One of the key features of Goods and Service Tax (GST) in India is its uninterrupted and continuous chain of input tax credit (ITC). In the earlier indirect taxation system, cascading of tax is significant due to non-availability of ITC at various stages. For example ITC of CST, Entry Tax, Luxury Tax was not available. Similarly ITC of VAT was not available to manufacturers and service providers and ITC of Central Excise duty, Service Tax & CVD is not admissible to dealers in goods.
Under GST law, the ITC will follow supply chain not only in intra-State transactions but also in inter-State transactions. Moreover, credit of tax paid at the time of import of goods and services would also be creditable. This is expected to result into significant reduction in cascading of taxes.
Input Tax Credit under GST law is available to eligible person for payment of GST (CGST, SGST & IGST) on inward supply of Input, Input Service and Capital goods used in or in relation to providing output supply of Goods or Services.
| Input Tax Credit | |||
| CGST | SGST | IGST | |
Includes:
|
Excludes:
|
||
The Input Tax Credit (ITC) is utilised in following manner:
| ITC of | First | Balance |
| · IGST | · IGST | · CGST/SGST/UTGST |
| · CGST | · CGST | · IGST |
| · SGCT/UTGST | · SGCT/UTGST | · IGST |
Following are the relevant definitions pertaining to Input Tax Credit:
| Input | “Input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business; [Section 2(59) of the CGST Act, 2017] |
| Input Services | “Input Service” means any service used or intended to be used by a supplier in the course or furtherance of business; [Section 2(60) of the CGST Act, 2017] |
| Capital Goods | “Capital Goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business; [Section 2(19) of the CGST Act, 2017] |
| Input Tax Credit | “Input Tax Credit” means the credit of input tax; [Section 2(60) of the CGST Act, 2017] |
| Exempt Supply | “Exempt Supply” means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11, or under section 6 of the Integrated Goods and Services Tax Act, and includes non-taxable supply; Section 2 (47) of CGST Act, 2017
The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building. Section 17 (3) of CGST Act, 2017 |
Eligibility of Input Tax Credit:
- A Registered Taxable Person only.
- Can take ITC on goods or services used by him in his business.
- ITC will be credited to electronic credit ledger.
Conditions for availment of ITC by a taxable person:
- He should possess tax invoice, debit note, etc. issued by a registered supplier.
- He has received the Goods or Services.
- Tax collected by the supplier has been paid to appropriate government.
- He has furnished the monthly GST return.
Documents on which ITC can be availed:
- Invoice issued by the supplier.
- Invoice issued under reverse charge basis when supply received from unregistered dealers.
- Debit note.
- Bill of entry.
- Invoice issued by ISD.
- ITC can be availed only if all the applicable particulars are contained in invoice.
- No ITC available if the demand is confirmed on account of any fraud, willful misstatement or suppression of facts.
Time Limit for taking ITC is Earlier of:
- Date of furnishing of annual return of concerned Financial Year; or
- Date of filing return for the month of September following the end of F.Y. to which such invoice relates.
Reversal of input tax credit in case of non-payment of consideration:
Where assessee fails to make payment to the supplier of goods or services within 180 days from the date of issue of invoice, the amount of Input Tax Credit taken on such invoice shall be added to the output tax liability. Further, the registered person shall be liable to pay applicable interest for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability is paid. If the assessee lateron make the payment of invoice to the supplier of Goods or Services, he can take credit of input tax again.
Blocked Credits under GST Law [Section 17 of CGST Act]
The Input Tax Credit shall not be available in respect of the following items:
1.Motor Vehicles for transportation of persons having approved seating capacity of not more than 13 persons (including the driver), except when they are used for making the following taxable supplies, namely :—
(A) further supply of such motor vehicles; or
(B) transportation of passengers; or
(C) imparting training on driving such motor vehicles;
2.Vessels and Aircraft except when they are used —
(i) for making the following taxable supplies, namely :—
(A) further supply of such vessels or aircraft; or
(B) transportation of passengers; or
(C) imparting training on navigating such vessels; or
(D) imparting training on flying such aircraft;
(ii) for transportation of goods;
3.Services of General Insurance, Servicing, Repair and Maintenance in so far as they relate to Motor Vehicles, Vessels or Aircraft. However, the input tax credit in respect of such services shall be available-
(i) where the motor vehicles, vessels or aircraft are used for the purposes specified therein;
(ii) where received by a taxable person engaged —
(A) in the manufacture of such motor vehicles, vessels or aircraft; or
(B) in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
4.Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft except when used for the specified purposes, life insurance and health insurance. However, the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.
5.Membership of a Club, Health and Fitness Centre.
6.Travel benefits extended to employees on vacation such as leave or home travel concession. However, the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
7.Works Contract Services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service.
8.Goods or Services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
9.Goods or services or both on which tax has been paid under Section 10 (Composition Scheme);
10.Goods or services or both received by a non-resident taxable person except on goods imported by him;
11.Goods or services or both used for personal consumption;
12.Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
13.Any tax paid in accordance with the provisions of sections 74 (Fraud, Suppression etc.), 129 (detention of goods etc.) and 130 (penalty for confiscation of Goods).
