What is Input Tax Credit?
Input credit implies that at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.
When you buy a product/service from a registered dealer you pay taxes on the purchase. On selling, you collect tax. You adjust the taxes paid at the time of purchase with the amount of output tax and the balance liability of tax has to be paid to the government. This mechanism is called utilization of input tax credit.
What is the time limit to avail GST ITC?
ITC can be availed by a registered taxable person in a specific manner and within a specified time frame. The following are the different situations wherein the inputs can be claimed for semi-finished goods or stock or finished goods.
1. If a person has applied for registration or is liable to register or is granted registration then – Day from when he is liable to pay taxes.
2. When a person takes voluntary registration – Registration day.
3. When a taxable registered person stops paying taxes in composition levy scheme then day from when he is liable to pay tax normally u/s 7.
Input tax credit for these situations can be claimed only if it doesn’t exceed one year from the tax invoice date of issue related to supply.
For other cases, ITC should be claimed:
Before you file a valid return for the September month u/s 27 days after the end of financial year to which the invoice is related, or
Before you file the annual return, as u/s 30 days, the due date to file the annual return is December 31 after the end of the financial year.
The pre-requisites for availing credit by registered person are:
a. He is in possession of tax invoice or any other specified tax paying document.
b. He has received the goods or services. “Bill to ship” scenarios also included.
c. Tax is actually paid by the supplier.
d. He has furnished the return.
e. If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.
f. He should pay the supplier, the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.
Documents on the basis of which credit can be availed are:
a. Invoice issued by a supplier of goods or services or both
b. Invoice issued by recipient alongwith proof of payment of tax
c. A debit note issued by supplier
d. Bill of entry or similar document prescribed under Customs Act
e. Revised invoice
f. Document issued by Input Service Distributor
The protocol to avail and utilise the credit of these taxes is as follows:
Sl. No. Nature Of ITC First Utilized Against Remaining Utilized against
1. IGST IGST CGST
(in above order)
2. CGST CGST IGST
3. SGST SGST IGST
Conclusively, credit of CGST cannot be utilized for paying SGST/UTGST and credit of SGST/UTGST cannot be utilized for paying CGST.
There are certain Items prescribed in the GST Law on which ITC cannot be claimed:-
• Motor Vehicle (Except when supplied in the usual course of the business or used to provide services of transportation)
• Capital Goods as described under Chapter 82,84,85,90 of the GST Law.
• Following Goods/Services when used for personal consumption:-
Food & Beverages
Cosmetics & Plastic Surgery
Membership Of a Club
Health &Fitness Centre
• Goods/Services on which Tax Levy has been paid by the supplier