At ProfitBooks, we are committed to make taxation simple for small business owners in India. Since GST is set to replace various indirect taxes, we have started this series on frequently asked questions on GST. This article is next in this series.
Earlier, we had covered Levy and Exceptions under GST and Tax payments under GST. In this article, we have covered common questions regarding input tax credit under GST regime.
1) What is input tax?
“Input tax” has been defined under GST Law. Input tax in relation to a taxable person, means the (IGST and CGST) in respect of CGST Act and (IGST and SGST) in respect of SGST Act, charged on any supply of goods and/or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under sub-section (3) of section 7.
Under the IGST Act, input tax is defined as IGST, CGST or SGST charged on any supply of goods and/or services.
In simple words, Input Tax Credit means reducing the taxes paid on inputs from taxes to be paid on output.
2) What is the implication of different definition of “input tax” in three acts like CGST, SGST and IGST Acts?
It implies that input tax consists of IGST & CGST in CGST Act and IGST & SGST in SGST Act. In the IGST Act, input tax consists of all three taxes namely, IGST, CGST, and SGST. Input Credit Can be set off against:
IGST, CGST, and SGST
IGST & CGST
IGST & SGST
It further implies that credit of all three can be used for discharging IGST liability, whereas only credit of IGST & CGST can be taken in CGST Act and that of IGST & SGST can be taken under SGST Act. Further, the credit of CGST & SGST cannot be cross-utilized.
3) Can GST paid on reverse charge be considered as input tax?
Yes. The definition of input tax includes the tax payable under reverse charge. The credit can be availed if such goods and/or services are used, or are intended to be used, in the course or furtherance of his business.
4) Does input tax include tax (CGST/ IGST/SGST) paid on input goods, input services and/ or capital goods?
Yes, it may be noted that credit of tax paid on capital goods also is permitted to be availed in one installment.
5) What is the ITC entitlement of a person who has applied for registration under the Act within thirty days from the date on which he becomes liable to registration and has been granted such registration?
He shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act. It may be noted that the credit on pre-registration stock would not be admissible if the registration has not been obtained within a period of 30 days from the date on which he becomes liable to registration.
A person becomes liable to pay tax on 1st August, 2017 and has obtained registration on 15th August, 2017. Such person is eligible for input tax credit on inputs held in stock as on 31st July, 2017.
6) What is the eligibility of input tax credit on inputs in stock for a person who obtains voluntary registration?
The person who obtains voluntary registration is entitled to take the input tax credit of input tax on inputs in stock, inputs in semi-finished goods and finished goods in stock, held on the day immediately preceding the date of registration.
7) Where goods and/or services received by a taxable person are used for effecting both taxable and non-taxable supplies, whether the input tax credit is available to the registered taxable person?
The input tax credit of goods and / service attributable to only taxable supplies can be taken by the registered taxable person. The amount of eligible credit would be calculated in a manner to be prescribed under GST law and rules. It is important to note that credit on capital goods also would now be permitted on a proportionate basis.
8) Where goods and/or services received by a taxable person are used for the purpose of business and non-business supplies, whether the input tax credit is available to the registered taxable person?
The input tax credit for goods and / service attributable to only supplies effected for business purpose can be taken by the registered taxable person. The amount of eligible credit would be calculated in a manner to be prescribed under GST Law and rules. It is important to note that credit on capital goods also would now be permitted on a proportionate basis.
9) What would be input tax eligibility in cases where there is a change in the constitution of a registered taxable person?
The transferor shall be allowed to transfer the input tax credit that remains unutilized in its books of accounts to the transferee provided that there is a specific provision for transfer of liabilities.
10) What would be input tax eligibility in a case where the goods and/or services supplied by a registered taxable person become absolutely exempt?
The registered taxable person who supplies goods and / services which become absolutely exempt has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such exemption.
It has also been provided that after payment of the amount on such goods, the balance if any available in electronic credit ledger would lapse.
11) What would be input tax eligibility in cases where the taxable person paying tax under section 7 opts to pay tax under Compounding Scheme under Section 10?
The registered taxable person, who was paying tax under section 7 opts to pay tax under Compounding Scheme under Section 10, has to pay an amount equivalent to the input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of such switch over.
It has also been provided that after payment of the amount on such goods, the balance if any available in electronic credit ledger would lapse.
12) A dealer paying tax on compounding basis crosses the compounding threshold and becomes a regular taxable person. Can he avail ITC and if so from what date?
