Home > GST Home > GST Help Center > GST Guide on Input Tax CreditLast Updated: May 12th 2019

Input Tax Credit (ITC) Explained

Quick guide on Input Tax Credit.

The GST regime promises seamless credit on goods and services across the entire supply chain with some exceptions like supplies charged to tax under composition scheme and supply of exempted goods and/or services. ITC is considered to be backbone of the GST regime.

  1. Input tax credit means the credit of tax paid on inputs. The tax payer can claim the credit of tax paid from the output tax payable and pay the balance amount
  2. 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.

  3. 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

Conditions for taking ITC

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

  • The tax payer should be in the possession of tax invoice.
  • The tax payer 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 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

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 the due date of filing of return for the month of September of the succeeding financial year or date of filing of annual return whichever is earlier.

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.

Input Tax Credit FAQs

1.Whether the input tax credit on inputs & capital goods is allowed in 1 instalment ?

Yes. Input tax credit will be available in full with respect to inputs and capital goods, subject to fulfilment of the prescribed conditions under section 16(2) of the CGST Act.

2.If certain goods/ services are used partly for business and partly for non-business purposes, will the credits be allowed in full or proportionately ?

The credit on goods/ services used partly for business and partly for non-business purposes will be allowed proportionately to the extent it is attributable for business purposes.

3.Whether the principal is entitled to take input tax credit even when the principal has not received the goods and directly sent to job worker by the supplier ?

Yes, the principal is allowed to take input tax credit of inputs/capital goods not received by him if they are directly sent to the premises of job worker.

4.What are the conditions for transfer of credit on account of sale, merger, amalgamation, de-merger, lease, transfer of business ?

The conditions prescribed under Rule 41 of the CGST Rules, 2017 are:

  1. The details of the sale, merger, amalgamation, de-merger, lease, transfer of business should be furnished in Form GSTR ITC-02.
  2. A certificate issued by a practicing Chartered/ Cost Accountant should be furnished certifying that the sale, merger, amalgamation, de-merger, lease, transfer of business has been done along with a provision for transfer of liabilities.
  3. Upon acceptance of the details by the transferee, the credit specified in Form GSTR ITC-02 will be credited to the electronic credit ledger.
  4. The inputs and capital goods so transferred are to be accounted in the transferee�s books.
5.Whether Input tax credit availed on capital goods is to be reversed in case of supply of such capital goods ?

Yes, in case of supply of capital goods or plant and machinery on which input tax credit has been taken, the registered person will have to pay an amount equal to

  • Input tax credit taken on the said capital goods/ plant and machinery reduced by the percentage points specified; or
  • The tax on the transaction value of such goods whichever is higher.
6.When there is change in the constitution of registered taxable person without specific provision of transfer of liabilities, is it possible to transfer unutilized input tax credit ?

No, transfer of unutilized input tax credit is permissible only when there is change in constitution of the business with the specific provision of transfer of liabilities.

7.How 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.

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