Since GST has been discussed across the country, the input tax credit is also
discussed at same level. In essence, ITC is very important part of GST. One of
the main reasons, why GST is good for nation is, the smooth flow of input tax
credit across all the level i.e From manufacture to consumer and across every
Input tax credit is a tax already paid by a person on purchase of input and
which can be reduced from the tax payable is referred as input tax credit. Input
Tax Credit refers to ability to reduce the tax you paid on input while paying
tax on output. In short business can reduce their tax liability on purchases by
claiming credit to the extent of GST.
Manufacturer, agent, supplier and any legal entity included in ITC mechanism ,
will be eligible for claiming input tax credit for the tax paid on input (on
purchase of goods and service ). Supplier need to provide documents like bill of
entry or similar documents for claiming the tax credit also the supplier can
claim for input credit on last lot only, in case inputs are received in lots.
How Does ITC Work
When trader sell a good to consumers he collects the GST based on HSN code of
goods sold and the place where it is sold. Let Suppose that Mrp of goods is Rs
200 and rate of GST applicable is 18 % then consumer will pay, therefore, pay a
total of Rs 236 for the good which include GST of 36Rs. Without ITC, trader has
to pay 36 Rs to government. With input tax credit, trader can reduce the amount
to be paid to government.
Now trader sells good for Rs 400 with GST of 18 %. Therefore trader receive Rs
Final tax trader will pay to government = Output tax – Input tax = 72 -36 = 36
.So trader will pay Rs 36 to government after using the credit
Eligibility and Conditions To Claim Input Tax CreditAs per section 16 of CGST act following conditions that you must meet as a
supplier of goods and service
- Registered under GST law
- As per section 39 you should file returns.
- One should be registered taxable person .
- ITC should be claimed within time limit.
- ITC cannot be availed if depreciation has been claimed on tax part of
cost of capital goods.
- ITC can be claimed if there is actual receipt of goods and service.
- ITC needs to be paid through electronic credit.
- Input tax credit can be claimed only, if goods and service is used for
Documents Required For Claiming ITC Under GST
- Invoice issued by supplier of goods and service.
- Debit note issued by the supplier in which tax charged is lesser than
the tax paid on such supply.
- Document related to integrated tax on imports, bill of entry or similar
documents are also required.
- As per the rule . credit note issued by input service distributor is
When Does One Become Eligible To Claim ITC Under GST
- If one become liable to register under GST:
One can avail ITC on
inputs and inputs available in semi-finished or finished goods in stock. It
happen only when one apply for registration within thirty days from the day
one become liable to register.
- If one willingly apply for registration;
If one willingly apply for
registration then can claim ITC on the goods in the stock one day before one
is granted registration.
- If one become regular dealer from composition scheme:
If the aggregate
turnover crosses INR 50 Lakhs then one has to become regular dealer and move
away from composition scheme. After becoming regular dealer, one can avail
ITC on inputs, capital goods , all goods in stock on day before one become
elgible to pay tax.
- Goods and services used partly for business:
ITC can be availed for
only that part of goods and service that are used for business but not for
any other purposes.
- When sale, transfer, merger, demerger of business occur:
if any of such occurs one can transfer the ITC which is not used to the
sold, mergered, demerged business.
- When goods are goods are received in installment:
one can avail ITC only upon receipt of last installment
When does one become not eligible to claim ITC under GST
- Registration not applied withim the due time:- If one has not applied
for registration within thirty days from the date one become liable to
register then one will lose the eligible ITC on inputs.
- After the Time duration for claiming ITC is passed :-ITC must be claimed
within the following dates:
- One year from issue of invoice.
- Due date for filling annual return ie 31st dec of next financial year.
- If payment is not received on supplies within the due time period;- If
the receiver of the goods has not made payment,along with the tax within three
months then ITC will be added to recipient's liability with due interest.
- On motor vehicle and other conveyance:- ITC is not claimed on motor
vehicle and any conveyance unless vehicle is used for transportation of
passengers or goods or vehicle is used for training on driving, flying or
navigating such vehicle.
A supply bill by a dealer opting for a composition scheme or an exporter or a
supplier of the
Claiming Of ITC Under Special Cases
- Goods sent to job worker:
When goods are sent to job worker for further processing, in case you as a
primary manufacturer, you can claim ITC against the taxes paid purchase of
goods sent to job worker.ITC can be claimed also when
goods are sold through job worker directly without bringing goods back to
business place. But good should be sold or brought back within one year for
normal goods and within three years in case of capital goods.
- Capital Goods;
ITC can be claimed on in-supply of capital goods but itc is
not allowed if depreciation is claimed also itc is not be claimed for capital
goods for non business and capital goods for making exempted goods.
- Sale, Merger, amalgamation.or transfer of business:
in this case there is
change in the constitution of person due to such change in the business .
transferor in such cases can pass untilised ITC to the transferee.
- Input service distributor (ISD);
ISD refers to the office that receive
multiple bills from the supplier for the supply of goods and service to the
company. ISD can claim input tax credit for the inward supply and it distribute
to beneficiary units on the basis of units of last year turn over
In this article we have discussed about input tax credit and the claim process
under Indian GST. Input credit is very good way of increasing the taxpayer base
also it very beneficial for the business as it reduce the tax liability by
claiming the credit available of the tax received on the output of the stock .
Input credit has made very easy for the business also it is very convenient for
the government but this input tax credit is available to you only when you are
covered under the GST act.
This means you are manufacturer of goods , supplier
of goods , agent of selling ,e- commerce operator for product distribution
registered under GST, you are eligible to claim input tax credit under GST for
tax paid by you on your purchases.