input tax credit (itc) under gst provision

INPUT TAX CREDIT

C. H. THADESHWAR & Co.,

Chartered Accountants

15-16 Chamber of Commerce Building,

Jayshree Cinema Road,

Junagadh.

Contact No. 70 430 22 444

INPUT TAX CREDIT: CONCEPTS

Input means - section 2 (54):

any goods (subject to certain exceptions) other than capital

goods

used or intended to be used by supplier

for making an outward supply in the course or furtherance

of business

Capital goods specified in section 2 (20)

Input services means - section 2 (55):

any services (subject to certain exceptions)

used or intended to be used by supplier

for making an outward supply in the course or furtherance

of business

Exceptions (Negative list) - section 16(9)

….INPUT TAX CREDIT: CONCEPTS….

Electronic credit ledger means ITC ledger in electronic formmaintained at GSTN - section 2 (41)

Inward supply means receipt of goods and / or services whether bypurchase, acquisition or any other means and whether or not forconsideration – section 2 (61)

Output tax means CGST / SGST chargeable on taxable supply ofgoods and / or services made by him or by his agent and excludestax payable on reverse charge basis – section 2 (72) / IGSTchargeable – section 2(1)(g) of IGST Act

Outward supply means supply of goods and / or services whetherby sale, transfer, barter, exchange, licence, rental, lease or disposalmade or agreed to be made in the course or furtherance of businessexcept such supplies where tax is payable on reverse charge basis –section 2 (73)

….INPUT TAX CREDIT: CONCEPTS

Place of Business includes a place from where the business isordinarily carried on and includes a warehouse, a godown or anyother place where a taxable person stores his goods, provides orreceives goods and / or services or where he maintains his books ofaccounts or where he is engaged in business through an agent -section 2 (75)

Reverse charge means the liability to pay tax by the recipientinstead of the supplier in respect of such categories of supplies asnotified under section 7(3) – section 2 (85)

Supply means the supply as per section 3 – section 2(92) Valid return means return filed with payment of full tax as self

assessed as per the said return – section 2 (106) r/w section 27(3)

WHO IS ELIGIBLE FOR ITC Every registered taxable person - section 16(1) A person who has applied for registration within 30 days of

becoming liable for registration - section 16(2): entitled to ITC of input tax in respect of goods held in stock* (inputs as

such and inputs contained in semi-finished or finished goods) held instock on the day immediately preceding the date from which hebecomes liable to pay tax

A person who has taken voluntary registration u/s 19(3) - section16(2A): entitled to ITC of input tax in respect of goods held in stock* on the

day immediately preceding the date of registration A person switching over to normal scheme from composition

scheme u/s 8 - section 16(3): entitled to ITC of input tax in respect of goods held in stock* on the

day immediately preceding the date from which he becomes liable topay tax as normal taxpayer

FEATURES OF ITC PROVISIONS…. Full ITC allowed on capital goods in one go ITC of input tax paid on goods and / or services used

for making taxable supplies by a taxable personallowed subject to fulfillment of four conditions –section 16(11): he should be in possession of tax paying document issued by a

supplier; he has received the goods and / or services; the tax charged on such supply has been actually paid to the

government; he has furnished the return

ITC entitlement only on receipt of last lot of goodswhere goods are received in lots / instalments –proviso to section 16(11)

….FEATURES OF ITC PROVISIONS….

Normally the ITC would be admissible onlywhen the goods and / or services have beenreceived by the taxable person

Explanation to section 16(11) provides fordealing with “Bill to Ship to” Model: Taxable person would be deemed to have

received the goods where the goods are deliveredby the supplier to a recipient / any other personon the direction of such taxable person, whetheracting as an agent or otherwise, before or duringmovement of goods, either by way of transfer ofdocuments of title to goods or otherwise


Transfer of ITC permitted in case of change inconstitution due to sale, merger, amalgamationetc. with specific provision for transfer ofliabilities - section 16 (8)

No ITC on an invoice after the expiry of one yearfrom the date of issue of such invoice - section 16(3A)

No ITC beyond September of the following FY towhich invoice pertains or date of filing of annualreturn, whichever is earlier - section 16 (15) No change in return is permitted after September of next

FY or filing of annual return whichever is earlier


Proportionate ITC allowed: where goods and/or services are partly used for

business and non- business purposes - section 16(5)

where goods and/or services are partly used fortaxable and non-taxable (including exempt butexcluding zero-rated) supplies - section 16 (6)

ITC not allowed, in case of capital goods, to theextent depreciation is claimed on taxcomponent of capital goods under Income TaxAct - section 16 (10)


Reversal / Payment of ITC on switching over fromnormal to composition scheme or taxable goodsand / or services becoming exempt - section 16(12)

Reversal / Payment of ITC or payment of tax on TV,whichever is higher, in case of supply of capitalgoods on which ITC was availed - section 16 (14)

Recovery of wrongly availed ITC – section 16(16)r/w section 51


ITC available only on provisional basis on the basisof the return filed under section 27 – section 28 ITC cannot be utilized by the recipient until a valid return

has been filed by him ITC allowed for a period of two months until

payment of tax and filing of valid return by thesupplier – section 29

ITC to be confirmed only after matching ofsupplier’s and recipient’s invoice details– section 29


ITC as self assessed in return to be credited toelectronic credit ledger – section 35(2)/ 7(2) of IGSTAct

ITC can be used for making payment of tax only –section 35(4) / 7(4) of IGST Act

Manner of utilization of ITC – section 35(5) / 7(5) ofIGST Act: ITC of IGST can be utilized towards payment of IGST,

CGST and SGST in that order ITC of CGST can be utilized towards payment of CGST and

IGST in that order ITC of SGST can be utilized towards payment of SGST and

IGST in that order No cross-utilization of CGST and SGST credits

….FEATURES OF ITC PROVISIONS

Unutilized ITC can be claimed as refund incertain situations – section 38(2) in case of exports of goods and / or services except

where exported goods are subject to export duty in case where rate of tax on inputs is higher than

rate of tax on output In other cases, unutilized ITC to be carried

forward

COMPARISONS. No. Particulars Intra-State Inter-state

Present GST Present GST

1. Initial Value 100.00 100.00 100.00 100.00

2. Centre’s Tax (Excise Duty) 11.00 12.10 11.00 12.22

3. State (X)’s Tax

13.31 12.10

11.00 1.10

4. State (y)’s Tax 16.91 12.22

5. State’s Total Tax 13.31 12.10 27.91 13.32

6. Total Tax paid to Govt. 24.31 24.20 38.91 25.54

7. Non-Vatable Tax borne by

Business

11.00 0.00 25.00 1.10

8. Total Tax paid by Consumer 13.31 24.20 13.91 24.44

9. Final value paid by Consumer 146.41 145.20 152.97 146.65