GST Input tax credit
1. Conditions for Availing Tax Credit
Credit would be admissible to every registered taxable person in respect of both the components of GST i.e. CGST & SGST. CGST and SGST are to be treated separately for the purpose of tax credit. Scheme of tax credit would be as follows:
Cross utilization of input tax credit between the CGST and the SGST would not be allowed except under the IGST model which is explained later in this chapter.
The problem related to credit accumulation on account of refund of GST would be avoided by both the Centre and the States.
However in the following specified cases:
(b) purchase of capital goods,
(c) input tax at higher rate than output tax
Refund/adjustment would be completed in a time bound manner.
2. Order of taking ITC
2.1 Credit of CGST can be utilized in the payment of CGST and IGST, in the same preference.
2.2 Credit of SGST can be utilized in the payment of SGST and IGST, in the same preference.
2.3 Credit of IGST can be utilized in the payment of IGST, CGST and SGST in the same preference.
2.4 There can be no cross utilization between CGST and SGST.
3. NO Input Tax Credit
® Motor Vehicle (except used for transportation services or training on motor vehicle services)
® Petroleum products
® Following goods or services used for personal purposes by an employee:—
(i) Outdoor catering
(ii) Beauty treatment
(iii) Health services
(iv) Cosmetic & plastic surgery
(v) Membership of club, health & fitness centre
(vi) Life Insurance
(vii) Travel benefits to employees on vacation such as leave or home travel concession
® Goods or services used in execution of works contract services for construction of immovable property (excluding Plant & Machinery)
® Goods or services on which tax is paid under compounded levy
® Goods or services used for private consumption
4. Matching of return to claim ITC
Supplier will file GSTR-1 and Buyer will also file GSTR-2 as per the prescribed format and time. If the credit claimed by the supplier is a match with the tax paid by the buyer as furnished in his GSTR-2, then the same will be accepted by the department and the transaction will lock and supplier will not be able to reduce the same by a credit note.
5. Transfer of tax credit
In case of sale, merger, demerger, amalgamation, lease or transfer of the business, input tax credit that remains unadjusted in its books of accounts shall be transferred to such transferred, sold, merged, demerged, leased or amalgamated business in the manner prescribed.
6. Switchover from taxable to non-taxable – Credit reversal on opening stock
Where any registered taxable person switches to compounded scheme, where earlier he has availed input tax credit, shall pay an amount equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over.
7. Credit not allowed where depreciation claimed on capital goods
Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.
8. Eligible to take credit on inputs held in stock on immediate preceding day of registration
A person who takes registration (mandatory or voluntarily) shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of registration.
9. Credit of Input services not allowed after one year
A taxable person shall not be entitled to take input tax credit in respect of any supply of goods and / or services to him after the expiry of 1 year from the date of issue of tax invoice relating to such supply.
10. Credit restricted where goods/services used for partly taxable or non-taxable supplies
Where the goods and / or services are used by the registered taxable person partly for effecting taxable supplies and partly for effecting non-taxable supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero-rated supplies.
11. Switchover from non-taxable to taxable – Credit on opening stock
Where any registered taxable person switches from compounded scheme he shall be eligible to take credit of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over.
12. Conditions for claim of ITC
No registered taxable person shall be entitled to the credit of any input tax in respect of any supply of goods and/or services to him unless
12.1 He is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document as may be prescribed, issued by a supplier registered under this Act or the IGST Act;
12.2 He has received the goods and/or services;
12.3 The tax charged in respect of such supply has been actually paid to the credit of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
12.4 He has furnished his first return.
13. ITC on goods sent for job work
The “principal” shall be entitled to take credit of input tax on inputs sent to a job-worker for job-work if the said inputs, after completion of job-work, are received back by him within 180 days (2 years in case of capital goods) of their being sent out. Where the inputs or capital goods are not received back by the “principal” within the time specified he shall pay an amount equivalent to the input tax credit availed of on the said inputs or capital goods along with interest specified.
14. Credit distribution by Input service distributor
The ISD shall distribute credit in same manner and order as specified in point 2 above. The ISD may distribute the credit subject to following conditions:
14.1 The credit can be distributed against a prescribed document issued to each of the recipients which shall contain such details as may be prescribed;
14.2 The amount of the credit distributed shall not exceed the amount of credit available for distribution;
14.3 The credit of tax paid on input services attributable to a supplier shall be distributed only to that supplier;
14.4 The credit of tax paid on input services attributable to more than one supplier shall be distributed on pro rata basis of the turnover in a State of such supplier to the aggregate of the turnover of all such suppliers
15. Reversal of credit on sale of capital goods
In case of supply of capital goods on which input tax credit has been taken, the registered taxable person shall pay an amount, whichever is higher
- The input tax credit taken on the said capital goods reduced by the percentage points as may be specified in this behalf or
- The tax on the transaction value of such capital goods under sub-section (1) of section 15.