This module deals with Input Tax Credit, an important element of GST. This module states the eligibility to avail ITC and events when ITC can not be availed.
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Recap
Mandatory registration for persons
whose aggregate turnover exceeds
Rs. 20 lakh for other states;
Rs. 10 lakh for special category states.
holding any license under existing law;
persons making inter state supplies;
persons required to pay tax on reverse charge;
e-commerce operators;
agents of registered taxable persons;
input service distributor;
persons who are required to deduct tax;
persons who are required to collect tax.
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Recap
Persons dealing in
goods or services which have been kept out of GST ambit;
goods or services at 0% GST rate (grains, pulses).
are not liable to be registered even if the aggregate turnover exceeds Rs. 20 lacs / Rs. 10
lacs (special category states).
Persons not liable to be registered may take voluntary registration.
Reverse charge mechanism is triggered if supply of goods and / or services is made by an
unregistered person to a registered person. Under reverse charge, tax on supply of goods
and / or services shall be paid by recipient of supply.
PAN Card is mandatory for making an application for registration.
Aggregate Turnover: Aggregate turnover means total turnover (all India) and does not
include value of inward supplies.
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Recap
Form No Form Details
REG-01 Application for registration
REG-02 Acknowledgment of application
REG-03 Notice for seeking additional information
REG-04 Reply to notice for seeking clarification / additional information
REG-05 Order of rejection of application for registration
REG-06 Registration Certificate
Registration procedure is as follow
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Retail to
Customer
12,331
-1,881
10,450
1,000
1,150
2,268
14,868
387
Particulars Mfgr. to
distr.
Manufacturing cost / cost of sales 6,000
Input Tax Credit (ITC)
Manufacturing cost / cost of sales 6,000
Selling, General & Admin exp. 1,500
Profit element @10% 750
Goods & Services tax @18% 1,485
Total sales value (incl. taxes) 9,735
Tax paid on each stage 1,485
Distr. To
retail
9,735
-1,485
8,250
1,250
950
1,881
12,331
396
8
Input Tax Credit- an overview
Input Tax Credit (ITC) is the backbone of the GST. The basic shortcoming of the earlier indirect
system was cascading effect of taxes. Under GST, tax is charged at all stages right from
manufacturing up to end customer with availability of credit of taxes paid at previous stages. In
other words, credit of taxes paid at previous stages is known as Inputs Tax Credit (ITC). The
credit of taxes paid at previous stages can be understood with following illustration:
It is evident from the
illustration that tax paid at
previous stage is being availed
as ITC. Thus, mitigating the
cascading effect of taxes.
Important point: Input Tax
Credit is cash equivalent. It
reduces cash outflow for next
stage seller. In the illustration,
distributor, of the total tax
liability of Rs. 1,881, pays Rs.
396 since tax amount of Rs.
1,485 has already been paid.
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Input Tax Credit (ITC)- key highlights
As per section 16(1) of CGST Act, Input Tax Credit is available in respect of goods or
services to be used or intended to be used in the course or furtherance of business. ITC
will not be available for goods or services to be used for personal consumption.
Full input tax credit on capital goods (earlier input tax credit under central excise was
allowed to the extent of 50% in the year of receipt and 50% in subsequent year). Capital
goods include plant & machinery, leasehold improvements, furniture and fixtures etc.
Input Tax Credit will be allowed for zero rated supplies. Zero rated supplies include:
export of goods and / or services;
supply of goods and / or services to a Special Economic Zone (SEZ);
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Input Tax Credit (ITC)-entitlement
As per section 16(2) of CGST act, Registered taxable person shall be entitled to input tax
credit in respect of supply of goods or services on following conditions:
i. possession of tax invoice / debit note or any taxpaying document as prescribed;
ii. receipt of goods and / or services;
iii. actual payment of tax to government by the supplier;
iv. furnishing of return u/s 39 of CGST act i.e. filing of monthly return;
v. payment of value of supply of goods or services along with the tax within 180 days
from date of issue of invoice.
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Input Tax Credit (ITC)- Job work: Section 19
Definition of Job Work and Job worker
Job Work: as per section 2(68) of CGST act, job work means any treatment or process
undertaken by a person on goods belonging to another registered person and the
expression “job worker” shall be construed accordingly.
Example: Mr. A sends office tables for polishing. Mr. B applies polish on tables and sends
them back to Mr. A. The polishing of tables will be called “ job work” and Mr. B will be a “job
worker.”
Input Tax Credit will be allowed on inputs sent for job work provided inputs are received
back, after completion of job work, within 1 year of being sent out.
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Input Tax Credit (ITC)- Job work: Section 19
Input Tax Credit will be allowed on capital goods sent for job work provided inputs are
received back, after completion of job work, within 3 years of being sent out (other than
moulds, jigs, dies, fixtures or tools).
