What is Input Tax Credit Under GST

Introduction

When a registered person buys goods or utilizes services, they pay GST on these inward supplies. These supplies are utilized to advance the business, facilitating the provision of outward supplies. GST is charged to the recipient on these outward taxable supplies. However, the total GST collected on outward supplies isn't entirely payable to the Government. It gets reduced by adjusting the tax paid on inward supplies, provided certain conditions are met.
GST laws extend the benefit of Input Tax Credit (ITC) not just to input goods/services but also to capital goods. This available ITC is reflected in the taxpayer's electronic credit ledger maintained at the GST common portal.

Input Tax Credit Meaning

As per Section 2 (63) of the CGST Act, 2017 “input tax credit” refers to the credit of input tax.

Input-tax as defined under section 2(62) of the CGST Act, includes:

Central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both to a registered person excluding tax paid under the composition levy.

It shall also include:-

(a) The integrated goods and services tax which is charged on the import of goods.

(b) The tax payable as per section 9(3) and (4) of the CGST Act.

(c) The tax payable as per section 5(3) and (4) of the IGST Act.

(d) The tax payable as per section 9(3) and (4) of the respective SGST Act.

(e) The tax payable as per section 7(3) and (4) of the UTGST Act.

The legal framework governing Input Tax Credit provisions

The regulations pertaining to Input Tax Credit (ITC) are detailed in Chapter V (Sections 16-21) of the CGST Act and the corresponding CGST Rules. The provisions regarding Input Tax Credit (ITC) under the Central Goods and Services Tax (CGST) Act are also applicable to the Integrated Goods and Services Tax (IGST) Act. Section 20 of the IGST Act has extended these provisions accordingly.

The various sections cover the following aspects:-

Section 16:	Eligibility and Conditions for taking Input tax credit
Section 17:	Apportionment of credit and blocked credits
Section 18:	Availability of Credits in Special Circumstances
Section 19:	Taking input tax credit in respect of inputs and capital goods sent for job work.
Section 41:	Utilization of ITC
Section 42:	Matching, Reversal, and Reclaim of ITC.

CGST Rules, 2017 relating to ITC

The Chapter V of CGST Rules, 2017 contains the following rules in relation to ITC

Rule 36:	Documentary requirements & conditions for claiming ITC
Rule 37:	Reversal of ITC in the case of Non-Payment of consideration
Rule 38:	Claim of credit by a Banking Company or a Financial Institution
Rule 39:	Procedure for distribution of ITC by Input Service Distributor (ISD)
Rule 40:	Manner of claiming credit in special circumstances
Rule 41:	Transfer of credit on sale, merger, etc.
Rule 42:	Manner of determination of ITC in respect of inputs or input services & reversal
Rule 43:	Manner of determination of ITC in respect of Capital goods & reversal thereof
Rule 44:	Manner of reversal of credit under special circumstances
Rule 44A:	Manner of reversal of credit of Additional Duties of Customs
Rule 45:	Conditions and restrictions in respect of inputs and Capital Goods to the job worker

Eligibility for Availing ITC:

As per section 16(1), “Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business and the said amount shall be credited to the electronic credit ledger of such person.”

The analysis of the above statutory provision reveals the following:

• According to Section 16(1), only registered individuals are eligible for ITC. When a registered individual receives goods or services or both, on which tax has been levied, they are permitted to claim credit for the input tax paid. This is subject to the provisions governing the utilization of Input Tax Credit (ITC) as outlined in Section 49, as well as the conditions and restrictions specified in the rules. Consequently, an unregistered person would not qualify to claim an Input Tax Credit.

• The goods or services must be utilized or intended for use in the course of or to advance the registered individual's business activities.
However, Input Tax Credit is not available for inputs utilized in the outward supply of exempted goods or services.

• There is a sole exception to the availability of Input Tax Credit (ITC) even if the individual is registered. This exception pertains to individuals who pay taxes under section 10 of the CGST Act, operating under the compounded levy scheme. Such indiv       iduals are ineligible to claim ITC for inward supplies made by them.

Conditions to be satisfied for availing ITC:

As per Section 16(2), the registered person is eligible for input tax credit on a supply only if all of the following conditions are met:

(a) Possession of a Tax Invoice or Debit Note.

(b) Furnishing and communication of details.

(c) The ITC is not restricted.

(d) Receipt of goods and/or services.

(e) Payment of tax to the Government.

(f) Furnishing the valid return under section 39.

a) Possession of Invoice:

According to section 16(2)(a), a registered person cannot claim input tax credit for any supply of goods or services to them unless they possess a tax invoice or debit note issued by a supplier registered under this Act or documents as specified in Rule 36.

Rule 36 defines, Documentary requirements and conditions for claiming input tax credit. As per Rule 36(1), The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely,-

• an invoice issued by the supplier of goods or services or both (as per section 31)

• an invoice raised by the recipient in case of inward supply from unregistered.

• • a debit note issued by the supplier of goods or services or both (as per section 34)

• a bill of entry or any similar document prescribed under the Customs Act, 1962

• an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor for distribution of credit. (Rule 54).

As per Rule 36(2), The ITC shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the document mentioned in Rule 36(1).

Provided that if the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, the total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-State supply, input tax credit may be availed by such registered person.

b) Furnishing and communication of details:

As per section 16(2)(aa), the details of the invoice or debit note has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under section 37.

As per Rule 36(4), No ITC shall be availed by a registered person in respect of invoices or debit notes the details of which are required to be furnished under sub-section (1) of section 37 unless-

(a) The details of such invoices or debit notes have been furnished by the supplier in the statement of outward supplies in FORM GSTR-1 or using the invoice furnishing facility; and

(b) The details of ITC in respect of such invoices or debit notes have been communicated to the registered person in FORM GSTR-2B under rule 60(7).

