Input tax credit(ITC) is one of the most important features available under GST. Thus, it is available as a benefit to the entire chain involved in the cycle. i.e from the starting point of manufacturer till the end consumer.
However, there are few conditions binding to avail input tax credit on capital goods under GST. Further, there is a list of ineligible input tax credit under GS
Index of Main Topics
Meaning of Input Tax Credit
Answer. Under the GST system, the taxpayers can reduce their tax liability by claiming credit to the extent of GST paid on the purchases. For example, Mr. A has purchased goods of Rs. 50,000/-(Rs. 42372.88 value + 7627.12 – GST) from Mr. X. Therefore, Mr. A will make a payment of Rs. 50000/- to Mr. X. Thus, Mr. A can claim the benefit of Rs. 7627.12 (paid to X) while discharging his tax liability to the government.
According to GST ACT, an Input tax credit under GST means the central tax (CGST), State tax (SGST), or Union territory tax (UTGST), and integrated tax (IGST). This tax is charge
Input tax credit on capital goods under GST
Question 1: Does input tax credit includes tax paid on input goods, input services and capital goods?
Answer 1: Yes, it includes taxes paid on input goods, input services and capital goods. However, Credit of tax paid on capital goods is allowable to avail in one installment.
Question 2: What happens to the credit when capital
Answer 2: The GST registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by the percentage points as may be specified in this behalf or the tax on the transaction value of such capital goods, whichever is higher.
However, in the
Question 3: Which group under Input tax credit on capital goods ledger is created?
Answer 3: The input tax credit on capital goods ledger to be created under Liabilities head. Thus, you can create it as Liabilities > Taxes & Duties > Input CGST, Input SGST, and Input IGST.
Question 4: In how many installments input tax credit on capital goods can be availed?
Answer 4: In one installment.
Input tax credit on imported goods
There is a provision of the input tax credit on imported goods in the
In order, to take the benefit of IGST and compensation cess (if applicable) importer must submit the GST number to the custom. Therefore, only a registered person can take the credit on such imports on the basis of a
Input tax credit on hotel bills under GST
The CGST and SGST charged by other state suppliers cannot be taken as an input tax credit in your state. However, one can take credit of the CGST and SGST charged by the hotel in the State where you have the registration. Secondly, the food bill is not eligible for credit as it falls under personal consumption which is excluded in Section 17(5) of the CGST Act.
Input tax credit on Insurance premium
The Input tax credit on life insurance and health insurance is not allowable under GST. However, if the Government notifies anytime the services which are obligatory for an employer to provide to its employees under any law for the time being in force then one can avail ITC on such services.
Also, if the above inward supply of services of a particular category is used by a registered person for making outward taxable supply of the same category of services then one can avail ITC on it.
Concept of the Input tax credit on job work
According to CGST section 19, the person who sends the material(principal) to a job worker is permissible to take an input tax credit on such material. However, there are certain conditions binding to avail this credit.
As per clause (b) of sub-section (2) of section 16 the principal can avail ITC, where goods are directly supplied to the job worker even without first bringing at his place.
Further, it is deemed that the principal has availed credit on input goods supplied to the job worker but not brought back within 1 year of its issue. Similarly, the period is 3 years from its date of issue in the case of capital goods.
Examples of Input tax credit
A) Mr. X, a registered person was paying tax under the composition scheme up to 30th July 2018. However, w.e.f 31st July 2018, Mr. X becomes liable to pay tax under the regular scheme. Is he eligible for ITC?
Ans. Mr. X is eligible for a credit on inputs held in stock. Also on inputs contained in semi-finished or finished goods held in stock and capital goods as on 30th July 2018. This is subject to reducing by such percentage points as may be prescribed in the law.
B) Mr. X applies for voluntary registration on 5th June 2018 and obtained registration on 22nd June 2018. Mr. X is eligible for the credit on inputs in stock as on..?
Ans. Mr. X is eligible for the credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 21st June 2018. However, Mr. X cannot take the credit in respect of capital goods.
Input tax credit Reversal
A GST registered person shall reverse the credit availed on inward supplies in the following cases.
