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GST Input Tax Credit and more Information

GST Input Tax Credit and more Information

GST Input Tax Credit

GST Input Tax Credit : The meaning of ITC can be easily understood when we take the words ‘input’ and ‘tax credit’. Inputs are materials or services that a manufacturer purchase in order to manufacture his product or services which is his output.

Tax credit means the tax a producer was able to reduce while paying his tax on output.

GST Input Tax Credit

Input tax credit means that when a manufacturer pays the tax on his output, he can deduct the tax he previously paid on the input he purchased. Here, while paying the tax on his output, he can deduct or take credit for the tax he paid while purchasing inputs.

The key requirements for availing input tax credit in respect of any supply of goods and/or services are as under
a. The company is in possession of a tax invoice or debit note issued by a supplier
b. The company has received goods and/or services
c. Supplier has actually paid tax to the account of the appropriate Government
d. Supplier has filed returns
e. The said transaction is properly reflected in the Return filed by the Supplier as well as the company.
f. The company should pay to the supplier (value of supply of goods and service along with tax thereon) within period of one hundred and eighty days from date of invoice (not applicable in case of GST paid under reverse charge).

GST Input Tax Credit

ITC cannot be taken beyond the due date of furnishing of the return for the month of September following the end of Financial Year (FY) to which invoice pertains or date of ling of annual return, whichever is earlier. The underlying reasoning for this restriction is that no change in return is permitted after September of next FY. If annual return is filed before the month of September then no change can be made after filing of annual return.

The manner/order of utilization of input tax credit is as follows:
a. The amount of IGST credit in the electronic credit ledger can be utilized in the following order;
IGST against IGST-CGST-SGST
b. CGST against CGST-IGST
c. SGST against SGST-IGST
d. SGST against CGST or CGST against SGST – Not allowed

GST Input Tax Credit

The GST law provides for the negative list with respect to the admissibility of ITC.
It has been provided that the ITC on following items cannot be availed:
a. motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services –
– further supply of such vehicle or conveyance;
– transportation of passengers, or
– transportation of goods, or
– imparting training on motor driving skills;

b. food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services; membership of a club, health and fitness centre; rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force or where such inward supply of goods or services of a particular category is used by a registered taxable
person for making an outward taxable supply of the same category of goods or services; and travel benefits extended to employees on vacation such as leave or home travel concession.

c. goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery; except where it is an input service for further supply of works contract service.

d. goods or services or both received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when such goods or services or both are used in the course of furtherance of business;

e. goods and/or services on which tax has been paid under Composition scheme; and

f. goods and/or services used for private or personal consumption, to the extent they are so consumed.

g. goods lost, stolen, written-off or disposed by way of gifts and free samples

h. of tax assessed on account of fraud and willful suppression, transport of goods / storage of goods while in transit, dealing in supply of goods, which is in contravention of the GST law.

GST Input Tax Credit

Input tax credit shall not be available in case of goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. Therefore input tax paid on such taxable goods, is not available. Hence in event of expired goods or stocks are destroyed or disposed off, or supplied as physician sample, the supplier would be required to reverse Input tax credit in respect of said stock.

Input Tax Credit (ITC) is the backbone of the GST regime. GST is nothing but a value added tax on goods & services combined. It is these provisions of Input Tax Credit that make GST a value added tax i.e., collection of tax at all points after allowing credit for the inputs. The procedures and restrictions laid down in these provisions are important to make sure that there is seamless flow of credit in the whole scheme of transition without any misuse.Thus, the clarity of rules of availment and utilization will have significant impact on making GST a taxpayer-friendly tax.

GST Input Tax Credit

Input Credit Mechanism is available to you when you are covered under the GST Act.

Which means if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned here, registered under GST, You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.

GST Input Tax Credit

To claim input credit under GST –

  • You must have a tax invoice(of purchase) or debit note issued by registered dealer

Note: Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of last lot or installment.

  • You should have received the goods/services

Note: Where recipient does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.

  • The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit
  • Supplier has filed GST returns

Possibly the most path breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it.

Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST compliant as well.

There’s more you should know about input credit –

  • It is possible to have unclaimed input credit. Due to tax on purchases being higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.

