INPUT TAX CREDIT – BACKBONE OF GST

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INPUT TAX CREDIT

Introduction:

Mechanism of ITC is the backbone of GST. If anyone understands such concept then it is very simple for him to comply with GST Act. Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on output. Such concept is already used in the older Act like Service Tax, Vat, Excise Act etc. but there were some restriction for availing ITC, But in GST Act ITC can be claim on every input except some specified inputs are there on which you can not claim ITC.

Components of ITC:

1) CGST: levied at the time of supply between intra-state transaction.

2) SGST:  levied at the time of supply between intra-state transaction.

3) UTGST: levied at the time of supply between two union territory transaction.

4) IGST: levied at the time of supply between Inter state transaction.

 

Manner of Utilization of Credit:

Itc available First use Further utilization
CGST CGST IGST
SGST/UTGST SGST/UTGST IGST
IGST IGST CGST Then SGST/UTGST

 Some Basic Definitions Needs to be Understand For availing ITC

What are inputs for a business? 

The inputs for a business can be divided into three parts:

Input Services:

  • Input Services are services which are used or intended to be used in the course or furtherance of business. Any service used in the course or furtherance of business, would be classified as Input Service.

Capital Goods:

The definition of Capital Goods is very broad and contains only two conditions which are as follows:

  • Capital Goods are goods which have been capitalized in the books of account of the person claiming the credit.
  • Capital goods are goods which are used or intended to be used in the course or furtherance of business.

Input Goods:

  • Input means any goods other than capital goods and which are used or intended to be    used in the course or furtherance of business, would be classified as Inputs.

Thus, credit of the taxes paid on receipt of Input Services, Capital Goods and Input Goods other than Capital Goods forms the basic foundation upon which the credit structure works.

There needs to be a seamless flow of the Input Tax Credit from one business to another with respect to Input Services, Capital Goods and Input Goods other than Capital Goods, used or intended to be used in the course or furtherance of business.

Input Tax Credit under GST – Conditions To Claim

A registered person will be eligible to claim Input Tax Credit (ITC) on fulfillment of the following conditions:

  1. Possession of a tax invoice or debit note or document evidencing payment.
  2. Receipt of goods and/or services/ deemed to be received by the taxable person.
  3. Return should have been furnished by the tax payer.
  4. Goods delivered by supplier to other person on the direction of registered person against a document of transfer of title of good.
  5. Credit for goods against an invoice received in lots /installments can be availed only on last lot in installment.
  6. Failure to the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed will be added to output tax liability and interest to paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed.
  7. No ITC will be allowed if depreciation have been claimed on tax component of a capital good

If invoice or debit note is received after:

the due date of filing return for September of next financial year

or

filing annual return whichever is later, Then No ITC will be allowed.

 

– CA Monika N. Rathi

INPUT TAX CREDIT


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