- Fails to pay to the supplier of goods or services within 180 days
- Wrongly availed credit
- Excess credit availed
- The Recipient needs to reverse the ITC if the Supplier fails to deposit the tax to the government on the goods supplied to the recipient.
Similarly, the credit shall be reversed with 24% interest per day. you may read our article
Legal Position on Reversal of Input Tax credit
What will be the legal position in regard to the reversed input tax credit if the supplier later realizes the mistake and feeds the information?
At any stage, but before 30th November of the next financial year, supplier can upload the invoice and pay duty and interest on such missing invoices in his GSTR-3 of the month in which he had earlier failed to upload the invoice. The recipient shall be eligible to reduce his output tax liability to the extent of the amount in respect of which the supplier has rectified the mis-match. The interest paid by the recipient at the time of reversal will also be refunded to the recipient by crediting the amount in corresponding head of his electronic cash ledger.
Input tax credit on Reverse Charge
GST paid on reverse charge basis be available as an
Further, the recipient can take ITC even without making payment to the supplier. But he needs to pay the full amount along with tax within 180 days from the date of issue of an invoice to the supplier. Thus, 180 days is the time limit to pay the value of supply with taxes to avail the input tax credit. However, this condition is not applicable where tax is payable on a
The time limit for taking ITC
A registered person can take input tax credit before 30th November of next FY year or an Annual return, whichever is earlier. Thus, 30th November of the next financial year is the maximum time limit to claim the input tax credit of the previous year.
Therefore, the upper time limit for taking ITC is 30th November of the next FY or the date of filing of annual return whichever is earlier.
The reason for this restriction is that no change in return is permissible after 30th November of next FY. If you file your annual return before the month of November, then you can not change the values in
Time limit for Debit Note
The supplier of goods or services can claim the input tax credit on the debit notes raised by the customer. The input tax credit on such debit note shall be availed before 30th November of the Next Financial year. For. eg. the debit raised in FY 2021-22 can be used to claim the input tax credit before 30th November 2022 or the Annual return of 2021-22, whichever is earlier.
From 01.01.2021, the date of invoice related to the debit note raised and taking input tax credit is removed. This means if the invoice was raised in FY 2019-20 and the debit note raised in FY 2020-21, then the ITC on such debit can be claimed before filing GSTR 3B of September 2021 or the Annual return, whichever is earlier.
Prior to 01.01.2021, ITC on a debit note of FY 2020-21 against invoices raised in FY 2019-20 was not eligible. This has reference to Circular No. 160/16/2021-GST dt.20.09.2021.
Restriction on period for availment of ITC
In cases of new registration, change from composition to normal scheme, from exempt to taxable supplies, the concerned person cannot avail ITC after the expiry of one year from the date of issue of tax invoice relating to such supply.
Exempted supply under Composition scheme
Question. What would happen to the input tax credit availed by a registered person who opts for composition scheme or where the goods or services or both supplied by him become wholly exempt?
The registered person has to pay an amount equal to the input tax credit in respect of stocks held on the day immediately preceding the date of exercise of option or date of exemption. In respect of capital goods, the payable amount would be calculated by reducing by a prescribed percentage point. The payment can be made by debiting electronic credit ledger, if there is sufficient balance in the credit ledger, or by debiting electronic cash ledger. If any balance remains in the credit ledger, it would lapse.
Input tax credit on gold purchase
According to the input tax credit rules, if taxpayers distribute the input goods, input services, and capital goods as a gift or free samples to the customer, ITC is not permissible. Thus, Giving free gold coins proves expensive for businesses due to the unavailability of its ITC. However, according to the article published by the business line, there is a lot of argument of experts and tax authorities on this matter.
ITC on goods destroyed or lost
One cannot take ITC with respect to goods lost, stolen, destroyed or written off. Further, ITC with respect to goods given as gifts or free samples is also not allowed.
