What is Input Tax Credit
Input Tax Credit is available on Inputs, Input Services and Capital goods used in the course or furtherance of business. Input has been defined in CGST Act as under:
(59) “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business;
Input Service has been defined in Section 2 of CGST Act as under:
(60) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;
Capital Goods has been defined in Section 2 of CGST Act as under:
(19) “capital goods” means goods, the value of which is capitalised in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
Manner of utilization of Input Tax Credit
The Input Tax Credit under the different GST Laws can be adjusted in the following manner:
It is important to note that input tax credit of CGST is not available against the output tax liability of SGST tax. Accordingly, input tax credit of SGST is not available against the output tax liability of CGST tax.
Allowability of Input tax credit
|Purpose for which Goods and Services Supplied
||Taxability of Goods or Services Sold
||Input Tax Credit
|Partly Taxable and Partly Exempt
||Allowed relating to Taxable Portion
Conditions for availing Input Tax Credit
Section 16(2) of CGST Act provides for conditions for availing input tax credit. Following are the conditions prescribed for availing input tax credit :
- Person must be a registered person
- The goods or services must have been acquired in the course or furtherance of the business.
- He is in possession of a Tax invoice or debit note issued by registered supplier
- Goods or services or both has been received by purchaser. Further, if the goods or services or both are received by agent of receipient or some other person on directions of receipient than also it is considered as deemed to be received by receipient. Where goods are received in lots, input tax credit is allowed only when final lot is received from supplier.
- Tax charged by supplier has been paid to government in cash or by utilizing input tax credit
- Receipient has furnished the return. It is pertinent to note that at present laws of Excise, Service Tax and VAT Input tax is allowed without the condition of filling return. However, in present GST law if input tax credit is not claimed in return the same cannot be allowed later.
- Paymemt has to be made by receipient of goods or services or both within 180 days from the date of issue of invoice. Otherwise receipient has to reverse amount equal to input tax credit availed on such supplies and added to its output tax liability. However, when receipient made the payment to supplierhe can further avail input tax credit on the same.
- When depreciation is claimed by receipient on tax component, than the amount of input tax that is claimed as depreciation is not allowed as input tax credit.
- Input tax credit is not allowed in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing the return for the month of September following the end of the financial year to which such invoice or invoice relating to such debit not pertains or furnishing of relevamnt annual return whichever is earlier.
Input Tax Credit not allowed in certain cases:
Credit related to motor vehicles
Credit shall not be available in respect of motor vehicles and other conveyance, except when they are supplied in the usual course of business or are used for providing the following taxable services—
(i) Further supply of such vehicles or conveyance
(ii) transportation of passengers, or
(iii) transportation of goods, or
(iv) imparting training on motor driving skills;
It is important to note that the term “in respect of” makes the scope of this disallowance wide and thus, the disallowance shall not be restricted to cost of motor vehicle but anything related to such vehicle such as insurance, maintainence, repair etc.
Input Services used for making taxable supply of same category
Credit shall not be available goods and / or services provided in relation to outdoor catering, beauty treatment, health services, cosmetic and plastic surgery where inward supply of Goods or services or both of a particular category is used by registered person for making an outward taxable taxable supply of the same category of goods or services or both
Demerit category of supplies
Credit shall not be available on input services of Membership of a club, health and fitness centre irrespective of its use or necessity in the business of Person
Input services used for provision of same output services
Input credit shall not be allowed on Rent A Cab, Health insurance and life insurance services except where :
Such inward supply is used by registered person in making an outward supply of the same category of goods or services or both.
Employee related input Services
Credit shall not be available on input services of Rent A Cab, Health insurance and life insurance services except where Government notifies the services which are obligatory for an employer to provide to employees under any law for the time being in force. Also, no Credit shall be allowed on Travel benefits extended to employees on vacation such as home travel concession.
In relation to immovable property
Input tax credit shall not be allowed on Goods and/or services acquired by the principal in the execution of works contract when such contract results in construction/re construction/ renovation/ alteration/ repairs of immovable property, other than plant and machinery. However, when it is input service for further supply of work contract service input tax credit is allowed. Similarly, goods or services or both acquired by a registered person for the construction/re construction/ renovation/ alteration/ repairs of immovable property including that used for furtherance of business or commerce.
It is impotant to note that Plant & Machinery means apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes:
- Land, building or any other civil structures
- Telecommunication towers
- Pipeline laid outside factory premises.
No Input tax credit shall be available on goods or services or both on which tax has been paid under composition schems (section 10)
Input tax credit to non resident
No Input tax credit shall be available on goods or services or both received by non resident taxable person except for the goods imported by him.
Input tax credit on goods stolen etc.
No Input tax credit shall be available on Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
Input tax credit when tax paid on detection
No Input tax credit shall be available when Tax was paid in relation to detention, seizure, confiscation and credit wrongly availed by way of fraud, collusion or willful misstatement or suppression of facts under section 74, 129 and 130 of CGST Act, 2017.
Registration under GST
Every taxable person shall be required to take registration in the states in which he has a place of business. Though he shall not be required to take separate registration for each of such premises which falls within the same state. Also, a choice has been given to the taxable person that he can obtain separate registration for each of his business segment. Some of the salient features of registration are as under:
- PAN based Registration: PAN will be mandatory
- Unified application to both tax authorities
- To be filed within 30 days
- State-wise registration for entities having presence in more than one State; Need not apply separately for each State
- Deemed approval within three days
- Within a PAN, separate registration for separate business segments possible
Every registered person shall get a GSTIN for each of his registration. GSTIN shall be same for registration under the two Acts. GSTIN is built as under: