Input Tax Credit

1. UNIT III
REGISTRATION OF GST AND INPUT TAX CREDIT
III.GST registration procedure in India
When is it required for a business owner to register for GST? It is mandatory for you register for
GST and have a GSTIN if:
 You have an annual turnover limit above Rs.20 lakh for your intrastate business
 Your business located in any of the listed special states (such as Assam, Jammu &
Kashmir, Himachal Pradesh, etc.) has an annual turnover of over Rs.10 lakh
 If you own an e-commerce business
 If you own an inter-state business
 If you are required to pay tax under reverse charge
 If you are required to pay tax under Section 9, sub-section (5)
 You are a non-resident liable to pay taxes producing taxable supply
3.1. How to register for GST
-Use your PAN, email ID and mobile number to fill out GST REG-01 and submit the same
-Verify your mobile number and email ID with a one-time password after PAN verification
-Store the application reference number [ARN] sent to your mobile number and email ID after
verification is complete
-Put in your ARN number and attach supporting documents where required
-Fill out the automatically generated GST REG-03 form in case additional information is
required
-After verification of all information submitted, a certificate of registration will be issued to you
within 3 working days
What are the documents required for GST registration
-Certificate of Incorporation
-Authorised signatory’s photo
-Stakeholder’s photo (Promoter / Partner)
-Proof of business address which includes electricity bill or property tax receipt or Municipal
Khata Copy or legal ownership document

2. -Copy of Resolution passed by BoD/ Managing Committee and Acceptance letter or letter of
Authorisation
-Proof bank accounts details which includes a copy of your bank statement, cancelled cheque, or
the first page of your Pass Book
How to track the status of your GST registration
-Log on to http://gst.gov.in
-Click on the ‘Services’ tab
-Select ‘Registration’
-Choose the ‘Track application status’ option
-Enter your ARN in the new window and click on search
-Your application status will be displayed on the screen and sent to your registered
mobile number and email ID
Alternatively, you can also check your application status after logging in by following
these steps:
-Log in to http://gst.gov.in with the help of your credentials
-Move your mouse over the services tab for a drop-down menu and select ‘Registration’
-Click on ‘Track application status’, enter your ARN and click on search
3.2. Important facts about GST registration
-Every business with an annual aggregate of over Rs.20 lakh is required to register for GST.
-There are 11 special states that require you to register if you have half the turnover, which is
Rs.10 lakh. These special states are Arunachal Pradesh, Assam, Jammu & Kashmir,
Manipur, Meghalaya, Mizoram, Nagaland, Sikkim, Tripura, Himachal Pradesh, Uttarakhand.
-If you are a supplier in more than one state you will need to register for GST in all the states that
you supply goods in.

3. -In case of multiple branches in multiple states, you can register one particular branch as main
and the remaining as additional. This is not applicable if your business has separate
business verticals as listed in Section 2 (18) of the CGST Act, 2017
-There are no fees to register for GST
-Failing to register for GST can result in a penalty of a minimum Rs.10,000 or 10% of
the amount due. In case of intentional tax evasion, the penalty can be 100% of the owed taxes.
3.3 Input Tax Credit – ITC
1. What is input tax credit?
Input credit means at the time of paying tax on output, you can reduce the tax you have already
paid on inputs and pay the balance amount.
Here’s how-
When you buy a product/service from a registered dealer you pay taxes on the purchase.
On selling, you collect the tax. You adjust the taxes paid at the time of purchase with the amount
of output tax (tax on sales) and balance liability of tax (tax on sales minus tax on purchase) has
to be paid to the government. This mechanism is called utilization of input tax credit.
For example- you are a manufacturer: a. Tax payable on output (FINAL PRODUCT) is Rs 450
b. Tax paid on input (PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs 300 and
you only need to deposit Rs 150 in taxes.

