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How to Calculate Input Tax Credit (ITC) under GST?

Before knowing how to calculate Input Tax Credit (ITC) under GST it is important for us to know what is the meaning of ITC.

The meaning of ITC can be effortlessly comprehended when we take the words ‘input’ and ‘tax credit’ into consideration. Inputs are materials or services that a manufacturer purchases or render to manufacture the final goods or services, which is his output.

Tax credit implies the amount of tax a manufacturer had the option to lessen while paying his tax on output.

So, in simple words, ITC means that when a manufacturer pays the tax on his output, he can deduct the tax he recently paid on the input he bought.

Input tax credit won’t be accessible for goods or services or both solely utilized for personal use, exempt supplies and supplies for which ITC is explicitly not accessible.

The time limit for claiming ITC

As per Section 16 of the CGST Act, 2017, A registered person is qualified to assume the input tax credit for any debit note or invoice for the supply of goods or services or both before:

The due date for furnishing the return for the month September following the finish of the financial year, or furnishing relevant annual GST return.

Utilization of Input Tax Credits

There are certain restriction for utilizing the various input tax credits (ITC) and they are

(i) IGST credit

First, the credit is available to set off against IGST credit,

Then for balance (if any) set off with CGST and SGST/UTGST in any order or any proportion.

(ii) CGST credit,

It is to be utilized against CGST and then balance with IGST.

However, it shall be noted that the CGST credit cannot be utilized to set-off the SGST or UTGST output tax liability.

SGST or UTGST Credit

It can be utilized to set off for SGST or UTGST, and then the balance with IGST.

However, it shall be noted that the SGST or UTGST credit cannot be utilized to set-off the CGST output tax liability.

Let us understand this with an example:

Type of GST Output Tax Liability Input Tax Credit Available
IGST 5,000 10,000
CGST 7,500 5,000
SGST or UTGST 7,500 5,000
Total 20,000 20,000

Here is how the sett off will take place:

TAX Type Liability ITC Available Set Off
IGST 5,000 10,000 5,000 (From IGST)
CGST 7,500 5,000 5,000 from CGST 2,500 from IGST
SGST or UTGST 7,500 5,000 5,000 from SGST or UTGST 2,500 from IGST

How to calculate Input Tax Credit (ITC) under GST

To calculate the input tax credit (ITC) under GST, one can follow the below-mentioned steps:

1) Find if you are eligible to claim Input Tax Credit (ITC).
2) Determine the level of utilization in your business movement.
3) Determine the amount of GST you can claim as an ITC for various kinds of expenses.
4) Calculate utilizing the standard method.

How to claim input credit under GST?

In order to claim input credit under GST –

i. The taxpayer must have a purchase invoice or debit note issued by the dealer.
ii. He/she must have received the goods or services or both.
iii. The supplier has furnished GST returns
iv. The supplier has deposited the tax charged to the government in cash or via claiming ITC.