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Maximize your business profits with smart Input Tax Credit (ITC) management. Learn from GST advisors how to claim eligible ITC and reduce your overall tax liability. Consult GST Advisor or GST Consultants Udaipur.

Meaning

‘Input Tax Credit’ means the Goods and Service Tax  (GST) paid by a taxable person for any purchase of goods and/or services. Such GST paid (ITC) can be reduced from the GST payable on the sales from the tax payable or will be used for business.  

The  credit mechanism under GST allowed  to businessmen to claim input tax credits at every stage  of business  so as to eliminate the  cascading effect of taxes,  which in turn helps the businessman  to manage their day-to-day operations and cash flow management  as well as it increase the  transparency in the tax system. Failing to avail input tax credit can be major set back in any business. Therefore, businesses man must understand the terminology of ITC.

What is Input Tax Credit?

Input tax credit (ITC) is part of the GST Act which ensures that tax is levied by the businessman on value addition during the business on the chain of supply. The credit for taxes paid on inputs, capital goods, or input services against the output tax payable are available under the GST Regime.

From the government’s point of view, adhering to the procedures and restrictions as mentioned in the GST law ensures uninterrupted tax collection and credit being granted to businessman through the procedure, thereby preventing misuse.

The ITC is available only on satisfaction following both conditions.

1. Pre-requisite conditions and
2. Subsequent conditions.

1. Prerequisite conditions

The entity having an active GST registration will be entitled to avail the input tax credit for the goods/services procured is related to business purposes or capital goods used in for the business purpose. Once this main condition is satisfied, taxpayers should ensure that the following parameters are met out.

i. Documentary evidence

The main condition for ailing ITC is valid documentary evidence, including tax invoices, debit notes, and bills of entry. Further the tax invoice should comply with the e-invoicing requirements, as applicable. 

If the supply is subject to reverse charge, a self-invoice would suffice as a valid document for availing credit.

ii. Receipt of goods or services

The recipient must have received the goods or services. However, if the invoice related to the previous month, but the actual receipt of material is in the subsequent month, the ITC of such material will be available in the subsequent month.

iii. Supplier’s compliance with GST regulations 

The tax charged from the recipient must be deposited by the seller, in the government’s account.  

The denial of credit due to the supplier’s default, often leading to litigation and filing of writ petition in the courts.  

iv. Compliances of information in the GST return 

ITC depends upon the information provided by the supplier in its monthly GST compliances via Form GSTR-1. Thus, recipients can claim credit only for the relevant month’s invoices reflected in their Form GSTR-2A/2B.

v. Filing of return

The recipient must file the GST returns for availing credit of eligible input tax.

•  Subsequent Conditions
  • i. Payment to the supplier within 180 days

The buyer must pay to the supplier of goods and/or services within 180 days from the invoice date. If buyer of goods /services they fail to, then the ITC already claimed will need to be paid to the government, along with interest payable under Section 50

This condition is, however, not applicable in case of reverse charge transactions, import of goods, and transactions between related parties and distinct persons

ii. ITC is not blocked or ineligible

Taxpayers should ensure ITC claims do not fall under the category of ‘blocked credit’ as specified under GST.

iii. Time limit for claiming of input tax credit

Availment of ITC pertaining to a financial year till 30 November of the subsequent year or the date of annual return, whichever is earlier.

Explanation: – Even though all the prescribed conditions are satisfied, any unclaimed ITC beyond the specified time frame will lapse and become unavailable for utilisation.

iv. Carry forward of ITC

If ITC claimed exceeds the GST output tax liability, taxpayers can carry forward such accumulated ITC over subsequent financial years without any time limit. 

Briefly he following points should be kept in mind  to claim an input tax credit under GST

Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered buyers to claim ITC. The conditions are summarized as follows:

• Such input tax credit is eligible for claims if the goods or services purchased are further used for business purposes and not personal use.
• Buyer must hold such tax invoice or debit note or document evidencing payment towards the purchase.
• Such tax invoice or debit note is filed by the supplier in Form GSTR-1 and it appears in the buyer’s Form GSTR-2B. 
• The buyer has received the goods and/or services.
• The buyer must furnish the GST returns in Form GSTR-3B. 
• Where the goods are received in lots or instalments, ITC will be allowed to be availed when the last lot or instalment is received.
• The buyer must pay towards the supply of goods and/or services within 180 days from the invoice date. If they fail to, then the ITC already claimed will need to be paid to the government, along with interest payable under Section 50.
• No ITC will be allowed if depreciation has been claimed on the tax component of a capital good purchased. 
• ITC on a tax invoice or debit note belonging to a financial year must be claimed within the time limit given by the GST provisions.

Boost your bottom line with strategic Input Tax Credit (ITC) utilization. Availing the ITC is an ambiguous process . Our GST consultants reveal insider tips to claim ITC and improve your cash flow. Consult GST Consultants or GST Advisor in Udaipur.