ITC Rule for newly registered person
A person applying for New GST registration can take the
If a person becomes liable to pay tax on 1st August 2018 and has obtained registration on 15th August 2018. Such a person is eligible for the credit on inputs held in stock as on:
(a) 1st August 2018
(b) 31st July 2018
(c) 15th August 2018
(d) He cannot take credit for the past period
Ans. 31st July 2018.
ITC in case of export of exempted supplies
If the input tax credit is permissible only in respect of goods or services or both for effecting taxable supplies, it will not lead to loss of credit on exempt supplies when exported.
This is because Zero-rated supplies are inclusive within taxable supplies of the credit. The scope of zero-rated supply is provided in the IGST Tax Act which includes even exempt supplies.
Restriction on the period for availing of ITC
A person cannot avail ITC after the expiry of one year from the date of issue of tax invoice relating to:
- New GST registration
- Change from composition to normal scheme
- From exempt to taxable supplies
Ineligible input tax credit under GST
The Input tax credit is not available in some cases as mentioned in CGST section 17(5) of the CGST Act, 2017. Here is the list of ineligible input tax credit under GST goods on which the taxpayer shall not avail ITC. It is also known as a
1. Motor vehicles and other conveyances
The input tax credit on Motor vehicles and other conveyances are not allowed under GST if they are used for personal purpose. However, there is an
- A further supply of such vehicles or conveyances
- Transportation of passengers
- Imparting training on driving, flying, navigating such vehicles or conveyances
- For the transportation of goods
2. Ineligible input tax credit on Services
ITC is not eligible for the following type of services. However, the input tax credit is available, if the taxpayer uses such inward supplies to make outward taxable supplies for the same category of goods or services or both. Also, if he uses as an element of a taxable composite or mixed supply.
- Food and beverages
- Outdoor catering
- Beauty treatment
- Health services
- Cosmetic and plastic surgery
Example of ITC Eligibility for the above items.
- The Packed food items and beverages are liable for taxation when they are sold in the market. Therefore, the supplier can take the input tax credit on such inward supplies/inputs used for manufacturing these packed food items or beverages. The inputs, in this case, maybe like ingredients of food items, bottles for beverages, etc.
- ITC is available If the supplier includes the above items in a package of composite supply or mixed supply. These type of items includes like a pack of the
03. Membership of a club, health and fitness Centre
The Input tax credit is not available on the invoice received for payment of fees made to become a
04. Rent-a-cab, life insurance, and health insurance
ITC on rent a cab, life insurance,
05. Travel benefits employees
The input tax credit is not available for Travel benefits provided to employees on vacation such as leave or home travel concession.
06. works contract services
Includes supplies for the construction of the immovable property. However, it excludes plants and machinery. ITC may be available if it is an input service for further supply of works contract service.
07. Goods/Services Received for construction of an immovable property
08. Tax paid under Composition Scheme
The credit i
09. Non-resident taxable person
The Input credit is not available on goods or services or both received by a non-resident taxable person except on the import of goods.
10. Personal consumption
Further, the ITC is blocked on any goods or services or both used for personal consumption.
11. Lost, stolen, destroyed, written off or disposed
No ITC is allowable on any goods which are, lost in transit/godown, stolen, destroyed, write-off or disposed of.
12. Another type of Taxes paid
Lastly, a taxpayer can not avail ITC on taxes paid towards interest, penalty, late fee, fine,
13. Not more than 20% Input Tax Credit
The recipient of goods or services shall avail only 20% Input tax credit on inward supplies if such inputs are not appearing in GSTR 2A. Thus, from 09.10.2019, the taxpayer is eligible to take 20% more ITC in addition to which it appears in the GSTR 2A return. Notification Ref. 49/2019-Central Tax dt.09.10.2019. Also, refer to Circular No. 123/2019 dt.11.11.2019 clarifying this concept in more detail.
- The above limit is reduced from 20% to 10% w.e.f 01.01.2020 vide notification no. 75/2019- Central Tax dt. 26.12.2019.
- Above limit is further reduced from 10% to 5% w.e.f 1st January 2021 vide notification no. 94/2020 –Central Tax dt.22.12.2020.
