Know the key terms related to Input Tax Credit under GST and the valid conditions under which you can claim your credit. Read more in this guide by earlyGST

Guide on Input Tax Credit under GST Regime in India

Last Update Date : January 11, 2018

GST is set to revolutionise the Indian indirect taxation and Input Tax Credit is one of the key features, which will help in eliminating the cascading effect of taxes. This guide will help you in understanding everything you want to know about ITC under GST.

What is Input Tax Credit?

When you buy raw materials as inputs to create and sell your product, you pay tax on the material/ input. So when you are required to pay tax on the finished good/ output, you can reduce the tax that you already paid on the materials and just pay the remaining tax liability.

Key Terms Related to Input Tax Credit under GST India

What is Input?

Under GST law, the term input denotes goods except capital goods used by a supplier during his/her business to make outward supplies.

What is Input Service?

This term denotes any service used by a supplier during his/her business to generate supplies outwards.

What is Input Tax?

Input tax is a tax imposed on the person when he/she receives supply of goods & services which are used for his business.

What is Electronic Credit Ledger?

It is like a passbook containing all the credits you have accumulated that is maintained on the common portal.

What is Electronic Cash Ledger?

Similar to a passbook, which contains all the taxes you have paid on the supplies that is maintained at the common portal for each taxable person registered under GST.

How & When can you Claim your Input Tax Credit?

Conditions for Entitlement of Input Tax Credit under GST

You can be entitled for Input Tax Credit if you satisfy the below mentioned conditions:

  • You must be registered as a taxable person under GST
  • Goods & services on which you want to claim ITC, should have been used only for business purposes
  • ITC can be claimed on taxable & zero rated supplies (exports).
  • If the constitution of registered taxable person changes due to sale, merger or transfer of business, then unused ITC shall be transferred to the sold, merged or transferred business
  • You can credit ITC in your Electronic credit Ledger on the common portal in a provisional manner as prescribed in the model GST law.
  • To claim ITC, you need supporting documents like tax invoice, debit note, supplementary invoice, etc.
  • You can claim ITC, if you have actually received some goods & services.
  • To claim ITC, the Input Tax must be paid through electronic cash ledger or electronic credit ledger.
  • It is mandatory to file all the applicable GST returns under section 27 like GST-1, 2, 2A, 6, 6A, 7, 7A.
  • For goods which are received in lots, you can claim ITC only after you have received the final lot.

ITC is Not Available to be Claimed in the Following Cases, u/s 16(9):

  • You cannot claim ITC for goods & services used for personal purposes.
  • If you have acquired goods & services under a contract which results in contraction of immovable property other than plant & machinery.
  • If you have paid tax on goods & services under GST composition scheme.
  • If goods & services have been used to build immovable property other than plant & machinery & such property is not transferred.
  • Such goods & services which have been used by employees for their personal consumption.
  • If depreciation has been claimed on the cost of capital goods, then they are not eligible for Input Tax credit.

Time Limit for Availing GST Input Tax Credit in India

A registered taxable person can get ITC in the prescribed time and manner. In the table given below, you can see different situations in which inputs can be claimed for stock or semi-finished goods, or finished goods.

Situation

Details

Day on which ITC can be claimed for stock, SFG or FG (held on immediately preceeding day)
1 If a person is liable to registration, or applied for registration, or is granted registration The day from which he becomes liable to pay tax
2 If a person takes voluntary registration The day of registration
3 A registered taxable person who stops paying tax under composition levy scheme The day from which he becomes liable to tax normally (u/s 7)

Other conditions:

ITC mentioned for above situations can be claimed only within one year from the date of issue of tax invoice relating to supply.
In any other case, the last date to claim ITC is earlier of the two below:

  • Before filing of valid return for the month of September (under section 27) following the end of F.Y. to which such invoice is related, or
  • Before filing of the annual return

Note: As per section 30, the last date for filing of annual return is 31st December following the end of the financial year.