Input Tax Credit Rules for GST
Input Tax Credit is important under GST. Below is a brief and Attached are the rules.
Input tax credit (ITC) is one of the core concepts of the GST framework. ITC is the credit of the GST into the account of the buyer of goods or services. It equals the amount already charged by the supplier from the buyer as tax and paid to the Government. This tax paid by the seller makes the buyer eligible to claim input tax credit of an equal amount.
To understand how the ITC works, consider a simple buy-sell transaction. Firm A buys fabric of worth ₹100 from Firm B for making, say, a shirt. GST on the fabric is 5 per cent. Firm A pays ₹105 to Firm B. Firm B has to pay ₹5 to the Government as GST. When Firm B has paid the GST, firm A will get the input tax credit of ₹5. Firm A can use this credit to pay GST on the shirt.
Essential conditions
Here, both the supplier and the recipient should be registered under GST. Every registered firm is entitled to take ITC on inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax.
A firm can take credit of input tax on inputs even if the inputs or capital goods are directly sent to a job worker for job-work without their being first brought to its place of business. ITC cannot be claimed by a firm registered as a composition tax payer.
If goods and/or services are used by a firm partly for the purpose of any business and partly for other purposes, the amount of credit will be restricted to so much of the input tax as is attributable to the purposes of his business.
ITC can be availed on the taxable and zero-rated supplies. It is not available on non-taxable supplies, exempt supplies and nil-rated supplies. ITC is also not available on many types of specific supplies.
These include: (I) Supplies made after one year from the date of issue of tax invoice relating to such supply; (II) supply of motor vehicles except when for commercial purposes; (IV) supply of food and beverages, outdoor catering, beauty treatment, health services except where such supplies are used by a GT-registered firm for making an outward taxable supply of the same category of goods or services; (V) membership to a club, health and fitness centre; (VI) goods or services received by a taxable person for construction of an immovable property on his own account.
Core concerns
What is the core concern of many firms on ITC?
There will always be cases where the seller charges a price from the buyer that includes the GST. But the seller does not pay this tax to the Government. In such cases, the buyer will suffer as he cannot claim input credit even though he has paid full price that includes the tax.
So, post-GST, a buyer has to worry not only about his business but also ensure that his business partners pay tax and file returns on time. For the Government, this self-policing policy ensures that the tax is paid by someone in the value chain
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Oct 31
Thanks. I would suggest that there should be some mechanism to ensure that MRP/GST is not highly inflated. A couple of days ago I purchased a pouch of Coconut Oil (1 litre). The MRP mentioned is Rs.250. I was charged Rs.180. The normal price of coconut oil in Mumbai is around Rs.130-140. Obviously the MRP is a highly exaggerated rate. Would the Ministry look into this. Individual representation to the Govt is seldom taken note of or acted upon. I request the Local Circle take it up with the Department. Thanks.
Jul 05
There is one major difference as far as dealers are concerned. All those who were not getting Input credit for excise and for purchases from across the states by paying CST will now get full Input credit against the GST paid against purchases.
Jul 04
Sir can you just educate us on what is the basic difference between VAT and GST as far as input tax credit is concerned.
Jul 04
VAT has since been merged into GST
Jul 04
Rightly said.
No difference to tax payers. Perhaps politician may find it different. Example till 30.06.17, if AAP wants to start some scheme in Delhi as they are in power, it can impose some tax and that is the end of story, now they have to go to BJP (party at center) to release the fund. How tax payers are going to be benefited?
The point of interest is not how we collect the tax, but what we do with it. We should work on ground reality rather that lip service.
No difference to tax payers. Perhaps politician may find it different. Example till 30.06.17, if AAP wants to start some scheme in Delhi as they are in power, it can impose some tax and that is the end of story, now they have to go to BJP (party at center) to release the fund. How tax payers are going to be benefited?
The point of interest is not how we collect the tax, but what we do with it. We should work on ground reality rather that lip service.
Jul 04
