Purchases Availing/Not Availing Input Tax Credit

Input tax creditInput tax – It is the tax paid by the dealer on his local purchases of business inputs, which include raw material, goods that he purchases for resale, capital goods as well as other inputs for use directly or indirectly in his business.

Input Tax Credit – It means setting off the amount of input tax by registered dealer against the amount of his output tax. It is reiterated that tax paid on the earlier point is called input tax. This amount will be adjusted/ rebated against the tax payable by the purchasing dealer on his sales. This credit availability is called input tax credit.

Purchases eligible for availing Input Tax Credit

For availing Input Tax Credit the taxable goods should be purchased for any one of the following purposes:

  i.  for sale/ resale within the State;

 ii.  for sale to other parts of India in the course of inter- State trade or commerce;

iii.  for being used in the execution of a works contract;

iv.  to be used as –

  • Containers or packaging materials
  • Raw materials or
  • Consumable stores

required for the purpose of manufacture of taxable goods or in the packing of such manufactured goods intended for sale in the State or in the course of inter-State trade or commerce.

 v.  to be used as capital goods required for the purpose of manufacture or resale of taxable goods;

vi.  to be used as –

  • Raw materials
  • Capital goods
  • Consumable stores
  • Packing materials/ containers

for manufacturing/ packing goods to be sold in the course of export out of the territory of India;

vii.  for making zero-rated sales other than those referred to in clause (vi) above.

Purchases not eligible for Input Tax Credit

Input tax credit may not be allowed in the following cases:

a)      purchases from unregistered dealers;

b)     purchases of goods as may be notified by the State Government;

c)      purchases from registered dealer who opt for composition scheme under the provisions of the Act;

d)     purchases of goods where invoice does not show the amount of tax separately;

e)      purchases of goods, which are being utilized in the manufacture of exempted goods;

f)       purchase of goods used for personal use/ consumption or provided free of charge as gifts

g)      goods imported from outside the territory of India

goods imported from other States viz. inter- State purchases.

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