Input Tax Credit will be allowed if the inputs / capital goods are directly sent to job workers
without being received first at place of business.
If the inputs or capital goods are not received within stipulated timelines as stated above,
the same shall be deemed to have been supplied by the principal to the job worker on the
day when inputs or capital goods were sent out.
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When Input Tax Credit cannot be availed
Under following situations reversal of ITC, claimed earlier, would take place or recipient would
not be entitled for Input Tax Credit-section 16(2):
a. non possession of tax invoice / debit note / bill of entry / any taxpaying document;
b. non receipt of goods or services;
c. non payment of value of supply of goods or services along with the tax within 180
days from date of issue of invoice;
d. non payment of tax to government by the supplier;
e. non compliance to furnishing of return u/s 39 of CGST i.e. filing of monthly returns;
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When Input Tax Credit cannot be availed
Under following situations reversal of ITC claimed earlier would take place or recipient would
not be entitled for Input Tax Credit.
a. after the expiry of 1 year from the date of issue of tax invoice- section 18(2) of CGST
act;
b. receipt of invoice or debit note relating to previous financial year
after filing of return for the month of September of next financial year; or
filing of annual return for the previous financial year;
whichever is earlier-section 16(4) of CGST act
Illustration: XYZ Limited received steel panels from ABC Limited. State whether ITC can be
availed or not under following situations.
a. Date of tax invoice is 10th July, 2017 and date of receipt of invoice 9th June, 2018
b. Date of tax invoice is 10th July, 2017 and date of receipt of invoice 11th August, 2018
c. Date of tax invoice is 3rd December, 2017 and date of receipt of invoice 25th October, 2018
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When ITC cannot be availed-illustration
#
Date of
Invoice
Date of
receipt of
invoice
Remarks
A 10.07.2017 09.06.2018
Section 18 (2) : ITC can be availed within 1 year from the date of
tax invoice. In this case invoice received within time limit of 1 year.
Therefore, XYZ can avail ITC.
B 10.07.2017 11.08.2018
Section 18 (2) : ITC can be availed within 1 year from the date of
tax invoice. In this case, time limit of 1 year has elapsed. Hence,
XYZ can not avail ITC.
C 03.12.2017 25.10.2018
Sec. 16(4): ITC cannot be availed for invoice relating to previous
financial year received after due date of filing of monthly return for
Sept. In this case, due date for monthly return for Sept’18 is 20th
October 2018 and invoice received on 25th Oct’18. Hence, XYZ can
not avail ITC.
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Utilisation of Input Tax Credit
Input Tax credit (ITC) of To be utilised first for
payment of
May be utilised further for
payment of
IGST IGST CGST and then SGST
CGST CGST IGST
SGST SGST IGST
ITC in respect of
IGST will be utilised, first for payment of IGST output tax liability and then be utilised to
pay CGST output tax liability and remaining balance (if any) be utilised to pay SGST
output tax liability.
CGST will be utilised, first for payment of CGST output tax liability and then be utilised
to pay IGST output tax liability.
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Utilisation of Input Tax Credit
Similarly, ITC in respect of SGST will be utilised, first for payment of SGST output tax
liability and then be utilised to pay IGST output tax liability.
Important points:
GST law does not allow ITC in respect of CGST for payment of SGST output tax liability.
Similarly, GST law does not allow ITC in respect SGST for payment of CGST output tax
liability.
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Utilisation of Input Tax Credit-illustration (1/3)
IGST CGST SGST Total
Input Tax Credit available 5,000 3,500 3,500 12,000
Output tax liability 3,000 5,000 5,000 13,000
Illustration: Mr. X is a consumer durables distributor. Information in relation to input tax
credit and output tax liability is as follow:
As per utilisation matrix
IGST Input tax credit will, first, be utilised to meet IGST output tax liability;
Similarly, CGST input tax credit will be utilised to meet CGST output tax liability; and
SGST input tax credit be utilised to offset the SGST output tax liability.
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Utilisation of Input Tax Credit-illustration (2/3)
IGST CGST SGST Total
Input Tax Credit available 5,000 3,500 3,500 12,000
Output tax liability 3,000 5,000 5,000 13,000
First preference application of ITC against
output tax liability
IGST 3,000
CGST 5,000
SGST 5,000
Balance tax liability 1,500 1,500 3,000
Balance Input Tax credit 2,000
CGST and SGST output tax liability for Rs. 1,500 and Rs. 1,500 respectively to be paid off.
Also, ITC in respect of IGST for Rs. 2,000 is available.
