Input Tax Credit is the credit of taxes paid on inputs used for the production of outputs. It means that the taxes by a manufacturer on the inputs of the goods or services can be claimed by him as Input Tax Credit (ITC) at the time of paying taxes on outputs.

For Example, a final product “X” is priced at Rs.100 and tax payable on it is Rs.18. The inputs used in the production of the product X was bought by the manufacturer at Rs.50 and taxes paid on it was Rs.9. Therefore, the manufacturer while paying the taxes on the product X can claim Rs.9 as input tax credit and he shall be liable to pay a nett amount of Rs.9 only as taxes on X.

Registration :

To claim ITC the taxpayer must be registered under GST. This is a mandatory condition which every taxpayer should follow for claiming input tax credit under GST.

Pre – Requisites for claiming ITC :

• He is in possession of tax invoice or any other specified taxpaying document.
• Goods / services has been received by him. “Bill to ship” scenarios also included.
• Tax is actually paid by the supplier.
• GST return is filed by the supplier – Possibly the most path breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax, he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it.

Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST compliant as well.

• If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.
• He should pay the supplier, the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.

Protocol to Avail ITC :

Credit Of	To be utilized for paying	May be utilized further for paying
CGST	CGST	IGST
SGST/UTGST	SGST/UTGST	IGST
IGST	IGST	CGST, then SGST/UTGST

 

Conclusively, credit of CGST cannot be utilized for paying SGST/UTGST and credit of SGST/UTGST cannot be utilized for paying CGST.

Documents Required for Availing Credit :

• Invoice issued by a supplier of goods or services or both
• Invoice issued by recipient along with proof of payment of tax
• A debit note issued by supplier
• Bill of entry or similar document prescribed under Customs Act
• Revised invoice
• Document issued by Input Service Distributor

CBEC has explained the overall concept of ITC. Please refer input-tax-credit-mechanism-onlineversion-07june2017

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