GST Input Tax Credit

If tax on inputs > tax on output –> carry forward input tax or claim refund

If tax on output > tax on inputs –> pay balance

No interest is paid on input tax balance by the government

  • Input tax credit cannot be taken on purchase invoices which are more than one year old. Period is calculated from the date of the tax invoice.
  • Since GST is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).
  • Input tax credit is allowed on capital goods.
  • Input tax is not allowed for goods and services for personal use.
  • No input tax credit shall be allowed after GST return has been filed for September following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.

GST Input Tax Credit

Though GST for many products may seem to be high, its impact on final prices would be moderated by input tax credit. Here is how it is calculated :

From 1 July, GST would be charged on almost all the goods and services that we consume. There are five different GST rates—0%, 5%, 12%, 18% and 28%—which are prescribed for various goods and services. In the present regime, different taxes are charged at different stages of manufacture and trade of the goods and services. Going forward, almost all these indirect taxes will get subsumed under GST. Further, because of the input tax credit provision, only value additions at various stages will be taxed. Let’s read more about what is input tax credit and how it works.

Inputs refer to materials or services that a manufacturer procures or avails in order to manufacture a product or services which is the output. The taxes paid by a manufacturer, while buying the raw material or services, are known as input tax and similarly the tax collected on the sale of the product or services is called the output tax. Given that GST is charged on both goods and services, input credit can be availed on both goods and services. “Input tax credit means that a business can reduce the taxes it has paid on inputs from the taxes it has to deposit on output,” said Archit Gupta, chief executive officer and founder, Cleartax. 

GST Input Tax Credit

For example, if you have a business and the product (or service) sold by you attracts 18% tax. And you use input goods (and services) in the course of your business. Then, you can reduce the taxes you have already paid on purchase of these inputs from the tax due from you (of 18%), explained Gupta. Manufacturers will add tax only on the value addition done by them and not on the entire value of the product.

Let us take the example of a manufacturer of steel utensils such as plates, spoons, etc. Let us assume that the manufacturer had bought raw steel worth Rs500 to make a steel pressure cooker. He also bought other raw materials for Rs100. Assume GST for steel is 18%. Let us also assume he had to pay GST on other raw materials at 28%.

The manufacturer would have paid GST of Rs90 on raw steel, and Rs28 on other materials used as inputs. So the total input tax paid by manufacturer was Rs118. Next, after taking into account the cost of making a pressure cooker out of the raw materials and including a reasonable profit, the manufacturer decides to sell it to a distributor at Rs800 plus GST.

Assuming that GST on a steel utensil is 18% then the tax on it works out to Rs144 and the manufacturer will invoice it for Rs944.

The manufacture will collect Rs 144 towards GST from the distributor on sale. Now the manufacturer had already paid Rs118 as GST at the time of purchasing the raw materials. So, out of the total Rs144 of GST collected by him, the manufacturer can claim credit of Rs118 that he has already paid for inputs. And deposit the difference (Output tax less input tax) i.e. Rs 26 with government.

This credit of tax is available at all subsequent stages, distributors and retailers charge GST and can claim the input tax credit.

GST Input Tax Credit

Sl No.TopicDOWNLOAD LINK
1.Schedule of GST rates for services CHECK HERE
2.GST Tariff Code in Uttar Pradesh CHECK HERE
3.Complete Details on GST CHECK HERE

Check here for more GST Offline Utilities – Click

Check here to download Download Printable GST Filing Date Chart :

SL NO. TOPICSLINK
1.Download Printable GST Filing Date Chart PDFCHECK HERE
2.Download Printable GST Filing Date Chart EXCELCHECK HERE

Check here to know more on GST HSN Code with Rate :

SL NO. TOPICSLINK
1.GST Rate ScheduleCHECK HERE
2.GST Rate by GST CouncilCHECK HERE
3.GST HSN Codes EnrollnmentCHECK HERE

GST Input Tax Credit
Check here to know more on GST Delivery Challan :

SL NO. TOPICSLINK
1.GST Delivery Challan Excel format 1CHECK HERE
2.GST Delivery Challan Excel format 2CHECK HERE
3.GST Delivery Challan PDF formatCHECK HERE

For more on GST and GST Input Tax Credit log onto www.cakart.in

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