GST Credit is commonly known as Input Tax Credit (ITC), is the credit of ‘input tax’ paid by a person for the use of goods or services or both in the course or furtherance of business.
‘Input tax’ here means: Central GST, State GST, Integrated GST, Union Territory GST charged on supply of goods and/or services but excludes GST on Composition levy.
Input Tax Credit mechanism ultimately reduces the tax burden on a supplier of goods and/or services.
Who can avail ITC?
A person registered under the Goods and Service Act.
What are the key requirements for availing ITC?
1. A person must be registered under the GST Act.
2. The tax must have been paid on the purchase of goods and/or services from the registered person for use in his/her business.
3. There must be supporting tax paying documents.
3. The registered person must have received the goods and/or services.
4. Tax charged on supply must have been paid to the Government.
5.GST Returns must have been filed. (Relevant return- GSTR-2)
6. Recipient of goods and/or services must pay the value of invoice to the supplier within a period of 180 days from the date of invoice.
Points to consider for availing ITC
i. In case goods mentioned in a single invoice, are received in lots or instalments, ITC can be availed upon receipt of last lot or instalment.
ii. An issue may arise regarding what should be the treatment in a case out of 10 lots, only 9 lots reach the destination and the last lot is lost somewhere during transit and is never received? – ITC shall be available for 9 lots and supplier shall issue a credit note for last lot lost.
iii. In case of depreciation under the Income Tax Act is claimed on the tax component of the cost of capital goods and plant and machinery, ITC cannot be availed.
iv. In case input goods are wasted (process loss/ normal loss/ abnormal loss) during the course of production of finished goods, ITC can be availed because they do not cease to be used in the business (as against no credit in case of ‘goods lost’ which can never be used for business purpose).
v. In case of deemed receipt of services, i.e., where services are received by one person but the payment for such services is made by another, the person who made the payment is deemed recipient of services. Here, ITC can be availed by the deemed recipient who made the payment.
vi. In case the registered person pays tax in pursuance of demand order raised on account of fraud, willful misstatement or suppression of facts, ITC cannot be availed.
vii. In case goods and/or services received are used for both taxable and non-taxable supplies, ITC can be availed for goods and/or services used in respect of taxable supplies only.
What is the time period during which ITC can be availed?
Earlier if/of : (a) Due date of filing return for the month of September following the end of the financial year to which the invoice/ debit note relates; OR (b) Due date of filing an annual return.
What if the registered person forgets to claim ITC within the time period allowed?
A new Return filing system has been introduced to give effect to revised return filing with effect from 1st April, 2019 on a pilot basis (i.e., it is in trial period). It will come into effect properly from 1st July, 2019 which will allow to amend/ add/ delete some supply details in the monthly returns.
So, maybe that will help the person to claim ITC in case he/she forgets to do so within the time period allowed.
What are the supporting tax paying documents that are required for availing credit?
(i) Tax Invoice issued by the supplier of goods and/or services;
(ii) Debit note issued by the supplier of goods and/or services;
** Kindly note that for availing ITC on the basis of debit notes, due date is linked to the financial year to which the invoice relating to such debit note pertains to and not the financial year in which the debit note has been issued.
(iii) Bill of entry or similar document under the Customs Act;
(iv) Invoice or Credit note issued by Input Service Distributor;
(v) Invoice issued for supply under Reverse Charge mechanism, where recipient pays the tax liability.
Note: To avail credit, it’s necessary that the above documents contain the following minimum details-
(a) Goods and Service Tax Identification Number (GSTIN) of the supplier and recipient;
(b) Description of Goods or Services;
(c) Total value of supply of goods and/or services;
(d) Amount of tax charged;
(e) Place of supply in case of Inter-state supply.
What if the recipient of goods and/or services does not pay the value of the invoice to the supplier within 180 days from the date of invoice?
Input tax credit claimed is reversed in proportion to unpaid value of invoice. This reversed ITC is added to the recipient’s output tax liability at that time along with interest. That means, now the recipient is required to pay :- ( ITC reversed + Tax liability + Interest ) and furnish the details of supply, unpaid value and ITC availed of proportionate to such unpaid value in the return FORM-GSTR 2 filed for the month immediately following the expiry of 180 days.
This case does not apply to supplies made under reverse charge mechanism and supplies made without consideration as specified in Schedule I.
* Interest @ 18% shall be levied for the period starting from date of availing ITC till the date when the amount added to tax liability is paid.
Note: Above ITC reversed can be claimed again on payment of unpaid value along with tax and interest. The time limit specified above under “What is the time period during which ITC can be availed?” does not apply in case of reclaim of credit.
ITC availability in certain situations
| SITUATION | ITC AVAILABILITY | STOCK HELD TO BE CONSIDERED ON THE DAY IMMEDIATELY PRECEDING: |
| Supplier of goods applies for GST registration within 30 days of crossing threshold limit | Available in case of inputs only | Date from which supplier becomes liable to pay tax |
| Voluntary registration | Available in case of inputs only | Date of grant of registration |
| Switches from Composition scheme to Regular scheme | Available in case of inputs and capital goods | Date from which supplier becomes liable to pay tax under regular scheme |
| Exempt supplies become Taxable supplies | Available in case of inputs and capital goods (only for capital goods used exclusively for exempt supplies) | Date from which exempt supplies become taxable |
Notes: In above situations-
(i) Credit on input services is not available.
(ii) Declaration in GST ITC-01 is required to be filed within 30 days from the date of becoming eligible for ITC. [Where aggregate ITC exceeds ₹2 lakhs, Declaration containing stock and capital goods detail + Certificate from a CA/CS is required]
(iii) Supplier would not be entitled to ITC after expiry of 1 year from the date of issue of tax invoice.
(iv) Credit on capital goods shall be reduced by 5% per quarter or part thereof from the date of invoice.
(v) In case of switch from Composition to Regular scheme, credit verification is done from details furnished in GSTR-1 and GSTR-4.
How to set-off GST?
With effect from 1stFebruary, 2019 GST payment can be set off in the following manner:
| Payment for | First set off | Next set off |
| SGST | IGST | SGST |
| CGST | IGST | CGST |
| IGST | IGST | CGST and SGST |
Conclusion:
One can easily avail input tax credit. But to claim such benefits one must take GST registration and comply with the filing of the GST returns.
