Input Tax Credit
What is GST?
Goods and Services Tax (GST), is a tax that customers have to bear when they buy goods or services, such as movie tickets, clothes, electronics, transportation, travel, items of daily use, etc. It is an “Indirect Tax”, i.e., this tax is not directly paid by customers or consumers to the government, but is rather levied on the manufacturer or producers or seller of goods and the providers of services. The sellers usually add the tax expense into their costs, and the price the customers pay is inclusive of GST.
Different components of GST
What is Input Tax Credit?
Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can use to reduce its tax liability when it makes a sale. In simple words, businesses can reduce their tax liability by claiming input tax credit to the extent of GST paid on purchases.
Let us take an example to understand the concept of Input Tax Credit. Suppose Mr. Ram is running his clothes business in Haryana and he acquires clothes from different manufacturers and sells the clothes after some modification in it to his customers. The tax which he has paid on acquiring clothes will be allowed him as input tax credit while paying his gross liability.
Let us take another example to understand the concept of an input tax credit-
Let suppose you are a manufacturer-
Tax payable by you on output is Rs.1000
Tax paid by you on input is Rs.600
Then, you can claim Input Credit of Rs.600 and you have to deposit only Rs.400 as your tax liability.
Section 16 of the CGST Act,2017 governs the provision related to Input Tax Credit.
Electronic Credit Ledger is the input tax credit ledger (CGST/SGST/IGST/UTGST) in the electronic form which is maintained at the common portal for each registered taxable person.
Section 16(2), an Input tax credit is available only if-
First Provision to Section 16(2):
In case the goods covered under an invoice are not received in a single consignment but are received in lots/installments. ITC can be taken only upon receipt of the last lot or installment.
Second Provision to Section 16(2):
To the registered person, where a recipient fails to pay to the supplier of goods or services or both (other than the supplies on which tax is payable under reverse charge mechanism), the amount towards the value of supply along with tax payable thereon within a period of 180 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. Interest shall be paid @ 18% from the date of availing credit till the date when the amount added to the output tax liability is paid.
This provision will not be applicable under the following conditions:
Section 16(3), Input tax credit Not Allowed
To the registered person, if depreciation claimed on the tax component of the capital goods and plant and machinery, under the provisions of Income Tax Act,1961.
Section 16(4), Input tax credit Not Allowed
Input Tax Credit or debit note pertaining to any Financial Year can be availed any time-
Whichever is earlier.
However, the time limit provision given u/s 16(4), would not apply on a claim for re-availing of credit that has been reversed earlier.
General Conditions for taking Input Tax Credit:
A business can avail input tax credit if the following conditions get fulfilled-
However, a business under composition scheme cannot avail the input tax credit.
Documents required for availing input tax credit
Following documents are required for availing Input Tax Credit-
The Bill should contain at least the following details-
Reversal of Input Tax Credit
A certain situation where input tax credit availed need to be reversed-
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