Input Tax Credit – Filing Champs

Features

GST Input Tax Credit Reconciliation

Input Credit Reconcillation

Inr 3500/- (Excl Taxes)

Basic

GST Input Tax Credit Reconciliation

What is input tax credit?

Definition: Input tax credit (ITC) refers to the GST paid by a registered person on purchases of goods or services.
Components Covered: It includes CGST, SGST, IGST, or cess paid on goods or services, including reverse charge tax and IGST on imports. However, tax paid under the composite taxation scheme is excluded.
Purpose: Businesses use input tax credit to reduce their tax liability when making sales. This helps in avoiding double taxation and ensures fairness in the tax system.
Value-Added Principle: GST is levied based on the value added at each stage of the supply chain before reaching the consumer.
Balancing Tax Debt: Input tax credit balances out the tax paid on purchases of raw materials, consumables, machinery, etc., to prevent cascading taxation effects.
Neutrality in Tax Incidence: By utilizing input tax credit, businesses ensure that the tax element doesn’t inflate the cost of production or supply, achieving neutrality in tax incidence.

Eligibility criteria for Input tax credit

Who can claim input tax credit?

Only individuals registered under GST can claim input tax credit if they fulfill the following conditions:

GST Registration and GSTR 2 Filing: The person must have GST registration and have filed GSTR 2 returns.
Possession of Tax Invoice or Debit Note: The dealer should possess the tax invoice or debit note issued by the supplier of input or input services.
Receipt of Goods or Services: The goods or services (or both) should be received by the claimant.
Supplier’s GST Payment: The supplier must have made the GST payment charged to the government for such supply.
Installment Receipt: If goods are received in installments, input tax credit can only be claimed when the last lot is received.
No Depreciation Claimed on Tax Component: Input tax credit is not allowed if depreciation has been claimed on the tax component of a capital good.

Documents required for claiming GST Input tax credit

Invoice from Supplier: An invoice issued by the supplier of goods or services.
Invoice from Recipient (Under Reverse Charge Mechanism): An invoice issued by the recipient for goods and services supplied by an unregistered dealer, falling under the reverse charge mechanism.
Debit Note from Supplier: A debit note issued by the supplier if the tax charged is less than the tax payable for the supply.
Bill of Entry or Similar Documents for Imports: A bill of entry or similar documents for imports, documenting integrated tax.
Invoice or Credit Note from Input Service Distributor: An invoice or credit note issued by an input service distributor as per GST rules.
Supply Bill from Dealer Opting for Composition Scheme or Exporter: A supply bill from a dealer opting for a composition scheme, exporter, or supplier of exempted goods.

Basic requisites for claiming the input tax credit

GST Registration: The individual must be registered under the GST law.
Tax Invoice or Debit Note: A tax invoice or debit note issued by the registered supplier, indicating the tax amount.
Receipt of Goods or Service: The goods or services must be received by the claimant.
Supplier’s Tax Payment: The supplier must file returns and pay the tax to the government.
Claim on Last Lot or Installment: For goods received in parts or installments, input tax credit can be claimed upon receipt of the last lot or installment.
No Input Tax Credit with Depreciation Claim: Input tax credit is disallowed if included in the cost of capital goods and depreciation on tax is claimed.
Timely Claim: Input tax credit must be claimed within the prescribed time to be eligible.

Claiming the Input tax credit

Disclosure in GSTR 3B: Ordinary taxpayers must disclose the amount in the GSTR 3B form.
Provisional Claim in GSTR 3B: Taxpayers can provisionally claim input tax credit in GSTR 3B for up to 20% of the valid ITC recorded in the auto-generated GSTR 2A return by the supplier.
Verification of GSTR 2A Data: Taxpayers should verify the GSTR 2A data before proceeding with GSTR 3B.
Limitation on Provisional Claim: Since October 9, 2019, taxpayers can only claim 20% of the eligible ITC available in GSTR 2A as provisional input tax credit.
Calculation of Input Tax Credit in GSTR 3B: The input tax credit recorded in GSTR 3B is the sum of actual ITC in GSTR 2A and provisional ITC, which is 20% of the actual eligible ITC in GSTR 2A.
Matching with GSTR 2A: Purchase registration must match with the GSTR 2A for eligibility.

