Input Tax Credit

GST Nov 9, 2020 0 754 Add to Reading List

Input Tax Credit

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 of CGST/SGST/UTGST/IGST :

GST comprises of the following levies:-

CGST (also known as Central Tax) which is levied on intra-state or intra-union territory on supply of goods or services or both.
SGST (also known as State Tax) which is levied on supply of goods or services or both within the same state.
UTGST (also known as Union Territory Tax) which is levied on supply of goods or services within the same union territory.
IGST (also known as Integrated Tax) on inter-state supply of goods or services or both.

The input tax credit of these components of GST would be allowed in following manner :

Credit of CGST : Allowed 1^st for payment of CGST and the balance can be utilized for the payment of IGST. Credit of CGST is not allowed for payment of SGST.
Credit of SGST/UTGST : Allowed 1^st for payment of SGST/UTGST and the balance can be utilized for the payment of IGST. Credit of SGST/UTGST is not allowed for payment of CGST.
Credit of IGST : Allowed 1^st for payment of IGST, then for payment of CGST and the balance for payment of SGST/UTGST.

This has been explained in the following table :

Credit of	To be utilized 1^st for the payment of	Maybe utilized further for the payment of
CGST	CGST	IGST
SGST/UTGST	SGST/UTGST	IGST
IGST	IGST	CGST, then SGST/UTGST

Conditions for availing Input tax credit :

ITC claimed by a person registered under GST only if he fulfills all the conditions as prescribed :

ITC can be claimed only for business purposes
The dealer should be possession of tax invoice
The said goods/services have been received
Returns have been filed
The tax charged has been paid to the government by the supplier
When goods are received in installments ITC can be claimed only when the last lot is received

Input Tax Credit will not be avail :

when goods or services exclusively used for -

Personal use
Exempt Supplies
Supplies for which ITC not available

No ITC will be allowed if depreciation has been claimed on tax component of a capital good.
A person registered under composition scheme in GST cannot claim ITC.

Allowance/Disallowance of Input Tax Credit :

Under the GST Regime, ITC can be claimed by every registered taxable person on all inputs used or intended to be used (whether goods or services) in the course of or for the furtherance of business. (except in certain specified cases)

The specified cases where the input tax credit would not be allowed are mentioned below:-

S. No.	Input Tax Credit is not allowed for GST paid on	Exception (i.e. GST Input Tax credit allowed for these goods/services only in case of following)
1	Motor Vehicles & other Conveyance	Allowed only when they are supplied in the normal course of business or are used for providing the following taxable services:- a. Transportation of Passengers, or b. Transportation of Goods, or c. Imparting Training on Motor Driving Skills
2.	Food & Beverages, Outdoor Catering, Beauty Treatment, Health Services, Cosmetic & Plastic Surgery	Allowed only if the goods and/or services are taken to deliver the same category of services or as a part of composite supply, the credit would be available. Example: Mr. A purchases cosmetic creams to supply to her customer. In case a case, ITC paid on purchases would be allowed.
3.	Membership of Club or Fitness Centre or Health Centre
4.	Rent-a-Cab service, Health Insurance and Life Insurance	Allowed only if : a. The Govt makes it obligatory for the employers to provide it to their employees, or b. In cases where the goods and/or services are taken to deliver the same category of services or as a part of composite supply.
5.	Travel Benefits to Employees. Eg: Leaves travel allowances.
6.	Works Contract Services, when supplied for the Construction of Immovable Property	Allowed only if : a. Works Contract Services supplied for Construction of Plant & Machinery b. One Works Contract Service is input for another works contract service
7.	Goods and/or Services for Construction of Immovable Property, whether to be used for Personal or Business use.
8.	Goods/ Services on which GST has been paid under the Composition Scheme
9.	Goods/ Services received by a Non-Resident Taxable person	Allowed for Goods/Services imported by a Non-Resident taxable person
10.	Goods/ Services used for Personal Consumption
11.	Goods which are lost/ stolen/ destroyed/ written off/ disposed of by gift/ free sample
12.	Any tax paid due to a. Non-payment of tax, orb. Short payment of tax, orc. Excessive Refund
13.	ITC utilised or availed by way of a. Fraud, or b. Will-full mis-statements, orc. Suppression of Facts