Input Tax Credit

Input Tax Credit (ITC) is the core concept of GST as GST is a destination-based tax. ITC avoids cascading effect of taxes and ensure that tax is collected in the state in which goods or services or both are consumed.

Where any person claims that he is eligible for the input tax credit under this Act, the burden of proving such a claim shall lie on such a person.

“Input Tax” in relation to a registered person, means the CGST, SGST, IGST, UTGST charged on any supply of goods or service or both made to him and includes—

  • IGST charged on import of goods
  • Tax payable under provisions of  reverse charge of CGST, SGST, IGST, UTGST

but does not include the tax paid under the composition levy.

Input Tax Credit is eligible only when it is credited to electronic credit ledger of a taxable person. When GST Law was implemented w.e.f. 1-7-2017, it was envisaged that the supplier of goods and services will upload details of his supplies in his GSTR-1 return. These details will be auto-populated in the GSTR 2A of the recipient of goods and services. Once he accepts them, these will go in his GSTR-2 return. ITC will be taken on the basis of that details. The procedure is not operational yet. Hence presently, ITC to be taken in GSTR-3B by on his own. Of course, the supplier has to upload his supplies in his GSTR-1. The recipient has to make sure that he can take ITC only on the basis of details of invoices as uploaded by the supplier of goods and services in his GSTR-1. These details will be available to recipients in form GSTR-2A.

ITC shall be availed by a registered person including an Input service distributor on the basis of Invoice/ debit note/credit note/bill of entry (on payment basis in case of reverse charge).

No ITC if GST was paid by the supplier on advance paid to him- if advance payment was made to the supplier of services before the supply of services (Presently, GST is payable on receipt of advance in case of services and not in case of goods)  the supplier is required to issue receipt voucher and pay tax to Government. At this stage, the supplier can’t issue a tax invoice and hence recipient can’t take ITC. ITC cannot be taken as services are not received and the tax invoice is not issued by the supplier.

Time Limit in which ITC can be taken– A taxable person shall not be entitled to take ITC after the expiry of one year from the date of issue of the tax invoice. Further ITC in respect of any invoice or debit note cannot be taken after the filing of the return for the month of September following the end of FY to which such invoice or invoice relating to debit note pertains or filing of the relevant annual return, whichever is earlier. In case of invoices received after October, the taxable person gets less than one year to take ITC.

Manner of taking ITC :  w.e.f. 29-03-2019

  • ITC on IGST has to be first utilized towards IGST and balance towards CGST/ SGST/ UTGST.
  • For utilization of balance IGST credit towards CGST/ SGST/ UTGST, there is no order of set-off
  • Set off ITC of CGST/ SGST/ UTGST can be utilized towards IGST, CGST, SGST, or UTGST but only after exhausting the ITC of IGST.

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