4. 2. Who can claim ITC?
ITC can be claimed by a person registered under GST only if he fulfills ALL the
conditions as prescribed.
a. The dealer should be in possession of tax invoice
b. The said goods/services have been received
c. Returns have been filed.
d. The tax charged has been paid to the government by the supplier.
e. When goods are received in installments ITC can be claimed only when the last lot is received.
f. No ITC will be allowed if depreciation has been claimed on tax component of a capital good
3. What can be claimed as ITC?
ITC can be claimed only for business purposes. ITC will not be available for goods or services
exclusively used for: a. Personal use b. Exempt supplies c. Supplies for which ITC is
specifically not available.
4. How to claim ITC?
All regular taxpayers must report the amount of input tax credit(ITC) in their monthly
GST returns of Form GSTR-3B. The table 4 requires the summary figure of eligible ITC,
Ineligible ITC and ITC reversed during the tax period. The format of the Table 4 is given
below:

5. A taxpayer can claim ITC on a provisional basis in the GSTR-3B to an extent of 20% of
the eligible ITC reported by suppliers in the auto-generated GSTR-2A return. Hence, a taxpayer
should cross-check the GSTR-2A figure before proceeding to file GSTR-3B. A taxpayer could
have claimed any amount of provisional ITC until 9 October 2019. But, the CBIC has notified
that from 9 October 2019, a taxpayer can only claim not more than 20% of the eligible
ITC available in the GSTR-2A as provisional ITC. This means that the amount of ITC reported
in the GSTR-3B from 9 October 2019 will be the total of the actual ITC in GSTR-2A
and the provisional ITC being 20% of the actual eligible ITC in the GSTR-2A. Hence, matching
of the purchase register or expense ledger with the GSTR-2A becomes crucial.
5. Reversal of Input Tax Credit
ITC can be availed only on goods and services for business purposes. If they are used for
non- business (personal) purposes, or for making exempt supplies ITC cannot be claimed. Apart
from these, there are certain other situations where ITC will be reversed.

6. ITC will be reversed in the following cases-
1)Non-payment of invoices in 180 days– ITC will be reversed for invoices which were not paid
within 180 days of issue.
2)Credit note issued to ISD by seller– This is for ISD. If a credit note was issued by the seller to
the HO then the ITC subsequently reduced will be reversed.
3)Inputs partly for business purpose and partly for exempted supplies or for personal use – This
is for businesses which use inputs for both business and non-business (personal) purpose. ITC
used in the portion of input goods/services used for the personal purpose must be
reversed proportionately.
4)Capital goods partly for business and partly for exempted supplies or for personal use - This is
similar to above except that it concerns capital goods.
5)ITC reversed is less than required- This is calculated after the annual return is furnished. If
total ITC on inputs of exempted/non-business purpose is more than the ITC actually
reversed during the year then the difference amount will be added to output liability.
Interest will be applicable.
The details of reversal of ITC will be furnished in GSTR-3B.
6.Reconciliation of ITC
ITC claimed by the person has to match with the details specified by his supplier in his GST
return. In case of any mismatch, the supplier and recipient would be communicated
regarding discrepancies after the filling of GSTR-3B. Learn how to go about
reconciliation through our article on GSTR-2A Reconciliation. Please read our article on
the detailed explanation of the reasons for mismatch of ITC and procedure to be followed to
apply for re- claim of ITC.
7.Documents Required for Claiming ITC
The following documents are required for claiming ITC:
1.Invoice issued by the supplier of goods/services
2.The debit note issued by the supplier to the recipient (if any)

7. 3.Bill of entry
4.An invoice issued under certain circumstances like the bill of supply issued instead of
tax invoice if the amount is less than Rs 200 or in situations where the reverse charge is
applicable as per GST law.
5.An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice rules
under GST.
6.A bill of supply issued by the supplier of goods and services or both.
8.Special cases of ITC
a. ITC for Capital Goods
ITC is available for capital goods under GST.
However, ITC is not available for- i. Capital Goods used exclusively for making
exempted goods ii. Capital Goods used exclusively for non-business (personal) purposes Note:
No ITC will be allowed if depreciation has been claimed on tax component of capital goods.
b. ITC on Job Work
A principal manufacturer may send goods for further processing to a job worker. For
example, a shoe manufacturing company sends half-made shoes (upper part) to job workers who
will fit the soles. In such a situation the principal manufacturer will be allowed to take credit of
tax paid on the purchase of such goods sent on job work.
ITC will be allowed when goods are sent to job worker in both the cases:
From principal’s place of business
Directly from the place of supply of the supplier of such goods
c. ITC Provided by Input Service Distributor (ISD)
An input service distributor (ISD) can be the head office (mostly) or a branch office or registered
office of the registered person under GST. ISD collects the input tax credit on all the purchases
made and distribute it to all the recipients (branches) under different heads like CGST,
SGST/UTGST, IGST or cess.

