered Accountant or Cost Accountant where credit exceeds Rs. 2,00,000
  • After the expiry of one year from the date of tax invoice the supplier cannot claim input tax credit under GST for goods or services or both.

 

Input tax credit problems and solutions:-

  • Registered persons - section 16(1) of the CGST Act 2017 states that only a registered person can claim input tax credit. Therefore, the problem arises: can a person who is not registered at the time of receiving the supply of goods and services claim ITC after obtaining registration?

The answer is NO. A person can not claim the input tax credit if he is not registered at the time of receiving goods and services even though he obtains registration later on. There is an exception to the above rule under the law wherein a person makes an application for registration within 30 days from the date such person is liable for the same. In these situations, the date of registration would be the date from which he is liable to obtain the registration and hence the supplier could revise the invoices issued within 30 days from the date of issuance of such registration certificate therefore, the newly registered person can avail input tax credit.

  • Rule 86 - This rule in a nutshell grants power to restrict the utilization of balance in the electronic credit ledger in specific cases. Hence, the problem is whether this rule is valid or not?

Now, according to section 16(1) of the CGST Act, it grants power to prescribe the conditions and restrictions according to which input tax credit can be availed. Therefore, we can conclude that power granted to prescribe restrictions on how to avail ITC does not include the power to restrict the utilization of validly availed input tax credit. Hence this rule (rule 86) violates section 16(1). Also, section 49(4) of the CGST Act states that the amount available in the electronic credit ledger can be used to make payments towards output tax in such manner and conditions and within a specified time as prescribed. Hence, section 49(4) only provides the conditions based on which we can utilize the balance in the electronic credit ledger. Therefore, on this ground also it can be concluded that rule 86A is violating the provisions of this Act.

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