The concept of Input tax credit (ITC) was introduced to avoid the cascading effect of indirect taxes. The ITC related provisions are stated in Section 16 of the CGST Act, 2017 and Rule 36 of the CGST Rules, 2017. You can refer to this article for the basic details.
In this article, we have summarised the ITC related provisions that are currently effective:
As per Rule 37 of the CGST Rules 2017, if ITC has been availed for the supply of goods or services or both, and the purchaser/recipient has failed to pay to the supplier the due sale consideration within the time limit prescribed in the second proviso of Section 16(2), i.e., 180 days from the date of invoice, the amount of ITC claimed should be reversed. However, there are a few exceptions here. As per the rules:
- In case of Schedule I (Gifts not exceeding INR 50,000 in a financial year, given by an employer to an employee, supplies made between related persons in the course of business, etc.) supplies, even if the supply is made without consideration, it will be considered as paid.
- If the value of the supply is calculated on the basis of Section 15(2)(b) of the CGST Act 2017 (Payment made by the recipient on behalf of the supplier), it will be considered as paid, even if the consideration is not received.
The relevant taxpayer should furnish the details of the supply, the value/amount not paid, and the amount of ITC availed proportionately in Form GSTR-3B for the month immediately after the period of one hundred and eighty days from the date of invoice.
The taxpayer will also be charged interest, not exceeding 18%, for the period starting from the date of availing the ITC until the payment of the output tax liability (liability including the ITC amount).
The due date as per Section 16(4) of the Act (date of filing Annual Return for a financial year; or the month of September following the end of the financial year; whichever is earlier), will not be applicable for re-claimed credit (in case of credit reversed earlier).
The associated provisions here are governed by Section 17 of the CGST Act, 2017 and Rule 38, 42 and 43 of the CGST Rules, 2017. You can refer to this article for further details.
The relevant provisions here are governed by Section 18 of the CGST Act, 2017 and Rule 40 & 41 of the CGST Rules, 2017.
A GST registered taxpayer can claim ITC in respect of stock and inputs contained in finished goods or semi-finished goods in the following circumstances:
- Within thirty days after the taxpayer has become eligible for GST registration and the registration has been granted.
- When voluntary registration has been applied for and granted as well.
- When the taxpayer ceases/opts-out to be covered under the composition scheme.
- When an exempt supply (goods and/or services) changes to a taxable supply.
- In the above circumstances, the taxpayers can start claiming ITC from the preceding day from which they became liable to pay GST. However, the taxpayer cannot claim ITC if the tax invoice’s date of issue is before one year.
- If the taxpayer wishes to claim ITC on capital goods, it can be claimed. However, the taxpayer is required to reduce the value of the capital goods by five per cent per quarter per year or part thereof – from the date of the tax invoice of the capital goods.
- In the case of reconstitution of the taxpayer, due to sale, merger, demerger, lease, amalgamation or transfer of business, the unutilised ITC can be transferred to the new entity. Refer to this article for further details.
- If the ITC claim exceeds INR 200,000, then, the declaration filed by the taxpayer should be authorised by a practising Chartered Accountant or Cost Accountant.
The ITC in respect of stock and inputs contained in the finished goods or semi-finished goods is to be reversed in the following manner:
- The ITC should be calculated proportionately, based on the corresponding invoices on which the taxpayer had availed credit.
- When capital goods are held in stock, the ITC attributable to the remaining useful life in months should be computed proportionately after considering the useful life as five years. E.g., If the capital goods are used for four years and two months, then the remaining useful life will be only ten month The ITC attributable to the remaining useful life will be (10/60)*100, i.e., 17% approximately.
- If the tax invoice is not available, then, the prevalent market price of the goods as on the relevant date should be considered. These details should be duly authorised by a practising Chartered Accountant or Cost A
These provisions are governed by Section 19 of the CGST Act, 2017 and Rule 45 of the CGST Rules, 2017.
- A taxpayer (also known as principal in this scenario) can send inputs or capital goods without paying GST to a job worker for job work.
- ITC can be claimed by the principal on the inputs even if the inputs are sent directly to the job worker without being brought to the principal’s place of business.
- However, If the processed goods are not received back within one year (after they are sent for job work), then, the same should be treated as goods supplied by the principal to the job worker (as on the date the job worker receives the goods).
- Similarly, the principal may send capital goods to the job worker without it being brought to the principal’s place of business. If the capital goods are not received back within three years from the date they were sent for job work, then, they will be treated as goods supplied by the principal to the job worker (as on the date the job worker receives the goods).
In the above two cases, it will result in output tax liability for the principal along with interest and penalty, as applicable.
For job work, capital goods do not include moulds and dyes, jigs and fixtures or tools.
- Taxpayers must file Form GST ITC-04 to claim the eligible ITC. Refer to this article for further details.
These provisions are governed by Section 20 & 21 of the CGST Act, 2017 and Rule 39 of the CGST Rules, 2017. You can refer to this article for further details.
Additionally, it is to be noted that, if the Input Service Distributor distributes the ITC in contravention to the provisions of the CGST Act, 2017, resulting in the excess distribution of ITC to one or more units, then, the excess ITC will be recovered from the units along with interest.
Transfer Of ITC After Obtaining Separate Registration For Multiple Places Of Business Within The Same State/Union Territory
The relevant provisions here are governed by Rule 41A of the CGST Rules, 2017.
A taxpayer can obtain separate registrations for multiple places of business under Rule 11 of the CGST Rules, 2017. Such taxpayers may also intend to transfer the unutilised ITC either partly or wholly to the newly registered business. In such cases, the taxpayer must furnish Form GST ITC-02A within thirty days of obtaining the registration, on the GST portal. The ITC transferred must be in the ratio of the value of assets* held by the businesses at the time of registration. Once the form is filed, the newly registered business has to accept the details on the GST portal. Post this; the ITC will be credited to the electronic credit ledger of the newly registered entity.
*Here, value of assets means the value of all the assets of the business, irrespective of whether ITC has been availed on them or not.