- w.e.f 01.01.2022 Taxpayers are not allowed to avail of excess input tax credit then what is available in GSTR 2B. Therefore, the above 5% excess limit has also been withdrawn w.e.f 01.01.2022. However, the limit should exclude ITC available on imports and tax paid on reverse charge(Ref. Circular No. 123/42/2019– GST dt. 11.11.2019). This has reference to Notification no. 40/2021 – Central Tax Dt.29.12.2021.
What if the supplier has not filed returns?
Q1. Can I get an input tax credit if a supplier doesn’t file gstr1?
Ans 1. No, your supplier needs to file the GSTR 1 return, so that it will appear in your GSTR 2A.
Q2. What if my supplier does not pay GST?
Ans 2. As per the GST law, you can not avail input tax credit on such invoices. if availed you need to reverse it with 24% interest per day.
Q3. What shall I do, if the Supplier did not upload the invoice?
Ans 3. You can ask the supplier to upload it in the next months GSTR 1.
Q4. What if ITC is not reflecting in GSTR-2A?
Ans 4. Ask your supplier to check whether he has filed the GSTR 1 return for that particular period.
Q5. What to do if ITC is not claimed in gstr 3b?
Ans 5. You can claim such ITC before 30th November of the next financial year.
Q6. Who needs to file Form GST TRAN – 3?
Ans 6. 1) Dealer who have received Credit Transfer Document (CTD) issued by Manufacturer. 2) Manufacturer who has issued CTD to dealers.
How to check input tax credit in the GST portal?
In order to avail ITC under GST, you may want to see whether it is available on the GST portal or not. On the basis of availability on the GST portal, you may want to avail ITC to avoid the risk of a reversal in the future with high interest. Also, if you avail ITC wrongly or your supplier invoice who did not pay tax on such an invoice, then you will reverse such ITC with 24% interest per day.
So, you can refer to our
Further, if you have a
A FAQ on Input tax credit in GST
Question 1: Is all credit of input tax charged on the supply of goods or services allowed in GST?
Answer 1. A GST registered person is entitled to take credit of input tax charged on the supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business. However, this is subject to other conditions and restrictions as specified in the first paragraph.
Question 2. How to take ITC When the goods are received in lots or installments?
Answer 2. The GST registered person shall be entitled to the credit only upon receipt of the last lot or installment.
Question 3. What happens to the ITC taken by the registered person if he has not paid the invoice along with tax within 180 days from the date of the invoice?
Answer 3. The amount of ITC will get added to the output tax liability of the person. He needs to pay interest on such amount. However, he can take ITC again after making payment of consideration and tax.
Question 4. Who will get the ITC in ‘bill to’- ‘ship to ’scenario)?
Answer 4. It is deemed that the registered person has received the goods when the goods have been delivered to a third party in the direction of such a taxable person. Therefore, ITC will be available to the person on whose order the goods are delivered to the third person.
Question 5. On how many products business customers get GST input tax benefit?
Answer 5: There is no specific number of products where the customer can get the benefit of input tax. The customer can claim the input tax on all goods or services or both where the inputs are used to carry the business further with few exceptions.
For eg. A manufacturer of Ballpen will buy ink and caps from the market to produce the pen. Therefore, he can claim input tax on ink and cap, if purchased from the registered supplier.
General Queries on ITC in GST
The Input tax credit is a tax credit available in GST to the recipient of goods or services when it’s used as inputs to provide further business.
The GST Registered person other than composite dealers can claim the input tax credit.
The supplier pays the GST to the government after raising the invoice to the recipient of goods or services. Later, the recipient of such goods or services who uses these receipts as inputs to provide further taxable supplier claims ITC against its outward supplies.
You can claim 100% Input tax credit subject to below conditions:
1. The supplier shall pay such tax to the government.
2. You have received the goods or services
3. You have a proper tax invoice from the supplier
The taxpayer can adjust the input tax credit from its liabilities.
For eg. the liability for the current period is Rs. 100,000/- and the credit you have is Rs. 25000/-. Thus, you need to pay Rs. 75000/- to the govt. (Rs. 100,000 – Rs.25000) after deducting the credit from the total liabilities.