ITC claims will only be permitted when the supplier has furnished the details of the invoice/debit note in their GSTR-1 and subsequently it appears in the recipient     's GSTR-2A. Consequently, recipients can no longer claim provisional ITC. In simpler terms, the ITC claimed must be visible in the recipient's GSTR-2A.

c) The ITC is not restricted:

The communication of input tax credit details regarding the supply to the registered person under section 38 has not been limited.

d) Receipt of Goods or Services or both:

As per section 16(2)(b), the registered person should have received the goods or services or both. This implies that ITC will not be available unless the goods are received by the registered person.

According to section 16(2)(b), the registered individual must have received the goods or services or both. This implies that theInput Tax Credit will not be accessible unless the goods are received by the registered individual.

When it is deemed that goods or services have been received:

Following the amendment by the Central GST (Amendment) Act, 2018, the Explanation to section 16(2)(b) specifies that, under this clause it will be considered that the registered person has received the goods or services as the case may be.

(i) 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;

(ii) Where the services are provided by the supplier to any person on the direction of and on account of such registered person.

e) Payment of Tax to the Government:

As per section 16(2)(c), the third condition states that the tax must have been duly paid to the government on the goods or services for which ITC is being claimed. This payment can be done by the supplier either by:-

(a) Making the payment through cash or

(b) Through utilization of ITC.

f) Filing of valid Return:

As per Section 16(2)(d), the registered person should have furnished the return under section 39.

FAQ’s

Q-1: What is Input Tax Credit (ITC)?

Ans: Input Tax Credit (ITC) is a mechanism under GST that allows taxpayers to claim credit for the taxes they have paid on their purchases, which can be set off against the taxes they are liable to pay on their sales. It prevents the cascading effect of taxes and ensures that taxes are levied only on the value addition at each stage of the supply chain.

Q-2: What is the full form of ITC in GST?

Ans: ITC stands for Input Tax Credit in Goods and Services Tax (GST).

Q-3: What does Input Tax Credit mean?

Ans: Input Tax Credit refers to the credit that a taxpayer can claim for the GST paid on their inputs (purchases) against the GST liability on their outputs (sales).

Q-4: What are the conditions for claiming Input Tax Credit under GST?

Ans: To claim Input Tax Credit under GST, certain conditions as given under section 16 of CGST Act must be met, including possession of a valid tax invoice, receipt of goods or services and payment of tax to the government.

Q-5: What is Blocked Credit under GST?

Ans: Blocked Credit refers to certain categories of goods and services for which Input Tax Credit cannot be claimed under GST. The list of items covered under blocked credit are given under section 17(5).

Q-6: Is Input Tax Credit available on the purchase of cars?

Ans: Generally, Section 17(5) blocks input tax credit for motor vehicles, but there are specific situations in which you can still avail of input tax credit under GST. If you fall into these cases, you can take benefit of ITC.

Q-7: What is Ineligible ITC?

Ans: Ineligible ITC refers to Input Tax Credit that cannot be claimed under GST due to various reasons such as non-compliance with GST rules or utilization for purposes not allowed under the law. The list of items are covered under section 17(5) & 16(4).

Q-8: Can you provide an example of Input Tax Credit?

Ans: Suppose a manufacturer purchases raw materials worth Rs.10,000 and pays GST of Rs.1,800 on it. When they sell the finished goods for Rs.20,000 with a GST of Rs.3,600, they can claim an Input Tax Credit of Rs.1,800 (the GST paid on purchases) against their GST liability on sales.

Q-9: Is Input Tax Credit available on capital goods?

Ans: Yes, Input Tax Credit is available on capital goods, which are goods used for the furtherance of business such as machinery, equipment, etc., subject to certain conditions.

Q-10: What are eligible and ineligible Input Tax Credits?

Ans: Eligible Input Tax Credits are those for which the taxpayer meets all the conditions prescribed under the GST law. Ineligible Input Tax Credits are those that do not meet the prescribed conditions or fall under blocked credit categories.

Q-11: What are the time limits for availing Input Tax Credit?

Ans: A registered individual cannot claim input tax credit for any invoice or debit note related to the supply of goods or services after the 30th of November following the end of the financial year to which the invoice or debit note pertains or after filing the relevant annual return, whichever occurs earlier.

Q-12: Can Input Tax Credit be claimed only for certain expenses?

Ans: Input Tax Credit can generally be claimed for GST paid on inputs, capital goods and input services that are used or intended to be used in the course or furtherance of business.

Q-13: Can we claim Input Tax Credit on bank charges?

Ans: Input Tax Credit on bank charges can be claimed if the charges are directly related to the business and are subject to certain conditions specified under the GST law.

Q-14: What are the rules for claiming GST Input Tax Credit (ITC)?

Ans: The rules for claiming GST Input Tax Credit include possession of valid tax invoices, compliance with GST law provisions, and utilization of credit only for eligible purposes. The detail list is given under section-16 of CGST Act, 2017.

Q-15: Is ITC can be claim on traveling expenses?

Ans: Input Tax Credit can only be claimed when it is utilized to advance business activities. To put it plainly, claiming ITC on travel expenses is permissible only if the travel serves a business purpose. Consequently, ITC cannot be claimed if the travel is for personal reasons.

Q-16: Is Input Tax Credit available on capital goods?

Ans: Yes, Input Tax Credit is available on capital goods, subject to fulfillment of certain conditions specified under the GST law.

 

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