Input Tax Credit (ITC) Explained

1. Input tax credit means the credit of tax paid on inputs. The taxpayer can claim the credit of tax paid from the output tax payable and pay the balance amount

For Example: Mr A, registered person in Telangana purchases the goods from Mr B, registered person in Telangana. Mr. A has paid Rs 300 as GST on his purchases to Mr. B. Mr.A is liable to pay Rs 500 as GST on his sales. Then Mr.A can reduce Rs 300 from the tax payable of Rs 500 and he can pay the balance amount of Rs 200.

2. The person who wants to avail ITC should be registered under GST and goods/services should be used in the course of furtherance of business

This document covers

1. Conditions for taking ITC
2. Time Limit for availing ITC
3. Blocked Credits Sec 17(5)
4. Utilization of ITC
5. Time Limit for availing ITC
6. Time Limit for availing ITC in case of revoked registration
7. FAQ's

1. Conditions for taking ITC

The registered person can avail the ITC on inward supplies only if the following conditions are satisfied

• The taxpayer should be in the possession of tax invoice.
• Input Tax Credit on Goods or services can be claimed only if the details of invoices or debit notes are reflecting in GSTR 2B. It will be reflected in GTSR 2B only if the supplier has filed GSTR 1/ IFF Return. ITC Cannot be claimed if the invoices or debit notes are not reflecting in GSTR 2B.
     NOTE

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  ITC Can be claimed in respect of IGST paid on imports, reverse charge, credit received from ISD etc even though they are not reflecting in GSTR 2B.

• The taxpayer taking ITC should have received the goods and / or services
• Tax should be paid by the supplier of goods through utilization of cash or ITC. The Registered person can avail the ITC credit as self assessed in his return
  
  

  Reversal of ITC in case of non-payment of tax by the Supplier

  • If the supplier has not paid the GST to the Government, the taxpayer who has availed the ITC should reverse the same and pay the amount along with Interest to the Government.
  • If the Supplier has not filed GSTR 3B till 30th September following the end of financial year in which the ITC on goods/services has been availed, then the said amount of ITC needs to be reversed by taxpayer who has taken that ITC.
  • The taxpayer who has taken that ITC needs to reverse the ITC by filing GSTR 3B on or before 30th November following the end of financial year in which the ITC on goods/services has been availed.

  Re-Availment of Reversed ITC

  When the supplier makes the GST payment, then the taxpayer can re-avail the ITC reversed by him by filing GSTR 3B for next tax periods

• The registered person taking ITC must have filed his return
• If goods are received in multiple lots by the registered person, then the ITC can be taken only upon receipt of last lot/ instalment
• The registered person should have paid the value along with tax within 180 days from the date of invoice
• ITC is not allowed if depreciation is claimed on tax component of capital goods

2. Time Limit for availing ITC

Input Tax credit in invoices or debit notes relating to invoices pertaining to a financial year can be availed at any time till 30th November of the succeeding financial year or date of filing of annual return whichever is earlier.

3. Blocked Credits Sec 17(5)

ITC of tax paid on almost every inputs and input services used for supply of taxable goods or services or both is allowed under GST except a small list of items provided u/s 17(5). The taxable person cannot take ITC in the following cases.

1. Motor Vehicles and conveyance except when used for transportation of goods, passengers, further supply of such vehicles and conveyances or imparting training on driving, flying, navigating such vehicles or conveyances.
2. Foods & Beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except when the inward supply of these used for making outward taxable supply.
3. Membership of a club, health & fitness centre.
4. Rent a cab, life insurance & health insurance except where the government has made it obligatory for an employer to provide any of these services to its employees (or) inward supply of these used for making outward taxable supply
5. Travel benefits to employees on vacation such as LTC or home travel concession
6. Works contract services for construction of an immovable property except when it is input service for further supply of works contract service (or) immovable property is Plant & Machinery.
7. Inward supplies received by a taxable person for construction of an immovable property (other than plant & machinery) in his own account even when such supplies are used in course of furtherance of business
8. Inward supplies on which tax has been paid under composition scheme.
9. Inward supplies received by a non-resident taxable person except goods imported by him
10. Goods/services used for personal consumption.
11. Goods lost, stolen, destroyed, written off or disposed by way of gift or free samples
12. Tax paid as a result of evasion of taxes or upon detention of goods or conveyances in transit or towards redemption of confiscated goods/conveyances.

4. Utilization of ITC

• Input Tax Credit contains IGST, CGST and SGST
• IGST credit
  
  • IGST credit should be utilized first towards payment of IGST
  • Balance IGST credit can be utilized towards payment of CGST/GST/UTGST in any proportion and in any order
  • Entire IGST credit should be fully utilized before utilising the CGST/SGST/UTGST Credit
• CGST Credit
  
  • CGST credit should be utilized first towards payment of CGST
  • Balance CGST credit can be utilized towards payment of IGST
  • CGST Credit cannot be utilized towards payment of SGST/UTGST
• SGST /UTGST Credit
  
  • SGST /UTGST credit should be utilized first towards payment of SGST/UTGST
  • Balance SGST /UTGST credit can be utilized towards payment of IGST
  • SGST /UTGST Credit cannot be utilized towards payment of CGST

5. Time Limit for availing ITC

The Input tax credit on invoices or debit notes relating to financial year can be claimed anytime till 30 th November of the succeeding financial year or date of filing annual return whichever is earlier

6. Time Limit for availing ITC in case of revoked registration

• If the registration of taxpayer is revoked after cancellation, the returns from the period of date of cancellation till the date of revocation of cancellation cannot be filed on GST portal.
• In above cases, the taxpayer loses the benefit of ITC if he has not filed the returns in due date.
• Hence the relaxation has been given by GSTN. In these cases, the taxpayers can claim ITC if he has filed all the pending GST returns within 30 days of revocation of cancellation of registration. However the time limit to avail ITC as per section 16(4) i.e, Nov 30 or date of filing annual return whichever is lower should not have been expired on the date of cancellation of registration

7. Input Tax Credit FAQ's