The dealer can avail ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under section 7.
13) Mr. B, a registered taxable person was paying tax under composition rate up to 30th July, 2017. However, w.e.f 31st July, 2017. Mr. B becomes liable to pay tax under the regular scheme. Is he eligible for ITC?
Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 30th July,2017.
14) Mr. A applies for voluntary registration on 5th June, 2017 and obtained registration on 22nd June, 2017. As on which date Mr. A is eligible for input tax credit on inputs in stock?
Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 21st June, 2017.
15) Whether the principal is eligible to avail input tax credit of inputs sent to job worker for job work?
Yes, the principal is eligible to avail the input tax credit on inputs sent to job worker for job work.
16) What is the time period within which the inputs sent for job work has to be received back by the principal?
The time period for this is 180 days. The principal has to reverse the credit along with interest on inputs which have not been received back from job worker within 180 days but he can reclaim the credit on receipt of inputs.
17) Which type of supplies is included for computation of taxable supplies for the purpose of availing credit? Zero-rated supplies, Exempt supplies or both?
In this case, Zero-rated supplies are included for the calculation.
18) What is the time period within which the capital goods sent for job work has to be received back by the principal?
The time period for this is two years.
19) What documents are needed for claiming ITC?
Bill of entry
Invoice issued under reverse charge mechanism
Document issued by the ISD
20) What is the liability of the principal if the capital goods sent to job worker have not been received within 2 years from the date of being sent?
The principal has to pay an amount equal to credit taken on such capital goods along with interest. But he can reclaim the credit on receipt of inputs.
21) A Taxable person is in the business of information technology. He buys a motor vehicle for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such motor vehicle?
ITC on motor vehicles can be availed only if the taxable person is in the business of transport of passengers or goods or is providing the services of imparting training on motor vehicles.
22) Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act, 1961, will ITC be allowed in such cases?
The input tax credit shall not be allowed on the said tax component which is depreciated.
23) What are the conditions necessary for obtaining ITC?
As per GST Law, following four conditions are stipulated:
(a) The registered taxable person should be in possession of tax paying document issued by a supplier;
(b) The taxable person must have received the goods and / services;
(c) The tax charged on such supply has been actually paid to the government either in cash or through utilization of input tax credit; and
(d) The taxable person should have furnished the return
24) Where the goods against an invoice are received in lots or installments, how will a registered taxable person be entitled to ITC?
The registered taxable person shall be entitled to the credit upon receipt of the last lot or installment.
25) Who will get the ITC where goods have been delivered to a person other than the taxable person (‘bill to’- ‘ship to’ scenarios)?
For this purpose of receiving the goods, it would be deemed that the taxable person has received the goods when the goods have been delivered to a third party in the direction of such taxable person. So ITC will be available to the person on whose order the goods are delivered to the third person.
26) What is the time limit for taking ITC?
ITC cannot be taken beyond the month of September of the following FY to which invoice pertains or date of filing of an annual return, whichever is earlier.
The underlying reasoning for this restriction is that no change in return is permitted after September of next FY. If annual return is filed before the month of September then no change can be made after filing of an annual return.
27) Is there any negative list on which ITC is not permitted?
It has been provided that the ITC on following items cannot be availed:
(a) motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services—
(i) transportation of passengers, or
(ii) transportation of goods, or
(iii) imparting training on motor driving skills;
(b) goods and / or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness center, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/ or services are used primarily for personal use or consumption of any employee;
(c) goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;
(d) goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery;
(e) goods and/or services on which tax has been paid under section 8; and
(f) goods and/or services used for private or personal consumption, to the extent they are so consumed.
28) GST Law provides that the ITC would be confirmed only if the inward details filed by the recipient are matched with the outward details furnished by the supplier in his valid return. What happens if there is a mismatch?
In case of the mismatch between the inward and outward details, the supplier would be required to rectify the mismatch within a period of two months and if the mismatch continues, the ITC would have to be reversed by the recipient.
29) What will be the tax impact when capital goods on which ITC has been taken are supplied by the taxable person?
In case of supply of capital goods on which input tax credit has been taken, the registered taxable person shall pay an amount equal to the input tax credit taken on the said capital goods reduced by the percentage points as may be specified in this behalf or the tax on the transaction value of such capital goods, whichever is higher.
30) What is the recovery mechanism for wrongly availed credit?
The wrongly availed credit would be recovered from the registered taxable person under section 73 and 74 of CGST Act.
