Input Tax Credit Under GST
Posted by Swarit Advisors on July 3rd, 2020
Goods and Service Tax or GST Act is one of the significant reforms in the Indian Financial Sector. However, the feature that became the talk of the town was the mechanism of Input Tax Credit (ITC). ITC means a person while paying tax on sales can reduce the tax already paid at the time of purchase.
In this learning blog, we will thoroughly discuss the concept of Input Tax Credit (ITC) and how to claim and calculate ITC.
Concept of ITC
ITC means reducing the amount of tax paid on Inputs (purchases) from the amount of tax to be paid on output (sales). When any goods or services are supplied to a taxable person, the GST Rates levied are known as Input Tax Credit.
For instance: The tax payable on Output (sale) is Rs 450 and tax payable on Input (purchase) is Rs 300. In this situation, a manufacturer can claim ITC on Rs 300 and needs to deposit on Rs 150
The concept of ITC is not new to our country, as it existed in the pre-GST regime as well. However, the scope ITC has now been widened under the Goods and Services Act . Earlier, a manufacturer was not eligible to claim an input tax credit for the different types of taxes as follows:
Who can claim ITC?
An ITC can be claimed by any person Register under GST if he satisfies all the conditions as follows:
However, any person registered under the Composition Scheme is not liable to pay tax.
What can be claimed as ITC?
A taxable person can claim ITC only for business purposes. That means a person cannot claim ITC on the goods or services as follows:
What is the time-limit to avail ITC?
A registered person needs to claim ITC in a specific manner and time frame. Further, the table given below shows the different situations in which the ITC can be claimed for finished or semi-finished goods:
In these situations, the registered dealer can claim ITC only if one year has not passed from the date on which the invoice concerning supply was issued. For any other case, the Input Tax Credit can be claimed earlier of the following:
How to Claim Input Tax Credit?
All the regular taxpayers need to report the amount of ITC in their monthly GST returns in Form GSTR-3B. Table 4 needs a summary figure of the eligible and ineligible ITC along with ITC reversed during the tax period. The specimen of Table 4 is provided below:
A registered taxpayer is eligible to claim ITC on a provisional basis in the form GSTR-3B. He can claim ITC up to 20% of the eligible ITC reported by suppliers in an auto-generated GSTR 2A return. Therefore, a taxpayer must verify the figures of GSTR 2A before filling GSTR 3B.
Normally, a taxpayer was eligible to claim provisional ITC till 09.10.2019. However, as per the new CBIC ruling, from 09.10.2019, a taxpayer cannot claim more than 20% of the eligible ITC. That means from 09.10.2019, GSTR 3B will be the total of the actual ITC in GSTR 2A and the provisional ITC in the GSTR-2A. Thus, matching of the expense ledger or purchase register with the GSTR-2A becomes crucial.
Reversal of Input Tax Credit
In India, the situations on which the ITC will be reversed can be summarised as:
Further, the details of the reversal of ITC must be furnished in GSTR-3B. Moreover, the ITC claimed by the taxable person must match with the details submitted by the supplier in his GST return. However, if there is a mismatch, the authorities would ask the recipient and supplier to file returns again.
Documents Needed for Claiming ITC
In India, the documents needed for claiming ITC can be summarised as:
Eligible and Ineligible Claims of ITC
The purchases eligible to claim ITC benefits can be summarised as:
The situations in which one can claim ITC benefits can be summarised as:
The Implementation of GST has changed the dynamics of Indian Indirect Taxation. Input Tax Credit acts as one of the prime features of the Act, as it assists in eliminating the cascading effect of taxes.
However, there are various conditions and restrictions imposed to avail the benefit of ITC. That means there is a need to abide by the several documents and the other criteria required. Our GST experts at Swarit Advisors will help you with in-depth knowledge and endless assistance on the concept of Input Tax Credit.
About the AuthorSwarit Advisors
Joined: June 29th, 2020
Articles Posted: 1
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