ITC Claim in GST | 5 Special Cases in GST Input Tax Credit


ITC Claim in GST | 5 Special Cases in GST Input Tax Credit




GST Input Tax Credit continues to remain the most fundamental part of the GST structure in India. ITC claim in GSTis a challenging task and taxpayers are required to observe due diligence while identifying the eligible ITC.

Role of GSTR 2B reconciliation against purchase records is crucial when it comes to claiming of eligible ITC. WE have also discussed the importance of this ITC reconciliation activity in this short article.GSTHero is a GSTR2B Reconciliation Tool which gives you 100% accurate eligible ITC, so that you are 100% compliant with GST laws.

We discuss FIVE special cases where claiming of ITC can be challenging. We have also discussed the course of actions to be taken to avail ITC in such conditions.


5 special ITC claim in GST cases


  1. When taxpayers move from regular to composition scheme


When a taxpayer wishes to opt for GST Composition Scheme from being a regular taxpayer, in this case, he is entitled to pay an amount by way of debit to electronic credit ledger that is equal to the GST Input Tax Credit on the following:

  1. GST inputs on Capital goods
  2. Inputs held in stocks
  3. Inputs contained in the furnished or semi-furnished goods


It’s advisable to the businesses to use an automatedITC reconciliation tool for all your ITC reconciliation requirements.


  1. When taxpayer takes ‘Compulsory GST Registration’


From the date when an individual applies for GST registration, within 30 days from then, he becomes eligible to avail Input Tax Credit under GST on the following:


  • Inputs held in the form of finished or semi-finished goods on the day preceding the date on which person becomes liable to pay tax under GST structure.
  • Inputs held as stocks

Let us understand this process with an illustrative example:


Consider,VishalEnterprises has a registered office in Pune, Maharashtra(Normal category state).

This business crosses the turnover limit of Rs. 40 Lakh (which is the threshold for GST Registration eligibility w.e.f April 1st, 2019) on May 9th, 2022.


VishalEnterprises now applies for GST registration on July 1st, 2022.

The GST registration gets confirmed on August 3rd, 2021.

Now, before getting registered under GST, this firm had semi-furnished goods of Rs. 5 Lakh. GST paid on these goods amounted to Rs. 90,000 (@ 18% GST slab).


In this case, VishalEnterprises can claim GST Input Tax Credit on these items after the GST registration is confirmed. (i.e. in the month of August 2022).


  1. If an individual registers voluntarily under GST


Section 25 (3) of the CGST Act of 2017allows a person to take voluntary register under GST even if he is NOT eligible as per the Section 22 of the CGST Act.

Section 22 defines the threshold limit required to register under the GST.

In this case, the person taking voluntary GST registration will get the same benefit of availing Input tax Credit asthe normal taxpayer.


This voluntarily registered taxpayer can have ITC claim in GST on the tax paid on the following:

  • Inputs held as stocks
  • Inputs held as furnished & semi-furnished goods on which GST is paid


On conformation of the GST registration, the taxpayer can now ITC claim in GST for the listed items in the subsequent month.


For example:


Miss Swati is voluntarily registering under GST on May 17th, 2022.

Prior to her GST registration, she purchased about 2 lakh of semi-finished goods and has paid a GST of about 36,000 on this purchase.

Her GST registration is confirmed for June 14th, 2022.

This taxpayer then will be able to claim the GST Input Tax Credit on the GST of Rs. 36,000that has already been paid when she was NOT registered under GST.

This taxpayer will now be able to avail this benefit in any month following June 2022.


  1. When taxpayers converts to Regular taxpayer from the Composition dealer


If a business wishes to change to regular taxpayer from a composition dealer under GST, he can do so.

In this case, the taxpayer is entitled to avail eligible Input Tax Credit under GST on the following items:


  1. GST paid on the purchase of finished or semi-finished goods
  2. GST paid on the purchase of stocks.


To deep dive into details of GST Composition scheme, click on the link given.


  1. Change in type or constitution of the business


A business can fall into different categories like Partnership, Proprietorship, LLP or a Private Limited firm,etc, during its setup stage.

It is possible that the constitution of the business changes on the discretion of the owner.

There are multiple possible reasons for this change in type/constitution of the business:

  1. Merger of multiple businesses
  2. Sale of a business unit, etc.


In such situations, it is possible for the business to TRANSEFER the remaining eligible Input Tax Credit under GST to the newly constituted business.


For example:


Swati Pvt. Ltd is now reconstituted to Anjali Limited Liability Partnership (LLP).

Previously this business had a balance of Rs. 1,75,000 of ITC in their electronic credit ledger.

This ITC balance can now be transferred to the account of Anjali Limited Liability Partnership (LLP).


Role of Purchase vs GSTR2B Reconciliation in ITC claims


ITC reconciliation always involves the data from the GSTR-2B.

Hence it is important to understand the role of GSTR-2B in the ITC reconciliation process.

Details of your purchases shall reflect in your GSTR-2BONLY if your Supplier has filed his GSTR-1 correctly & on time corresponding to the purchase.

It is essential that the businesses identify their eligible GST Input Tax Credit based on a reconciliation of their Purchase records and the monthly auto-generated GSTR-2B.


Reconciling Purchase Records vs GSTR2B Reconciliation


  • The best way to find gaps in your GSTR-2B statement is to reconcile your auto-generated GSTR2Bagainst your Purchase Records or Books of Accounts.


  • This is the best way to find out ITC for which transactions are missing in your GSTR-2B statement.


  • Manual reconciliation is possible for a smaller volume of transactions. But what if the transaction volume is bulky?


  • The bulky volume of transactions will surely be a problem, and the clerical team will get immersed in these reconciliations and lose a lot of business time and resources.


Large volume of transactions with automated GSTR2B reconciliation



  • Automating your GSTR-2B vs Purchase Recordsreconciliationwill save your time and give you a comprehensive report showing the statement’s mismatches and the eligible ITC.



Benefits of using an automated ITC reconciliation tool


  • Identify your GST defaulting suppliers.


  • Notify the GST non-filers about the mismatch and ask them to file their GSTR-1.



  • Minimum human intervention to eliminate errors


  • Detailed reconciliation reports


  • When you choose a GST Suvidha Provider like GSTHero, you stay 100% compliant with the dynamic GST laws.


To conclude

In this brief article, we submit to you five special cases in which GST Input Tax Credit can be claimed.

It’s essential that the businesses claim only the eligible Input Tax Credit under GST& should reverse any ineligible ITC.

For a flawless ITC reconciliation business must consider using a fully automated reconciliation tool like GSTHero.


Stay updated; stay ahead!


Until the next time…