INPUT TAX CREDIT (ITC) UNDER GST

Meaning and definition of Input Tax Credit (ITC)

Section – 2(56) – “input tax credit” means credit of ‘input tax’ as defined in sub-section (55)

Section – 2(55) – “input tax” in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section

(3) of section 8, but does not include the tax paid under section 9

Section – 8 (3) relates to Reverse Charge Section – Input Credit is available for taxes paid on inward supply of Goods and/or Services

Section – 9 relates to Composition levy – Input credit is not available for tax paid under Composition Levy

INPUT TAX CREDIT

The input tax credit would be eligible for set off as under:

1. The CGST and SGST paid on supply of service to be set off against the output CGST and SGST respectively.
   
2. When an item is procured for resale, then credit of CGST and SGST is available for all items.
   
3. When inputs and consumables are procured for the manufacture of goods on which CGST/ SGST is paid, then credit of CGST and SGST is available for all items.
   
4. SGST would be allowed first to be utilised against SGST and then IGST.
   
5. Similarly, would be allowed first to be utilised against CGST for CGST and then IGST.
   
6. IGST would be allowed for IGST, CGST and then SGST in that order.

The SGST would not be allowed to be adjusted to the CGST and vice versa. This may lead to accumulation of credit in some places.

Eligibility and Conditions for Taking input tax Credit  

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 his business and the said amount shall be credited to the electronic credit ledger of such person.”

Explanation – In general, subject to certain conditions, input credit of all input supplies shall be available, subject to it being used or intended to be used in course of or in furtherance of business.

“(2)  Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, ––

(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;

(b) he has received the goods or services or both.

Note:- Sub-section (2) of section 16, prescribes conditions for taking input tax credit.

Section 16

“Explanation — For the purposes of this clause, it shall be deemed that the registered person has received the goods 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;

(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and

(d) he has furnished the return under section 39:

Provided that where the goods against an invoice are received in lots or instalments, he registered person shall be entitled to take credit upon receipt of the last lot or instalment:

Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:

Section 16

Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.

(3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.

(4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.”

Section 16  – Points Worth Noting

1.A valid Tax Invoice/Debit note is mandatory for claiming input tax credit

2.Good and or services should actually be received or deemed to be received in cases of transfer of documents of title

3.Tax Charged should actually be paid to the government

4.Prescribed returns should be duly filed by both the recipient and supplier

5.For part or installment payments, credit is available at the time of last installment

6.Recipient of goods/services should pay to the supplier (Including Taxes), within 180 days from the date of issue of invoice, else the Input Credit shall be reversed

7.Recipient should be entitled to claim such credit under other provisions of the law

8.Input tax credit on capital goods shall not be available if depreciation has been claimed on the tax component

9.Input credit can be claimed latest before due date of return filing for the Month of September of the subesquent year in which the invoice is being raised.

Claim of input Credit and Provisional Acceptance

(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed, be entitled to take the credit of eligible input tax, as self-assessed, in his return and such amount shall be credited on a provisional basis to his electronic credit ledger.

(2) The credit referred to in sub-section (1) shall be utilised only for payment of self-assessed output tax as per the return referred to in the said sub-section.

The general provision of self-assessment is also governing the input tax credit related laws, wherein, subject to audits, scrutiny and assessment, self assessed claims shall be accepted by the tax department prima-facie.

Matching Reversal and Claim of ITC

(1) All input credit shall be matched with the corresponding outward supply of the supplying registered dealer in the prescribed manner

(2) All matchin inputs shall only be accepted and communicated to the input recipient in the presribed manner

(3) If the input claimed is in excess of output declared, the same shall be intimated to both the parties in prescribed manner, similarly duplicacy of the input claim shall be communicated to the recipient

(4) Discrepancy/ duplicacy, if any, in the above, communicated to the recipient and not rectified in the return of income filed by the recipient, shall be added to the output liability of the next month. However, this shall be reduced from the output liability if the details of invoice/debit note is duly declared in a valid return filed in the given time frame.

(5) Any addition to output liability on account of above stated points, shall attract interest at the prescribed rate from the date of claim of input credit to the date of such addition

(6) In case the reduction in output liability is accepted, post submission of required declaration, the interest, if any charged, shall be refunded to the electronic cash ledger, provided the interest refunded shall not exceed the interest charged in any case

(7) Reduction in output liability in contravention of the provisions, shall be added back to the output liability for the period when the contravention is discovered, along with the interest for the said period.