8. d. ITC on Transfer of Business
This applies in cases of amalgamations/mergers/transfer of business. The transferor will have
available ITC which will be passed to the transferee at the time of transfer of business.
3.4. INTER-STATE GST (IGST) – INTER- STATE TRANSACTIONS
According to Model IGST Law, IGST shall mean the tax levied under the IGST Act on the
supply of any goods and / or services in the course of inter-state trade or commerce. IGST Act
shall apply to whole of India.
According to the report of the Task Force on GST, 13th Finance Commission (2009), it had
recommended that adoption of the IGST Model for implementation with the caveat that a ‘strong
IT infrastructure and complete information of the interstate transactions is a precondition and
essential prerequisite for considering the IGST model. Without addressing these fundamental
concerns of IT infrastructure and information support systems, the adoption of IGST
model which is still at a conceptual stage is far from realistic at this stage in adoption of GST in
the course of interstate transaction in goods and GST for the nation’.
Central Government would levy IGST (which would be CGST plus SGST) on all inter- State
transactions of taxable goods and services with appropriate provision for consignment or stock
transfer of goods and services. The inter-State seller will pay IGST on value addition after
adjusting available credit of IGST, CGST, and SGST on his purchases. The Exporting State will
transfer to the Centre the credit of SGST used in payment of IGST. The Importing dealer will
claim credit of IGST while discharging his output tax liability in his own State. The Centre will
transfer to the importing State the credit of IGST used in payment of SGST.
The Empowered Committee has accepted the recommendation for adoption of IGST
model for taxation of inter-State transaction of Goods and Services. The scope of IGST Model is
that Centre would levy IGST which would be CGST plus SGST on all inter-State transactions of
taxable goods and services. The inter-State seller will pay IGST on value addition after adjusting
available credit of IGST, CGST, and SGST on his purchases. The Exporting State will transfer to
the Centre the credit of SGST used in payment of IGST. The Importing dealer will claim credit
of IGST while discharging his output tax liability in his own State. The Centre will transfer to the

9. importing State the credit of IGST used in payment of SGST. The relevant information is also
submitted to the Central Agency which will act as a clearing house mechanism, verify the claims
and inform the respective governments to transfer the funds.
Revenue from IGST will be apportioned among Union and States by Parliament on basis of
recommendation of Goods and Service Tax Council [Proposed Article 269A(2) and Article 270
(1A) of Constitution of India]. The apportionment will be required as input tax credit of
IGST can be used for SGST and vice versa. Since IGST will be on ‘supply of goods or services’,
IGST will be payable on stock transfers, branch transfers and even when goods are dispatched
inter-state job work and return.
The inter-state adjustment will be made by Central Clearing Agency and the Assessee will
not be concerned with such adjustment at all. Under IGST, a dealer can establish hub and spoke
approach for distribution of his final products. He can maintain depots at few strategic
locations in country and from those locations, he can distribute goods to nearby States. This will
be very cost effective distribution network for assessee.
5. Advantages of IGST Model
The major advantages of IGST Model are:
(a)) Maintenance of uninterrupted ITC chain on inter-State transactions.
(b)No upfront payment of tax or substantial blockage of funds for the inter-State seller or
buyer.
(c)No refund claim in exporting State, as ITC is used up while paying the tax.
(d)Self-monitoring model.
(e)Level of computerization is limited to inter-State dealers and Central and State
Governments should be able to computerize their processes expeditiously.
(f)As all inter-State dealers will be e-registered and correspondence with them will be by
e-mail, the compliance level will improve substantially.
(g)Model can take ‘Business to Business’ as well as ‘Business to Consumer’ transactions
into account.

10. 6. Salient Features Integrated GST
 On inter-state and cross border transactions
 Centre would levy and collect IGST in lieu of CGST and
 To be shared between Centre / States
 Single IGST rate
 IGST would be levied on all inter-State transactions of taxable goods and services with
appropriate provision for consignment or stock transfer of goods and services.
 Inter-State dealer will pay IGST after adjusting available, input IGST, CGST and SGST
on purchases.
7. IGST – Illustration
Maharashtra seller selling to Karnataka buyer for Rs.1,00,000/-. IGST payable assuming an 8%
rate is Rs.8,000/-.
8,000/- can be paid by adjusting
Inter-State purchases (IGST) Rs.3,000/-
Local purchases (CGST) Rs.1,500/- Local purchases (SGST) Rs.1,500/-
Since dealer has used SGST of Maharashtra to the extent of Rs.1,500/-, Centre has to transfer
Rs.1,500/- to Maharashtra Government.
IGST of Rs.8,000/- is availed as credit by Karnataka buyer.
Karnataka dealer sells the goods at Rs.2,00,000/- attracting CGST of say Rs.16,000/- and SGST
of Rs.16,000/-.
If IGST of Rs.8,000/- is used to pay the SGST then Karnataka Government has to
transfer Rs.8,000/- to the Centre.