Is Your Business Ready For GST?
If you are running your business in India, its important for your to become GST compliant. At ProfitBooks, our aim is to simplify GST for business owners. That’s why we’ve built a super simple accounting software to create GST compliant invoices, record expenses, track inventory and finally automatically prepare GST-ready tax returns.
We’ve a network of chartered accountants who can help you with your tax questions for free. Over 10,000 business use ProfitBooks daily to manage their finances. Signing up takes just 2 minutes.
Try ProfitBooks Free Today
I hope you find this article helpful. Please feel free to ask questions or share your thoughts in the comments section below.
All about Goods and Service Tax (GST) In India
20 Tax saving tips for business owners
How to separate personal & business expenses
Tips for maintaining positive cashflow
Can my Company take input on car/tempo/bus hire which is used to provide transportation to my clients and the same is added to the total cost billed to my client?
My vendor charges me 5% GST for vehicle hire
Similarly, If I pay for my client’s in room dining and other food bills and if the same is charged back to the client, can I claim input credit on the food and beverages bill?
Can a work contractor claim ITC on GST paid in Employees Compensation insurance policy related to contract work?
if u r are ssi then u can avail 100 percent itc of cg
only expenses are allowed for deduction which is related to business and professional at alm as per income tax act, 1961 provision.
itc can be utilised for discharging gst liability
yes subject to the condition you are not providing exempted service and supply of good.
yes subject to the condition you are not providing exempted service and supply of goods.
I have purchased mobile phones for company use. Is I can take ITC as expenses or capital goods. If take capital goods, is it possible one time ITC
Is the Service Tax available before GST regime can be utilised as input tax credit only against CGST liability payment or it can be set off against both CGST & SGST?
Sir whether ITC on purchase before Date of Registration, is available?
Can we avail July Input GST in September month? If we forgot to claim in July month.
sir the supplier is not mentioned my GSTIN on invoive how can i get input credit on that invoice
I have GST on insurance premium paid on my factory building. can I get the ITC for the same
capital good purchase gst input same years
A car purchased in the name of company used by director of company. Tyre of the car were changed post GST. We have Bill in name of company GSTIN. My supplier of Tyre has also reported in the same in his GSTR-1 which is reflecting in my GSTR-2. Question is this purchase of repair & maintenance expense on car eligible for ITC or not? Have confusion under section 17(5).
SIR WHEN WE SERVING AS A SUB DEALER OF CARS (BOOKING AND MARKETING OF CARS)
AND IF WE PURCHASED DEMO CAR FOR THAT, CAN WE AVAIL ITC AS PER GST SECTION 16.
suppose i purchase a printer and a software for my office use by providing my firms gstin from other state will i get tax credit input
I got my GSTIN in 20th August and updated the same to my vendor, what about the IGST that was paid by me to my vendor during the period Jul to 20th Aug i.e before getting GSTIN, am I eligible to get that Input Tax Credit and how.
In case of B2B. We understand that Input Credit on food and beverages not available. However since restaurant supply is under different head, will input credit available?
we are in service industry, we are buying two wheeler(Bike’s) to our employees for client visit and attending service call’s. How to claim the Puraches GST tax while filing monthly return.
I have capital goods balance of 4 Crore with 200 Excise Invoices from 2013-2016 period , how we can fill details of 200 invoices in Portal
What will happen when supplier not mentioned the GST number of receiver/purchaser in the invoice? What steps should take by the purchaser/receiver to get the ITC.
WHEN GST MERGE WITH INCOME TAX , THEN YOU CAN TAKE ITC, ALL THE BESE
i want to know bins and carton box gst credit is eligible or not, under dealer/Depot gst registration
could you please tell me the conditions?
The input credit on stock as on 30/6/17 – what is the time limit?
Yes , u can subject to conditions
No, u cant get refund because bangles are exempt or 0% tax rate… and ITC cant be avaied on zero rated
what is the treatments if gst is paid on construction of immovable property?? can i claim it has ineligible input tax and treat it has revenue?
I have purchased a scanner for my business purpose if the same is treated as a fixed asset – input credit can be taken in full. please explain
i have business of bangles which are tax free under gst but raw material for the same is taxable at 18% under gst will i be getting the refund of the input tax paid on raw material?
Can i avail Input Credit on GST paid for Business Expenses like Rent, consumables etc??
In turnkey project business, we used bought items on which earlier we were not allowed to take CENVAT. Now with GST can we avail input tax credit for bought out items.
