Input Tax Credit (ITC) Explained

Quick guide on Input Tax Credit.

As per GST, ITC means the credit of CGST, SGST, IGST available to a registered person on the inward supply of goods or services or both made to him excluding the tax paid on supplies liable to composite tax.

Input Tax credit(ITC) means that the taxpayer can reduce the tax paid on his inputs from his output tax payable.

Conditions for Claiming ITC

A registered person will be entitled to claim Input Tax Credit only upon fulfilment of the following conditions,

  • The taxpayer has received the goods or services.
  • The taxpayer should be in possession of tax invoice issued by the supplier.
  • Tax should be paid by the registered person to claim ITC.
  • The taxpayer should have furnished the returns in time.

Apportionment of Input Tax Credit

  1. ITC based on usage of business: When the goods or services or both are used by the registered taxpayer for
    • Business purposes - ITC available.
    • For other purposes - ITC not available.
  2. ITC based on use of inputs: When the goods or services or both are used by the registered taxpayer for making
    • Taxable supplies or Zero - rated supplies - ITC available.
    • Non-Taxable supplies or Exempt supplies or Nil rated supplies: ITC not available.

Eligibility and time limit for Input Tax Credit availment

The credit on inputs held in stock and inputs contained in semi-finished goods and finished goods held in stock is available in the following manner,

  1. Registered person: These are eligible to ITC and ITC will be credited in electronic credit ledger maintained in GST portal.
  2. Person applied for registration within 30 days from the day he come liable to register: These are eligible to ITC available on the day immediately preceding the date from which he becomes liable to tax.
  3. Person applied for voluntary registration: These are eligible to take ITC available on the day immediately preceding the date of registration.
  4. Registered person ceases to pay tax under Composition Scheme: These are eligible to ITC available in respect of inputs, semi-finished goods, finished goods and capital goods on the day immediately preceding the date from which he becomes liable to pay tax

Input Tax Credit FAQs

1What is input Tax?

Input Tax means CGST, SGST/UTGST and IGST paid on supply of goods or services or both made to a registered person. It also includes tax paid on reverse charge and import of goods or services.

2When the goods against an invoice are received in lots or instalments, how can the registered person claim ITC?

The registered person can claim input tax credit only upon the receipt of last lot or instalment.

3What is the time limit within which the registered taxable person has to pay the consideration along with taxes to the supplier of goods or services to claim ITC?

The registered taxable person should pay the consideration along with the taxes to the supplier within 180 days from the date of invoice. If the recipient fails to pay the tax within 180 days, then he is liable to pay the input tax credit along with interest.

4What is the time limit to claim input tax credit?

The time limit to claim ITC is due date for filing monthly return (eg.) for the month of September (20th October) or due date for filing annual return whichever is earlier.

5What is the eligibility of input tax credit in case of change in constitution of business?

The registered taxable person can transfer the unutilized ITC to the new entity (transferee) provided there is a specific provision for transfer of liabilities.

6What happens when the details of inward supplies furnished by the recipient does not match with the outward supplies details furnished by the supplier in his valid return?

If there is any mismatch, the communication would be made to the both parties. If it is not rectified, the amount will be added to the output liability of the recipient in return for the month succeeding the month in which discrepancy is communicated.

7How can the input tax credit be allowed if there is a mismatch?

The ITC is allowed provisionally for 2 months. If mismatch continues even after communication to the concerned parties, the ITC would be reversed automatically.

8Can the tax payer claim input tax credit and depreciation on tax component of the capital asset?

No, the taxpayer can claim either depreciation on the tax component or ITC of tax paid on the capital asset. He cannot claim both at the same time.