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Utilisation of Input Tax Credit-illustration (3/3)
IGST CGST SGST Total
Input Tax Credit available 5,000 3,500 3,500 12,000
Output tax liability 3,000 5,000 5,000 13,000
First preference application of ITC against
output tax liability
IGST 3,000
CGST 5,000
SGST 5,000
Balance tax liability 1,500 1,500 3,000
Balance Input Tax credit 2,000
IGST ITC utilization for payment of CGST tax 1,500 1,500
IGST ITC utilization for payment of SGST tax 500 500
Net payment through electronic cash ledger 1,000 1,000
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Utilisation of Input Tax Credit-key points
SGST ITC can be used for payment of IGST liability under the same GSTIN.
The CGST and SGST ITC for a state can be utilized for payment of their respective CGST/SGST
liabilities within that state for the same GSTIN only.
SGST credit of one state cannot be utilized for discharging of output tax liability of another
state e.g. SGST credit of Haryana cannot be utilised to pay output tax liability of Rajasthan.
Sl. No
Location of Plant
Location of
Branch office
GSTIN Utilisation of Credit
1
Neemrana-
Rajasthan
Jaipur-
Rajasthan
Same GSTIN
SGST / CGST ITC relating to
plant and branch office can be
utilised for payment of output
tax liability.
2
Neemrana-
Rajasthan
Jaipur-
Rajasthan
Separate GSTIN for Plant
and branch office
SGST / CGST ITC relating to
plant cannot be utilised to pay
output tax liability of branch
office though location of plant
& branch is same state.
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Input Tax Credit (ITC)- Ineligibility: section 17(5)
Input Tax Credit shall not be available for following
Food & Beverages;
Outdoor catering;
Beauty treatment;
Health services;
Cosmetic and plastic surgery;
Membership of a club;
Health & fitness centre (other than obligatory under Government notification);
Life insurance, health insurance (other than obligatory under Government notification);
Rent-a-cab (other than obligatory under Government notification);
Travel benefits extended to employees on vacation such as leave or home travel
concession.
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Input Tax Credit (ITC)- Ineligibility: section 17(5)
Goods or services are used in construction of immovable property (other than plant &
machinery) even when used in furtherance of business.
Goods / services used for personal consumption purpose.
Goods lost, stolen or disposed off by way of gift or free samples.
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Input Tax Credit (ITC)- matching, reversal
As per section 42(1), the detail of every inward supply furnished by recipient shall match
with the corresponding detail of outward supply as furnished by supplier;
with the additional custom duty; or
for duplication of claims of ITC.
The amount in respect of any discrepancy not rectified by the supplier, in the monthly tax
return, will be added back to the output tax liability of the recipient along with the
applicable interest.
The amount in respect of any discrepancy rectified by the supplier in the return (details
of the invoice and / or debit notes), the recipient shall be entitled to reduce the output
tax liability to that extent. Also, interest paid shall be credited in the electronic cash
ledger.
The amount claimed as input tax credit in excess on account of duplication of claims
shall be added to the output tax liability along with the applicable interest.
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In Summary
Input Tax Credit is defined as availability of credit of taxes paid at previous stages available as
set off.
ITC is equivalent to cash. ITC is utilized to pay output tax liability.
Input Tax Credit is available in respect of goods or services to be used or intended to be used
in the course or furtherance of business.
ITC will not be available for goods or services to be used for personal consumption.
Input Tax Credit will be allowed for zero rated supplies. Zero rated supplies include:
i. export of goods and / or services;
ii. supply of goods and / or services to a Special Economic Zone (SEZ);
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In Summary
Registered taxable person shall be entitled to Input Tax Credit(ITC) in respect of supply of
goods or services on following conditions
i. possession of tax invoice / debit note or any taxpaying document as prescribed;
ii. receipt of goods and / or services;
iii. actual payment of tax to government by the supplier;
iv. furnishing of return u/s 39 of CGST Act i.e. filing of monthly return; and
v. payment of value of supply along with the tax within 180 days from date of issue of
invoice
Non compliance to any of the conditions stated above may result in reversal or non-availment of
ITC
Input Tax Credit will be allowed on
i. inputs sent for job work provided inputs are received back, after completion of job work,
within 1 year of being sent out.
ii. capital goods sent for job work provided inputs are received back, after completion of job
work, within 3 years of being sent out.
Non receipt of input or capital goods within stipulated time, the same shall be deemed to have
been supplied on the day when inputs or capital goods were sent out.
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In Summary
Utilization of Input Tax Credit to pay output tax liability
SGST credit can be used for payment of IGST liability under the same GSTIN.
The CGST and SGST credit for a state can be utilized for payment of their respective
CGST/SGST liabilities within that state for the same GSTIN only.
SGST credit of one state cannot be utilized for discharging of output tax liability of another
state e.g. SGST credit of Haryana cannot be utilised to pay output tax liability of Rajasthan.
Input Tax credit (ITC) of To be utilised first for
payment of
May be utilised further for
payment of
IGST IGST CGST and then SGST
CGST CGST IGST
SGST SGST IGST