You will add your margin on the cost of medicine excluding Tax as GST paid on purchased stock is not your cost and will claim credit on the sale of the item. Your net tax liability shall be the difference of output GST and input GST.
Yes, as it is used as an input in your office.
Yes bcoz spareparts are being used as an input in the course of furtherance of your business
I am Register Dealer , I Taxable Purchase on Composition Scheme Dealer, So I will take ITC that transaction
Dear sir please can we get input tax credit on repairing of computer and new installation of software in computer for company use?
I am Medical Shop owner. Can i avail Input Tax credit on my purchase
Hallo Sir, Can i get ITc on Printing & stationary bills
I am a shop owner , already registered with GST. I purchased a laptop from ecommerce website. Invoice includes 18% IGST taxes. I will be using it on shop for billing purpose. Can i take input tax credit for the tax paid on the laptop.
any relevant provision regarding the same
Forget ITC .. If i made expenses on behalf of Company on card . in this connection can i book expenses.
Then what kind of ITC Benefit can i get since i have huge fleet and paying around 1.8 lakh – 2lakh Servicetax wvery month
Nice Question. Under GST scheme you are not going to receive any input tax credit. But you can raise your question to our honorable PM to kindly look at this aspect also as you have already paid income tax on your salary then why should you pay GST on the purchase of any goods from that “already tax paid amount”. Hope for the Best.
Bill for only 9 items and pay GST on same only.
For free stock No Input tax credit can be claimed
Model GST Law
Yes. But not on the amount of GST paid on food.
I am a fleet owner providing service in good transport agency can i avail input tax credit on the Spareparts which i use in maintenance of my truck
suppose i go to a register hotel and there i receive service regarding room and also food and gst charge on it. bu
t as per law i can not claim input regarding the same. now my question is in case i go to some unregister hotel and receive same said above service and then i have to pay tax in reverse charge mechnism. should i can claim input regarding the same.
Sir, what does mean by MGL?
I need to have clarity on free goods issue to the retailer. We use give 1 case free for every 10 case to my distributor and same way he use to bill 1 case free to every 10 cases for the retailer. In some case if retailer buy only 9 cases, distributor use to give case discount equivalent to free issue value. Now after GST 1. how should be distributor need to do the billing for the retailer who buys 9 case. 2. What should he do with free stock he gets from the company.
We are a manufacturer. Can we adjust the GST credit of misc. supplies which is not directly supporting the mfg. activity. (ex. Gifts to employees, Stationery, Hygiene Materials etc.,)
If I am Director of the company . and I used my personal cerdit card for Business purpose.So is my expenses is allow in business ? and can i take ITC?.
Hi, in new GST scheme, how can i claim input tax credit on my mobile and internet bill and also for restraunt bills for business meetings?
I am an IT employee and I pay tax every year properly. Do I get any benefit from GST like If i buy any goods using my already tax paid money ?
For example : If i buy mobile / Car , tax deducted as GST will they input back to my account ? If so how this process works ?
We have a stock of 10 crore purchase before 30th Jun,2017. If we will sell this stock in July onwards how much tax we have to pay is it full GST Value or can we get the any type of input credit for such stock….
can we avail 100% cenvat credit on purchase of capital goods in the month of June 2017
Do I get credit of sgst and cgst paid on air conditioner and printers used in my office?
Availability of ITC paid under reverse charge to GTA
there might be input tax credit on other than opening stock during the previous year then what about such input tax credit .can we claim such itc or it is only available on opening stock.
EX:A trader has a input tax credit of 2 crores during the year end bu input tax credit on opening stock is only 50 lakhs
he might lose
such 1.5 crore input tax credit
can a hosiery manufacturer claim ITC on their existing stock as per GST Rules.
we provide rent a cab service, suppose if we chose to charge 5% GST to our clients in which we cannot take input credit & if my vendor is charging me 5% or 18% Gst so does it becomes cost for my company?????
Suppose I am a retailer of Pharmaceuticals. I have existing stock of medicine of MRP Rs 500. I purchased it at Rs 380.95 (5% tax and 20% retail margin). Now i am selling this stock during GST (assuming 20% GST rate for ease of calculation). So out of this existing MRP of 500 (which includes all taxes which were 5% before GST scenario and 20% after scenario) I will have to pay Rs 83.33 as tax. Will I get a rebate of the same or will I have to pay this additional tax from my margin?