Reversal of Input Tax Credit

Non-Payment to Supplier: Input tax credit must be reversed if the supplier is not paid within 180 days from the invoice date.
Personal Use of Goods or Services: If goods or services are used for personal purposes, input tax credit must be reversed.
Use for Exempted Goods or Services: Input tax credit must be reversed if goods or services are used for producing or supplying exempted goods or services.
Sale of Capital Goods: Input tax credit claimed on capital goods or machinery must be reversed if sold.
Issuance of Credit Notes: Input tax credit must be reversed if credit notes are issued by the input service distributor.
Ineligibility Under Section 17(5) of the Act: Input tax credit must be reversed if supplies are ineligible under section 17(5) of the Act.
Transition to Composition Dealer: Input tax credit must be reversed if transitioning from a regular dealer to a composite dealer.
Treatment of Reversed Amount: Reversed amount may be added to the output tax liability in the month of reversal.
Interest Payment: Interest is payable from the date the credit is availed until the date it is reversed and paid.
No Time Limit for Reclaiming Reversed Credit: There is no time limit for reclaiming reversed credit.

Availing credit under Reverse Charge Mechanism

Claiming Credit: To claim credit under the Reverse Charge Mechanism, follow these steps
Cash Payment: Ensure the liability is discharged through cash.
Business Use: Confirm that the goods or services were utilized for business purposes.
Self-Invoicing: Perform self-invoicing for purchases from unregistered suppliers since they cannot issue tax invoices.

Reconciliation of Input tax credit

Input Tax Credit (ITC) for Capital Goods:

ITC isn’t given for capital items used solely to make items that are exempted from tax or for personal purposes.
ITC is allowed only if depreciation is claimed on the tax component of capital items.

Input Tax Credit for Job Work:

A manufacturer can send goods for further processing to a job worker.
ITC is permitted on goods sent to the job worker if:
- Sent from the main place of business or directly from the supplier’s location.
- Goods are received back by the manufacturer within 1 year.

Input Tax Credit from Input Service Distributor (ISD):

An ISD, like a company’s head, branch, or registered office, collects and distributes input tax credit among recipients.

Input Tax Credit on Business Transfer:

Applies to amalgamations, mergers, and business transfers.
The transferor retains available input tax credit, which is transferred to the transferee during the business transfer.

Goods and Services not eligible for Input Tax Credit

Motor vehicles aren’t eligible for input tax credit under GST, except when used for specific business purposes like transporting passengers or goods, providing training, or further supplying such vehicles.
Input tax credit isn’t available for goods and services related to food and beverages, outdoor catering, beauty treatment, health services, cosmetics, and plastic surgery, unless used by a registered taxable person for making an outward taxable supply of the same category of service.
Membership fees for clubs, health and fitness centers, rent-a-cab services, life insurance, and health insurance aren’t eligible for input tax credit, except when legally required by an employer.
Travel benefits provided to employees during vacations, such as leave or home travel concession, don’t qualify for input tax credit.
Goods and services received for constructing immovable property, other than plant and machinery, aren’t eligible for input tax credit unless they are input services for the delivery of works contract service.
Goods and services used for constructing an immovable property on behalf of a taxable person, excluding plant and machinery, don’t qualify for input tax credit even if used in business.
Input tax credit isn’t available on goods and services taxed under the composition scheme, for personal consumption, or for goods lost, stolen, written off, or disposed of by gift or free samples.
Tax paid after detection of fraud, wilful misstatement, or suppression, as well as tax paid for the release of detained, seized, or confiscated goods, doesn’t qualify for input tax credit.