What is Input Tax Credit in GST: -
Input Tax Credit
is the amount of Tax adjusted against outward tax liability. Tax charged on all
kind of inward supply can be claimed as Input Tax credit. In simple word Tax
paid on purchase of goods or service are generally called as Input tax paid on
inward supply of goods and service.
You can reduce
your output tax liability by utilizing Input Tax credit paid at time of
purchase of goods and service.
Example: - ABC
India having outward Tax liability of INR 50,000/- payable towards department
at they have already discharge Taxes on purchase of goods and service in form
of Input credit INR 20,000/-. Hence while working out net liability they will
be allowed to deduct Input credit amount to reach final payable i.e. 30,000/-
Person
Eligible to claim Input Tax credit: -
Every registered
person/company/firm under GST is eligible to claim Input tax credit specified
under section 16(1). Input Tax credit can be claimed in the course or the
furtherance of business.
Conditions to
claim Input Tax credit: -
To claim correct and accurate GST ITC, one should make note of following conditions
- Valid Tax Invoice and or Debit Note received from registered supplier for goods and services. One should hold proper invoice document with correct detail of supplier and buyer including address, GSTIN, Place of supply, state code.
- Goods or service (or both) have been or deemed to be received. Taxes collected by supplier on invoices deposited by supplier in their GST return.
- Purchase invoices related to goods and services are available under GSTR2A & GSTR2B forms available on GSTIN portal.
- Self-Tax Invoices under RCM
- Bill of Entry in case of Import of goods from Custom department. (These bills of entry will not reflect under GSTR2A but will reflect under GSTR2B)
- An ISD Invoice or Credit Note by Input Service Distributor.
- Any payment of tax and taxable value paid towards any demand, interest, penalty or fraud cannot be claimed Input Tax credit.
- Amount payable towards purchase of goods and services need to be paid within 180 days or else ITC should be reversed.
- A registered person can claim ITC according to rule 36(4) which state that registered person cannot claim ITC excess to 10% of Tax amount available under GSTR2A* (Cumulative basis)
- In case of goods, if goods are received in lot or installment then ITC can be claimed on last instalment of receipt of last lot of goods.
- Any ITC can not be claimed after September return filing of next financial year or filing of annual return whichever is earlier.
- Goods or service used for personal purpose can not be claimed as Input Tax Credit.
Points to consider
before booking Inward Supply of goods and service
- Proper Tax Invoice Received
- Tax Invoice include proper GSTIN of supplier & buyer
- Tax Invoice number should not exceed 16 digits
- Supplier Invoice Number & Supplier Invoice date recorded properly
- POS & State code mentioned on Tax Invoice.
- Tax Analysis of Goods or service mentioned on Invoice along with SAC & HSN Code.
- Rate of GST charged mentioned on invoice for goods and services.
- In case of goods, physical goods have been received.
- In case of service, service is rendered.
- Proper E-Way Number mentioned on Invoice in case of goods (As per applicability)
In-Eligible
ITC or blocking ITC under GST: -
GST input Tax
credit benefit is available for all kind of purchase of goods and services with
few exceptions. One should make a note that ITC can not be claimed for
following cases
- Purchase of Motor Vehicle: - ITC on purchase of motor vehicle is not allowed and blocked as per sec 17(5) this can be claimed only in case if buyer use this vehicle for further supply, transportation of passenger, motor training services.
- Goods lost, damage, theft or given as sample ITC on such goods can not be claimed and should be reversed.
- Foods and beverages bills, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery.
- Life or Medical insurance.
- Membership of club, fitness center & resort.
- Hotel stays in different state. Example one Mumbai based company send their engineer to Indore for some project related. Invoice charged by hotel C & S can not be claimed in Mumbai.
- Under Works contract service ITC can not be claimed under Immovable property except P&M. (ITC allowed to work contracts service provider)
- Goods are service purchased for use of construction.
Purchase from
unregistered or Composite dealer: -
There are cases
where goods or services purchase from unregistered or composite dealer who
generally so not charge Tax amount on Invoice. In such cases No ITC can be
claimed. However, in few cases such supply attracts reverse charge GST.
Example: - Company
took legal service from SRK & Associates (Non-GST holder) for INR 1,50,000/-
in this case recipient of service need to discharge liability on RCM based on self-invoicing
method at specified rate of GST.
There are few
cases which are covered under RCM (as on Sep 2020)
- Goods Transport Agency
- Legal Service
- Sponsorship charges
- Import of Services.
ITC Treatment
in case of sale of capital goods: -
There is special provision under GST on supply of capital goods where ITC was claimed. One should discharge GST liability on supply of used or secondhand capital goods from business
a) Tax on Sales Value (Sales Value 10000, Tax @ 18% = 1800/-)
b) ITC claimed less 5% for every quarter of use. (ITC Claimed 4000 Less 5% for 10 quarter on ITC 2000 = 2000)
c) Whichever is higher from point a and b
ITC Adjustment
Method
While making GST
liability we can claim input tax credit as per GST act but is equally important
to know correct method of ITC Adjustment.
Previous Method of ITC Claiming: -
- ITC under CGST: - Input tax credit balance under CGST can be adjusted first with CGST liability and if any balance then can be used for IGST liability.
- ITC under SGST: - Input tax credit balance under SGST can be adjusted first with SGST liability and if any balance then can be used for IGST liability
- ITC under IGST: - Input tax credit balance under IGST can be adjusted first with IGST liability then CGST and If any further balance then SGST liability.
According to previous method of ITC adjustment first INTRA HEAD adjustment was allowed and then after cross utilization of ITC which leads to accumulation of taxes amount under IGST and as a result there was delay of GST payment from central to respective state government.
Current Rule: - To overcome the above issue mentioned in previous rule department changed the sequence to claiming Input Tax credit to avoid accumulation of taxes under IGST. According to current method one should follow
- ITC Balance under IGST First: - At first level taxpayer should knock off the IGST ITC Balance in order of IGST, CGST and SGST. Taxpayer can not use any other ITC portion amount until IGST ITC comes to ZERO.
- Once IGST ITC comes to ZERO then user can adjust other ITC balance under CGST and SGST with respective heads.
- Cross utilization of CGST to SGST & vice versa not allowed under any circumstances.
(Note: - Separate Case study available on this with illustration can be shared if needed)
Conclusion: - At the end one should always follow the correct process to claim Input tax credit. Taxpayer should keep checking the compliances matter time to time to avoid any demand or notice in near future. Once should always connect to CA or Tax practitioner in case of any doubts or query.
Thankyou 😊
Regards,
Parvez Ansari
1 Comments
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