Input Tax Credit under GST

Topics covered in this article are as follows:

1. Introduction
2. Meaning of Input Tax Credit
3. Conditions to Claim ITC
4. Blocking of ITC
5. Reversal of ITC in Certain Situations
6. Proportionate ITC in case of Exempt Supplies

1. What is Input Tax Credit in GST

The input tax credit is the core concept of GST as it removes the cascading effect of taxes. A registered person is entitled to avail of the credit of GST paid on input goods or services and capital goods subject to certain exceptions and fulfillment of certain conditions. The input tax credit can be utilized by the registered person for payment of output tax on goods or services supplied by him.

2. Input Tax Credit Meaning

Input tax credit (ITC) means the credit of taxes paid on inputs, capital goods, and input services. The input tax in relation to a registered person, means the Central-tax (CGST), State-tax (SGST), Integrated-tax (IGST), Union Territory Tax (UTGST) and Compensation Cess charged on any supply of goods or services. It also includes the IGST paid on import of goods and the tax payable under the reverse charge mechanism but excludes tax paid under composition levy.

Taxmann's GST Input Tax Credit provides complete guidance on Input Tax Credit, Refund of Input Tax Credit & Export issues relating to Input Tax Credit. It also incorporates various issues related to Input Tax Credit such as availment, reversal, refund, etc.

3. Conditions to Claim ITC

A registered person is entitled to take the credit of input tax paid on any goods or services purchased by him and which are used or intended to be used in the course or furtherance of business. However, the credit of taxes paid shall be available only if the following conditions are satisfied:

1. 1. The recipient can claim the input tax credit only if he is in possession of a valid tax-paid document issued by a registered supplier.
   2. The Input tax credit is allowed when the recipient, or any other person as directed by the recipient, i.e., agent or job worker, etc., receives such goods or services. If advance payment has been made by him for goods or services, then input tax credit shall not be allowed to him until goods or services are received.
   3. The input tax credit is allowed provided the taxes charged in respect of such supply are deposited by the supplier to the credit of the Government
   4. The filing of a GST return by a supplier is mandatory for the recipient to claim the credit of input tax paid on goods or services supplied to him.

Dive Deeper:
Ready Reckoner on Input Tax Credit under GST
Decoding Input Tax Credit (ITC) under GST
Understanding GST Input Tax Credit & Blocked Credits

4. Blocking of ITC

In general, a registered person is entitled to avail of the credit of taxes paid by him on inward supplies received by him. However, there are certain goods and services which are not eligible for the input tax credit, i.e., items of personal consumption, membership of club, health and fitness services, etc.

5. Reversal of ITC in Certain Situations

The recipient shall be liable to reverse the input tax credit, already availed by him if he does not make the payment to the supplier towards the value of goods or services along with tax payable thereon within a period of 180 days. On reversal of input tax credit, the recipient shall also be liable to pay interest on the amount of credit so reversed. The recipient can re-avail the input tax credit when he makes the payment towards the value of goods or services along with tax payable thereon.

Also, there are certain circumstances in which a registered person is liable to reverse the ITC claimed by him, inter-alia, a supplier opts for composition scheme, capital goods are sold, registration is canceled, etc. In these circumstances, the supplier is required to reverse the credit within the specified time period in the manner prescribed. If he fails to reverse such credit, he shall be liable for payment of interest and penalty in addition to the amount of ITC to be reversed.

6. Proportionate ITC in case of Exempt Supplies

A registered person can not avail the credit of the taxes paid in respect of goods or services which are not wholly and exclusively used for making taxable output supplies. If an entity has common inputs for making both taxable and exempt supplies, the tax credit shall be allowed only for that input that has been used for making taxable supplies. In other words, if output supplies are both taxable and exempt, the supplier can only take proportionate credit of common inputs.

Dive Deeper:
GST Input Tax Credit – Definitions and Conditions for Claiming GST ITC
Practical FAQs on Input Tax Credit under GST