Input Tax Credit means claiming the credit of the GST paid on purchase of Goods and Services which are used for the furtherance of business. The Mechanism of Input Tax Credit is the backbone of GST and is one of the most important reasons for the introduction of GST.
As GST is a single tax levied across India (right from manufacture of goods/ services till it reaches the end customer), the chain does not get broken and everybody is able to take benefit of the same and there is seamless flow of credit.
Input Tax Credit Mechanism
- Credit of CGST –
Allowed 1st for payment of CGST and the balance can be utilised for the payment of IGST. Credit of CGST is not allowed for payment of SGST.
- Credit of SGST/ UTGST –
Allowed 1st for payment of SGST/UTGST and the balance can be utilised for the payment of IGST. Credit of SGST/ UTGST is not allowed for payment of CGST.
- Credit of IGST –
Allowed 1st for payment of IGST, then for payment of CGST and the balance for payment of SGST/ UTGST
Section 16. Eligibility and conditions for taking input tax credit
(1) Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
The words ‘used or intended to be used in the course or furtherance of his business appearing in section 16(1), refer to the registered taxable person in question and not the legal entity as a whole. So, input tax credit paid in a State must not be in relation to the business of a taxable person in another State belonging to the same taxable person.
A Company has Branch in Ahmedabad (registered in Gujarat) conducts conference in a hotel in Mumbai (Maharashtra) where CGST and SGST is charged by the hotel. This Company also has Branch in Mumbai (registered in Maharashtra). In such case as services availed by Ahmedabad branch of the company where as tax paid by hotel in Mumbai is not available to Gujarat so forgot by that branch, so care should be taken Company take ISD or issue bill in name of Branch in Maharashtra.
Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless, –
- Tax Payer is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying documents as may be prescribed;
As Per Rule-1 Documentary requirements and conditions for claiming input tax credit
(1) The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely: –
(a) An invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;
(b) An invoice issued in accordance with the provisions of clause (f) of sub-section 3 of section 31, subject to payment of tax;
(c) A Debit note issued by a supplier in accordance with the provisions of section 34;
(d) A bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for assessment of integrated tax on imports;
(e) An ISD invoice or ISD credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule invoice.7.
- Tax Payer has received the goods or services or both
Explanation- For the purposes of this clause, it shall be deemed that the registered person has received the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
- subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilization of input tax credit admissible in respect of the said supply; and
- Tax Payer has furnished the return(GSTR-2) under section 39:
PROVIDED that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon
As per Rule -2 Reversal of input tax credit in case of non-payment of consideration
(1) A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof the value of such supply along with the tax payable thereon within the time limit specified in the second proviso to sub-section (2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of issue of invoice.
Provided that the value of supplies made without consideration as specified in Schedule I shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.
(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.
(3) The registered person shall be liable to pay interest at the rate notified under sub-section (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or these rules, that had been reversed earlier.
Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
(2) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
ITC is Not Available to be Claimed in the Following Cases, u/s 16(9):
You cannot claim ITC for goods & services used for personal purposes.
- If you have acquired goods & services under a contract which results in contraction of immovable property other than plant & machinery.
- If you have paid tax on goods & services under GST composition scheme.
- If goods & services have been used to build immovable property other than plant & machinery & such property is not transferred.
- Such goods & services which have been used by employees for their personal consumption.
If depreciation has been claimed on the cost of capital goods, then they are not eligible for Input Tax credit.