GST Input Tax Credit
GST Input Tax credit is the mechanism in which Input tax on purchases need to be set off from output tax on sale. GST Act 2017 contain certain provisions regarding GST Input Tax Credit Allowance or Dis-Allowance.
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GST Input Tax Credit plays crucial role in overall implementation of GST, being in the nature of indirect taxes the incidence of tax will ultimately be borne by the end-user or consumer of such product or services. GST has been implemented in India from 01st July 2017 by replacing numerous indirect taxes governed by State Government and Central Government, thus it helps in removing the cascading effect of Tax. Here Input tax credit plays crucial role, since the entire supply chain subject to GST and Central Tax (CGST) and State Tax (SGST) flows concurrently and both are available as set-off for payment of tax at every subsequent stage.
Important points for consideration for availing ITC (GST Input Tax Credit)
- GST Input Tax Credit (ITC) is available to every registered tax payer except those availing for composition scheme.
- ITC is available on all the goods and services procured for further manufacturing or trading or supply of goods and services or furtherance of business.
- Any person can apply for GST Registration within 30 days of becoming liable for registration and is entitled to ITC on the goods held in stock (whether in the form of raw material, semi finished or finished goods) on the day immediately preceding the date of registration.
- Any registered tax payer can take ITC on the basis of tax invoice and the goods or services has actually received and tax is paid on such invoice and proper GST return is furnished.
- In case the goods are received in some lots, then entire ITC can be availed after received all lots of goods.
- If the registered tax payer has availed ITC and not paid any amount to the seller within 180 days from date of issue of invoice, then such ITC will be added to the output liability of the tax payer. In case part payment of the invoice is made by tax payer to the seller then proportionate ITC can be availed and remaining ITC if already availed need to be reversed. Further, after 180 days in case the tax payer makes payment to the seller then again ITC can be availed.
- Documents based upon which ITC can be availed are:
- Tax invoice issued by supplier of goods or services.
- Invoice issued by recipient along-with proof of payment of tax (in case of reverse charge mechanism (RCM))
- Any Debit note issued by supplier of goods or services
- Bill of entry or similar document prescribed under Customs Act
- Revised taxable invoice
- Document issued by Input service distributor (ITC)
- ITC is not available in certain cases which are mentioned in section 17(5) of the CGST Act, 2017, it is also known as “Blocked Credit”, these are:
- ITC on motor vehicle and other conveyance
- Goods or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
- ITC on membership of club, health and fitness centre.
- ITC on rent-a-cab, health insurance
- ITC on travel benefit to employees on vacation
- ITC on work contract service supplied for construction of immovable property other than plant and machinery, except in cases where it is further supply of work contract (example – sub contractor)
- ITC on goods or service received for construction of immovable property other than plant and machinery.
- ITC on goods and services on which tax is paid under composition scheme
- Goods or services which are used for personal consumption
- Goods lost, stolen, destroyed, written off, gifted or free samples