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Input Tax Credit: How To Claim It Under GST?

Since GST has been discussed across the country, the input tax credit is also discussed at same level. In essence, ITC is very important part of GST. One of the main reasons, why GST is good for nation is, the smooth flow of input tax credit across all the level i.e From manufacture to consumer and across every states.

Input tax credit is a tax already paid by a person on purchase of input and which can be reduced from the tax payable is referred as input tax credit. Input Tax Credit refers to ability to reduce the tax you paid on input while paying tax on output. In short business can reduce their tax liability on purchases by claiming credit to the extent of GST.

Manufacturer, agent, supplier and any legal entity included in ITC mechanism , will be eligible for claiming input tax credit for the tax paid on input (on purchase of goods and service ). Supplier need to provide documents like bill of entry or similar documents for claiming the tax credit also the supplier can claim for input credit on last lot only, in case inputs are received in lots.

How Does ITC Work

When trader sell a good to consumers he collects the GST based on HSN code of goods sold and the place where it is sold. Let Suppose that Mrp of goods is Rs 200 and rate of GST applicable is 18 % then consumer will pay, therefore, pay a total of Rs 236 for the good which include GST of 36Rs. Without ITC, trader has to pay 36 Rs to government. With input tax credit, trader can reduce the amount to be paid to government.

Now trader sells good for Rs 400 with GST of 18 %. Therefore trader receive Rs 472
Final tax trader will pay to government = Output tax Input tax = 72 -36 = 36 .So trader will pay Rs 36 to government after using the credit

Eligibility and Conditions To Claim Input Tax Credit

As per section 16 of CGST act following conditions that you must meet as a supplier of goods and service
  • Registered under GST law
  • As per section 39 you should file returns.
  • One should be registered taxable person .
  • ITC should be claimed within time limit.
  • ITC cannot be availed if depreciation has been claimed on tax part of cost of capital goods.
  • ITC can be claimed if there is actual receipt of goods and service.
  • ITC needs to be paid through electronic credit.
  • Input tax credit can be claimed only, if goods and service is used for business purpose.

Documents Required For Claiming ITC Under GST

  1. Invoice issued by supplier of goods and service.
  2. Debit note issued by the supplier in which tax charged is lesser than the tax paid on such supply.
  3. Document related to integrated tax on imports, bill of entry or similar documents are also required.
  4. As per the rule . credit note issued by input service distributor is also required.

When Does One Become Eligible To Claim ITC Under GST

  1. If one become liable to register under GST:
    One can avail ITC on inputs and inputs available in semi-finished or finished goods in stock. It happen only when one apply for registration within thirty days from the day one become liable to register.
     
  2. If one willingly apply for registration;
     If one willingly apply for registration then can claim ITC on the goods in the stock one day before one is granted registration.
     
  3. If one become regular dealer from composition scheme:
    If the aggregate turnover crosses INR 50 Lakhs then one has to become regular dealer and move away from composition scheme. After becoming regular dealer, one can avail ITC on inputs, capital goods , all goods in stock on day before one become elgible to pay tax.
     
  4. Goods and services used partly for business:
    ITC can be availed for only that part of goods and service that are used for business but not for any other purposes.
     
  5. When sale, transfer, merger, demerger of business occur:
    if any of such occurs one can transfer the ITC which is not used to the sold, mergered, demerged business.
     
  6. When goods are goods are received in installment:
    one can avail ITC only upon receipt of last installment

When does one become not eligible to claim ITC under GST

  1. Registration not applied withim the due time:- If one has not applied for registration within thirty days from the date one become liable to register then one will lose the eligible ITC on inputs.
  2. After the Time duration for claiming ITC is passed :-ITC must be claimed within the following dates:
    1. One year from issue of invoice.
    2. Due date for filling annual return ie 31st dec of next financial year.
  3. If payment is not received on supplies within the due time period;- If the receiver of the goods has not made payment,along with the tax within three months then ITC will be added to recipient's liability with due interest.
  4. On motor vehicle and other conveyance:- ITC is not claimed on motor vehicle and any conveyance unless vehicle is used for transportation of passengers or goods or vehicle is used for training on driving, flying or navigating such vehicle.

A supply bill by a dealer opting for a composition scheme or an exporter or a supplier of the  exempted goods

Claiming Of ITC Under Special Cases

  1. Goods sent to job worker:
    When goods are sent to job worker for further processing, in case you as a primary manufacturer, you can claim ITC against the taxes paid purchase of goods sent to job worker.ITC can be claimed also when goods are sold through job worker directly without bringing goods back to business place. But good should be sold or brought back within one year for normal goods and within three years in case of capital goods.
     
  2. Capital Goods;
    ITC can be claimed on in-supply of capital goods but itc is not allowed if depreciation is claimed also itc is not be claimed for capital goods for non business and capital goods for making exempted goods.
     
  3. Sale, Merger, amalgamation.or transfer of business:
    in this case there is change in the constitution of person due to such change in the business . transferor in such cases can pass untilised ITC to the transferee.
     
  4. Input service distributor (ISD);
    ISD refers to the office that receive multiple bills from the supplier for the supply of goods and service to the company. ISD can claim input tax credit for the inward supply and it distribute to beneficiary units on the basis of units of last year turn over

Conclusion
In this article we have discussed about input tax credit and the claim process under Indian GST. Input credit is very good way of increasing the taxpayer base also it very beneficial for the business as it reduce the tax liability by claiming the credit available of the tax received on the output of the stock . Input credit has made very easy for the business also it is very convenient for the government but this input tax credit is available to you only when you are covered under the GST act.

This means you are manufacturer of goods , supplier of goods , agent of selling ,e- commerce operator for product distribution registered under GST, you are eligible to claim input tax credit under GST for tax paid by you on your purchases.

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