Wednesday, January 4, 2017

gst input tax credit

GST Input Tax Credit Utilization Rules

Goods and Service Tax Input Tax Credit utilization shall be made in the following order:

In GST Act: Section 49 (5) (a)
  • IGST credit to set-off IGST liability.
  • IGST credit, if available, to set-off CGST liability, if any.
  • IGST credit, if available, to set-off SGST liability, if any.

In GST Act: Section 49 (5) (b)

  • CGST credit to set-off CGST liability.
  • CGST credit, if available, to set-off IGST liability, if any.

In GST Act: Section 49 (5) (b) 

  • SGST/UTGST credit to set-off SGST/UTGST liability.
  • SGST/UTGST credit, if available to set-off IGST liability, if any.

In GST Act:  Section 49 (e & f): 

  • No cross utilization of credit between CGST & SGST.


  1. Introduction
  2. ITC related Concepts
  3. Persons eligible for ITC
  4. Features of ITC Provisions
  5. Apportionment of Credit & Blocked Credits
  6. Claim of ITC & Provisional Acceptance
  7. Matching, reversal & reclaim of ITC
1. Introduction to ITC

> "Input Tax" in relation to a taxable person, means
  • The IGST (including that on import of goods),
  • CGST and SGST
  • charged on any supply of goods or services to him
It thus includes:
  • Basket of CGST & IGST under CGST Act
  • Basket of SGST & IGST under SGST Act
  • Basket of IGST, CGST & SGST under IGST Act

2. ITC related Concepts

GST Input [Sec 2(52)]:
  • Any goods other than capital goods (specified under section 2(19))
  • Used or intended to be used by supplier
  • In the course or furtherance of business
GST Input services [Sec 2(53)]:
  • Any services
  • Used or intended to be used by supplier
  • In the course or furtherance of business
GST Input tax [Sec 2(55)]: 
  • Tax charged on supply of goods and/or services
  • Includes tax paid on reverse charge basis
GST Output Tax [Sec 2(71)]:
  • Tax chargeable on taxable supply of goods and/or services made by him or his agent
  • Excludes tax payable on reverse charge basis
Reverse Charge [Sec 2(87)]:
  • The liability to pay tax by the recipient instead of the supplier in respect of categories of supplies as notified under sec 8(3)
Input Tax Credit [Sec 2(56)]:
  • Credit of input tax
Electronic credit ledger [Sec 2(43)]:
  • ITC ledger in electronic form maintained at GSTN
Non availability of ITC [sec 17(4)]:
  • Negative list
Miscellaneous concepts:
Valid return Sec 2(109): Return furnished under Section 34 (1) on which self assessed tax has been paid in full.

Place of Business Sec 2(74): Includes a place from where a business is carried on and includes a warehouse, a godown or any other place where a taxable person stores his goods, provides or receives goods and/or services or where he maintains his books of accounts or where he is engaged in business through an agent.

3. Eligibility for ITC

> Every registered Taxable person – Section 16 (1)
> Availability of credit in special circumstances – section 18
  1. New registrant within 30 days of liability of registration
  2. Person who has taken voluntary registration
  3. Person switching over to normal scheme from composition scheme
  4. Exempt supplies becoming taxable when handled by a registered taxable person
  5. ITC not entitled after the expiry of one year from the date of issue of tax invoice
  6. In case of change in constitution on account of sale, merger, demerger, amalgamation, etc unutilized ITC can be transferred to the new incumbent
  7. If shifted from normal to composition scheme or taxable supplies become exempt supplies then ITC to be debited in the electronic credit ledger
  8. Amount payable under 7 shall be prescribed
  9. Manner of calculation of ITC under 1,2,3 & 4 shall be prescribed 
  10. In case of capital goods or plant and machinery, on availment of ITC, an amount equal to ITC taken reduced by the percentage points as may be specified in this behalf or the tax on the transaction value whichever is higher to be paid.
4. Features of ITC Provisions

> Full ITC allowed on Capital goods in one go. [Sec 16(1)]
  • Exception: Pipelines and telecommunication towers fixed to earth by foundation or structural support – ITC in 3 instalments
> No registered taxable person shall be entitled to the credit of any input tax unless [Sec 16(2)]:
  • He is in possession of a tax invoice or debit note or other tax paying document as may be prescribed
  • He has received goods and/or services
  • Tax charged on such supply has been actually paid to the account of government either in cash or through utilisation of Input tax credit admissable
  • A return has been furnished under section 34 Provided that:
  • Only on receipt of last lot of goods in case of lots/instalments
  • Where a recipient fails to pay to the supplier of services within a period of three months, an amount equal to the ITC availed by the recipient shall be added to his output tax liability, along with interest thereon, in the manner as may be prescribed.
> Explanation for dealing with “Bill to Ship to Model:
  • Taxable person would be deemed to have received the goods where the goods are delivered by the supplier to a recipient / any other person on the direction of such taxable person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise
> No ITC
  • On Capital goods, to the extent depreciation is claimed on tax component of capital goods under Income tax act - Sec 16(3)
  • on an invoice after the expiry of one year from the date of issue of such invoice - Sec 16(4)
  • Beyond September of the following FY to which invoice pertains or date of filing of annual return whichever is earlier
> Recovery of wrongly availed ITC and interest thereon - Section 19
> ITC in respect of inputs sent for Job Works – Section 20
> Manner of distribution of credit by ISD – Section 21
> Manner of recovery of credit distributed in excess by an ISD – Section 22

5. Apportionment of Credit & Blocked Credits - Sec 17

  1. When goods and/or services are used partly for business and partly for other purposes – ITC attributable to the business is allowed
  2. When goods and/or services are used partly for taxable supply and partly for exempt supplies – ITC attributable to taxable supplies is allowed
  3. Special Provisions for banking companies – option to avail 50% of ITC everymonth
  4. Negative list goods
Notification to be issued prescribing manner for attribution of ITC under 1 & 2 above

Negative List Goods: Sec 17(4)
  1. Motor vehicles & other conveyances subject to exceptions x`
  2. Supply of goods & services for food and beverages, beauty treatment, health services, outdoor catering; membership of a club, health & fitness centre; rent-a-cab, life insurance, etc; travel benefit extended to employees or home travel concession 
  3. Works contract services when supplied for construction of immovable property
  4. Goods and/or services received by a taxable person for construction of an immovable property on his own account other than plant and machinery even when used in course or furtherance of business (Construction & Plant and Machinery defined)
  5. Goods and/ or services on which tax paid under composition
  6. Goods and/ or services used for personal consumption
  7. Goods lost, stolen, destroyed, written off or disposed off by way of gift or free samples
  8. Tax paid in terms of section 67 (erroneous payment), section 89 (detention, seizure & release of goods) and section 90 (confiscation of goods)
6. Claim of ITC & Provisional Acceptance - Sec 34

  1. ITC available subject to such conditions and restrictions as may be prescribed to take credit as self assessed in the return and such amount shall be credited on  provisional basis to the electronic credit ledger
  2. ITC shall be utilised only for payment of self assessed output tax liability

7. Matching, reversal & reclaim of ITC

Thanking you
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