11. What are the advantages of IGST Model?
The major advantages of IGST Model are:
Maintenance of uninterrupted ITC chain on inter-State transactions;
No upfront payment of tax or substantial blockage of funds for the inter-State seller or buyer;
No refund claim in exporting State, as ITC is used up while paying the tax;
Self-monitoring model;
Ensures tax neutrality while keeping the tax regime simple;
Simple accounting with no additional compliance burden on the taxpayer;
Would facilitate in ensuring high level of compliance and thus higher collection
efficiency. Model can handle ‘Business to Business’ as well as ‘Business to Consumer’
transactions.
8.Exempt supply under GST
Exempt supply under GST means supplies which not attract goods and service tax. In
these supply no GST is charged. Input tax credit paid on these supplies will not be able
for utilisation. These are the following three types of supply which are considered as
exempt supply:-
 Supplies which are chargeable to nil rate tax.
 Supplies which are partially and wholly exempt from the charge of GST by the
notifications which amended the section 11 of CGST and section 6 IGST.
 Supplies which comes under the sec 2(78) of the Act. Which covers the supplies which
are not taxable under the Act like alcoholic liquor for human consumption.
9.GST exemption from registration Agriculturists

12.  Person who fall in the threshold exemption limit of turnover for supply of goods INR 40
lakhs and for supply of services INR 20 lakhs and for specified category INR 20 lakh and
INR 10 lakh.
 Person who are making NIL Rated and exempt supply of goods and services such
as fresh milk, honey, cheese, agriculture services etc.
 Person making activities which are not covered under the supply of goods and services
such as funeral services , petroleum products etc.
 person making supplies those are covered under reverse charge such as tobacco
leave, cashew nut(not shelled and peeled ) etc.
GST exemption for businesses
Small and medium scale businesses can enjoy GST exemptions if their aggregate
turnover is up to a specified limit. When the GST Act was launched, this limit was INR
20 lakhs for individuals and businesses and INR 10 lakhs for hilly states and North-
eastern States of India. However, in the 32nd GST Council Meeting, which was held in
January 2019, the limits have been changed. These limits are as follows –
 Businesses and individuals who are supplying goods can claim GST exemption if their
aggregate turnover is less than INR 40 lakhs in a financial year.
 For hilly and north-eastern States of India, the limit has been revised to INR 20 lakhs.
 For businesses and individuals involved in the supply of services, the limit for claiming
GST exemption is INR 20 lakhs
 In case of hilly and north-eastern States, if the aggregate turnover is up to INR 10 lakhs,
businesses and individuals supplying services can claim GST exemptions.
Hilly and north-eastern States would include Arunachal Pradesh, Jammu and Kashmir,
Himachal Pradesh, Uttarakhand, Tripura, Nagaland, Sikkim, Meghalaya, Mizoram,
Assam and Manipur.
Aggregate turnover, as per the GST Act, would include the aggregate value of all types of
taxable supplies, inter-state supplies, exempt supplies and the goods and services
which have been exported. The following, would, however, be deducted from the
value of aggregate turnover –

13.  CGST, SGST or IGST already paid by the investor
 Taxes which are payable on the basis of reverse charge mechanism
 Value of the inward supply of goods and services
 Value of non-taxable goods and services
10. GST exemptions for goods
There is a list of goods which do not attract GST as recommended by the GST
Council. The reasons for granting exemption on goods might include any of the
following –
 In the interest of the public
 The exemption is as per the GST Council’s recommendation
 The exemption is granted by the Government through a special order
 The exemption is allowed on specific goods through an official notification
Moreover, there are two types of GST exemptions on goods. These are as follows –
Absolute exemption - under this type of exemption, the supply of specific types of goods
would be exempted from GST without considering the details of the supplier or receiver
and whether the good is supplied within or outside the State.
Conditional exemption – under this type of exemption, supply of specific types of goods
would be GST exempt subject to certain terms and conditions which have been specified
under the GST Act or any amendment or notification.
Here is a list of some of the most common goods which are GST exempt –
Types of goods Examples
Live animals Asses, cows, sheep, goat, poultry, etc.
Meat Fresh and frozen meat of sheep, cows, goats, pigs, horses, etc.

