Input Tax Credit Under GST | GST Input Tax Credit - Tally Blog
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GST Input Tax Credit Overview

Ever since GST has been discussed across the country, input tax credit has been spoken about in the same breath. In essence ITC is the heart and soul of GST. One of the fundamental reasons, why GST is good for the nation, is, the seamless flow of input credit across the chain (right from the manufacture of goods till the end consumer) and across states, which earlier was not the case.

Under the Goods & Service Tax regime, ITC can be availed by every registered taxable person on all inputs used or intended to be used in the course of or for furtherance of business – be it goods or services. Similarly, ITC will also be available on capital goods used in the course of business, except for a few exceptions.

Conditions to avail GST Input Tax Credit

In order to avail Input Tax Credit under GST, a dealer needs to meet the following conditions –

  • Must possess a Tax Invoice / Debit or Credit Note / Supplementary Invoice issued by the supplier
  • Must have received the goods / services
  • Must have filed returns (GSTR 3)
  • Must ensure that the tax charged has been paid to the government by the supplier
  • Must have completed invoice matching and would have arrived at the final ITC post reversals

When does one become eligible to avail Input Tax Credit under GST

The following are the situations, in which a taxable person becomes eligible to avail ITC under GST –

If one applies for registration, on becoming liable to register in the GST regime

When one applies for registration under GST on becoming liable to register, one can avail ITC on inputs and inputs contained in semi-finished or finished goods in stock, on the day before the date on which one becomes liable to pay tax. However, this can happen only if one applies for registration within 30 days from the date on which one becomes liable to register and has been granted registration.

If one voluntarily applies for registration

If one voluntarily applies for GST registration, one can avail ITC on inputs and inputs contained in semi-finished or finished goods in stock on the day before one is granted registration.

If one shifts from composition scheme to regular dealership

If one is registered under the composition scheme but the aggregate turnover crosses INR 50 Lakhs, one has to move away from the composition scheme and become a regular dealer. When one leaves the composition scheme and becomes a regular dealer, one can avail ITC on inputs, inputs contained in semi-finished or finished goods in stock, and capital goods on the day before the date on which one becomes liable to pay tax. The credit on capital goods will be reduced by percentage points, which will be notified.

When exempted goods or services become taxable

When goods or services declared as exempt from GST are made taxable, one can avail ITC on the following on the day before the supply becomes taxable:

  • Inputs in stock and inputs contained in semi-finished or finished goods in stock, which are relatable to the exempt supply.
  • Capital goods exclusively used for the exempt supply. The credit on capital goods will be reduced by percentage points, which will be notified.

When sale/merger/demerger/amalgamation/lease/transfer of the business occurs

In any of these cases, if there is a specific provision for transfer of liabilities, one can transfer the unutilized ITC to the sold, merged, demerged, amalgamated, leased, or transferred business.

When goods and/or services are used partly for business and partly for other purposes

When goods and/or services are used partly for business and partly for other than business purposes, one can avail ITC – but only on the portion used for the purpose of business.

When goods and/or services are used partly for taxable supplies and partly for exempt supplies

When goods and/or services are used partly for taxable supplies and partly for exempt supplies, one can avail ITC only on the portion used for making taxable supplies and zero rated supplies. ITC is not allowed on the portion used for making exempt supplies, and supplies where the receiver pays tax on reverse charge basis.

When goods are received in lots or instalments

When goods are received in lots or instalments, one can avail ITC – but only upon receipt of the last lot or instalment.

Purchase of pipelines and telecommunication towers

ITC on pipelines and telecommunication towers purchased can be availed in instalments – 1/3rd of the total input tax paid can be availed in the financial year of purchase, 2/3rd of the total input tax paid (including credit availed in the previous year) can be availed in the succeeding year, and the balance ITC on any subsequent financial year.

When does one become ineligible to claim Input Tax Credit under GST

The following are the situations, in which one becomes ineligible to avail ITC under GST –

Registration not applied for within 30 days from the date on which one becomes liable to register

If one has not applied for registration within 30 days from the date on which one becomes liable to register, one will lose the eligible ITC on inputs and inputs contained in semi-finished or finished goods in stock, on the day before the date on which one becomes liable to pay tax.

After the time limit for availing Input Tax Credit is crossed

ITC must be availed within the earliest of the following dates –

  • 1 year of date of the invoice
  • The date of filing of the return for September of the next financial year i.e. 20th October
  • The date of filing of the annual return (due date is 31st December of the next financial year)

On supplies received for which payment has not been made within 3 months from the date of invoice

If the recipient has not made payment for supplies received, along with the tax payable within 3 months from the date of invoice, the ITC availed will be added to the recipient's liability, along with interest due.

On motor vehicles and other conveyance

ITC is not allowed on motor vehicles and other conveyance unless they are:

  • Further supplied OR
  • Used for transporting passengers or goods OR
  • Used for imparting training on driving, flying, or navigating such vehicles or conveyances

Other Scenarios

Other scenarios, such as –

  • On membership of clubs and health & fitness centres, rent-a-cab services and life & health insurance taken for employees, except notified services which are obligatory to be provided to employees
  • On food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
  • On travel benefits to employees on vacation, such as leave or home travel concession
  • On tax component of cost of capital goods, if depreciation has been claimed on the tax component
  • On goods and/or services used as inputs by a composition tax payer
  • On goods and/or services used for personal consumption
  • On goods and/or services used for making exempt supplies
  • On goods and/or services where receiver pays tax on reverse charge basis
  • On goods lost, stolen, destroyed, written off or disposed as gift or free samples

Treatment of Input Tax Credit already availed in exceptional scenarios

Apart from the above, the GST Input Tax Credit rules also lay down provisions in case of certain exceptional scenarios -

When a regular dealer who has availed ITC switches to the composition scheme

When a regular dealer who has availed ITC switches to the composition scheme, the person must pay back the ITC availed on inputs in stock, inputs in semi-finished state, finished goods in stock and capital goods (reduced by the prescribed percentage points) on the day before the date of switching to the composition scheme.

When taxable goods and/or services become exempt

When taxable goods and/or services supplied by a person are notified as exempt, the person must pay back the ITC availed on inputs in stock, inputs in semi-finished or finished goods in stock and capital goods (reduced by the prescribed percentage points) on the day before the date of exemption.