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Input Tax Credit under GST

 


Input tax :

     In relation to a Registered person, Input Tax means the Central tax, State tax, Integrated tax or Union Territory tax charged on any supply of goods or services or both made to him and includes—

  • IGST paid on Import of goods
  • CGST,SGST/UTGST or IGST paid under Reverse Charge

Conditions for claiming Input Tax Credit (ITC):

  • Shall possess the Tax invoice or debit note.
  • Shall have received the goods or services or both.
  • Recipient shall not be a taxpayer under Composition scheme.
  • Supplier should have paid the tax and declared it in GSTR-1.
  • ITC shall be attributable to taxable supplies including zero rated supplies.

Input Tax Credit (ITC) shall not be available in respect of the following namely:

1.  Motor vehicles involved in transportation of persons having approved seating capacity of not more than 13 persons (including driver)

     However, ITC can be claimed if they are used for making taxable supplies like - 
  • further supply of such motor vehicles or
  • transportation of passengers or
  • imparting training on driving such vehicles
2.  Vessels and aircraft
     
     However, ITC can be claimed if they are used for making  –
  • Further taxable supply of such vessels or aircraft; or 
  • transportation of passengers that is taxable; or
  • imparting training on navigating such vessels that is taxable; or
  • imparting training on flying such aircraft that is taxable;
  • transportation of goods
3.  Services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles,    vessels or aircraft referred to in (1) and (2)

     However, such ITC shall be available -
  • If the motor vehicles, vessels or aircraft are used for the services specified in the respective exceptions; or
  • To the manufacture of such motor vehicles, vessels or aircraft; or
  • To the supplier of general insurance services in respect of such motor vehicles, vessels or aircraft.
4. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in (1) or clause (2) except when used for the purposes specified therein, life insurance and health insurance.

    However, ITC shall be available if the recipient registered person makes an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply.

5.  Membership of a club, health and fitness Centre.

6.  Travel benefits extended to employees on vacation such as leave or home travel concession.

    However, ITC will be available if it is an legal obligation for an employer to provide such benefits to the employees.

7.  Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;

8.  Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.

    Here, Construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property.

9.  Goods or services or both received by a non-resident taxable person except on goods imported by him.

10. Goods or services or both used for personal consumption;

11. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.

12. Taxes paid due to short payment of tax or erroneous refund or wrongly availed ITC; or taxes paid on account of detention, seizure and release of goods and conveyances in transit or tax paid on account of confiscation of goods or conveyances.

Order of Utilisation of ITC:

Sec. 49, 49A and 49B of The CGST Act, 2017 and Rule 88A of CGST Rules:
  1. ITC on account of IGST is to be utilised towards IGST liability first and in any order for discharging CGST, SGST/UTGST liabilities.
  2. After utilising complete IGST credit, ITC on account of CGST is to be used first towards CGST liability and then for IGST liability (if any).
  3. After utilising complete IGST and CGST credit, ITC on account of SGST is to be used first towards SGST liability and then for IGST liability (if any).
  4. After utilising complete IGST and CGST credit, ITC on account of UTGST is to be used first towards UTGST liability and then for IGST liability (if any).

Restrictions on availing ITC :

Rule 36(4) of CGST Rules is as follows - With effect from 01 January 2021

    Input tax credit to be availed by a registered person in respect of invoices or debit notes, the details of which have not been furnished by the suppliers in GSTR-1, shall not exceed 5% of the eligible credit available in respect of invoices or debit notes the details of which have been furnished by the suppliers in GSTR-1.

    Effective from the above date, the word “uploaded” in the rule is substituted with the word “furnished”. The relevance of the substitution is as below –

    If the suppliers upload details of invoices in GSTR-1, they will be appearing in GSTR-2A of the recipient even if the supplier did not submit the return with Digital signature or Electronic verification code (EVC) and there may be chance that recipient may claim the credit without observing the return status. In order to avoid this, the word “furnished” is used now. In short, Upload means just giving the details in GSTR-1 whereas furnishing means giving details and submitting the return with Digital signature or Electronic verification code (EVC).

Rule 36(4) of CGST Rules is as follows - With effect from 01 January 2022

    No input tax credit shall be availed by a registered person in respect of invoices or debit notes unless such details have been furnished by the supplier in GSTR-1 and communicated to the registered person in GSTR-2.


Restrictions on use of amount available in Electronic Credit Ledger :

Rule 86B of CGST Rules - With effect from 01 January 2021

    Amount available in electronic credit ledger is not to be used for discharging output tax liability in excess of 99% of such liability if value of taxable supplies other than zero rated and exempt supplies in a month exceeds Rs. 50 Lakhs.

However, this restriction will not apply where –
  • The said person or the proprietor or Karta or the managing director or any of its two partners, whole-time Directors, Members of Managing Committee of Associations or Board of Trustees, as the case may be, have paid more than one lakh rupees as income tax under the Income-tax Act, 1961(43 of 1961) in each of the last two financial years for which the time limit to file return of income under subsection (1) of section 139 of the said Act has expired; or
  • The Registered person has received a refund amount of more than Rs. 1 Lakh in the preceding financial year on account of unutilized input tax credit for zero rated supplies made without payment of tax or on account of Inverted duty structure; or
  • The Registered person has discharged his liability towards output tax through the electronic cash ledger for an amount which is in excess of 1% of the total output tax liability, applied cumulatively, upto the said month in the current financial year; or
  • The Registered person is - Government Department; or a Public Sector Undertaking; or a Local Authority; or a Statutory Body.

To access the updated CGST Act and Rules, visit the below links

The CGST Act, 2017 (as on 01st January 2022).

CGST Rules, 2017 (as on 01st January 2022).


M P Naveen Chandra

Author pursued Bachelor of Commerce from Nizam College, Hyderabad. He articulates his interests for informative purposes.

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