14. Fish Fresh or frozen fish
Natural products Honey, fresh and pasteurized milk, cheese, eggs, etc.
Live trees and plants Bulbs, roots, flowers, foliage, etc.
Vegetables Tomatoes, potatoes, onions, etc.
Fruits Bananas, grapes, apples, etc.
Dry fruits Cashew nuts, walnuts, etc.
Tea, coffee and
spices
Coffee beans, tea leaves, turmeric, ginger, etc.
Grains Wheat, rice, oats, barley, etc.
Products of the
milling industry
Flours of different types
Seeds Flower seeds, oil seeds, cereal husks, etc.
Sugar Sugar, jaggery, etc.
Water Mineral water, tender coconut water, etc.
Baked goods Bread, pizza base, puffed rice, etc.
Fossil fuels Electrical energy
Drugs and
pharmaceuticals
Human blood, contraceptives, etc.
Fertilizers Goods and organic manure
Beauty products Bindi, kajal, kumkum, etc.
Waste Sewage sludge, municipal waste, etc.
Ornaments Plastic and glass bangles bangles, etc.
Newsprint Judicial stamp paper, envelopes, rupee notes, etc.

15. 11. GST Exemption on services
 Just like specific goods, specific services are also GST exempt. There are three types of
supply of services which would qualify for GST exemption. These include the following
–
 Supplies which have a 0% tax rate
 Supplies which do not attract CGST or IGST due to the provisions stated in a notification
which amends either Section 11 of CGST Act or Section 6 of IGST Act
 Supplies which are defined under Section 2(78) of the GST Act which are not taxable.
 Since these types of supplies are GST exempt, any Input Tax Credit which is applicable
on these supplies would not be available to utilise or set off the GST liability.
 Moreover, even under supply of services, there can be two types of GST
exemptions which are as follows –
 Absolute exemption wherein the service would be exempted from GST without
any conditions
 Conditional exemption or partial exemption wherein exemption is granted based on
a condition. This condition states that if the service is supplied intra-State or if the service
is supplied by a registered person to an unregistered one, GST would be exempted if the
total value of such supplies received by a registered person is not more than INR
5000/day.
12. Model of GST:
 The GST shall have two components: one levied by the Centre (referred to as Central
GST or CGST), and the other levied by the States (referred to as State GST or SGST).
Printed items Printed books, newspapers, maps, etc.
Fabrics Raw silk, silkworm cocoon, khadi, etc.
Hand tools Spade, hammer, etc.
Pottery Earthen pots, clay lamps, etc.

16. Rates for Central GST and State GST would be approved appropriately,
reflecting revenue considerations and acceptability.
The CGST and the SGST would be applicable to all transactions of goods
and services made for a consideration except the exempted goods and services.
Cross utilization of ITC both in case of Inputs and capital goods between the CGST
and the SGST would not be permitted except in the case of inter-State supply
of goods and services (i.e. IGST).
The Centre and the States would have concurrent jurisdiction for the entire
value chain and for all taxpayers on the basis of thresholds for goods and
services prescribed for the States and the Centre.
IGST Model (Inter-State Transactions of Goods & Services) and Input tax credit
(ITC):
Existing CST (Central state tax, tax on interstate movement of goods)
shall be discontinued.
Center would levy IGST (cumulative rate for CGST and SGST)on all inter-
State transactions of taxable goods and services with appropriate provision for
consignment or stock transfer of goods and services.
The ITC of SGST, CGST shall be allowed as applicable.
Since ITC of SGST shall be allowed, the Exporting State will transfer to the Centre
the credit of SGST used in payment of IGST. The Importing dealer will claim credit
of IGST while discharging his SGST liability (while selling the goods in state itself).
Thereafter, the Centre will transfer to the importing State the credit of IGST
used in payment of SGST. (Please see example 4 & 5)
The relevant information shall be submitted to the Central Agency which will act as
a clearing house mechanism, verify the claims and inform the respective state
governments or central government to transfer the funds.
Advantage of IGST:
No refund claim in exporting State, as ITC is used up while paying the tax.
Maintenance of uninterrupted ITC chain on inter-State transactions.

17.  No upfront payment of tax or substantial blockage of funds for the inter-State seller or
buyer.
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