Input Tax Credit (ITC) under Goods & Service Tax (GST) (2024)

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1. What is Input tax credit

2. Set off of different components of GST

As per rule 88A in the CGST Rules input tax credit of Integrated tax may be utilized for payment of Central tax and State tax/Union territory tax, in any order subject to the condition that the entire input tax credit on account of Integrated tax is completely exhausted first before utilization of the input tax credit of Central tax or State / Union territory tax. The order of utilization of input tax credit will be as per the order (of numerals) given below:

Some important points to be kept in mind

• IGST ITC has to be first utilized for payment of IGST liability and the remaining balance of IGST ITC can be used towards payment of CGST/SGST liability in any order or proportion. Further IGST ITC to be utilized fully before utilization of any other credit.
• Credit of CGST cannot be used for payment of SGST/UTGST and credit of SGST / UTGST cannot be utilised for payment of CGST.

3. When Input Tax Credit is not allowed

Input tax credit is not allowed in following cases

• Goods and services not intended to be used “in the course of business” or “for furtherance of business”
• when final supply is exempt
• goods and/or services on which tax has been paid under composition scheme
• If depreciation has been claimed on the tax component of a capital goods
• Goods/ Services used for Personal Consumption
• Any tax paid due to Non-payment of tax, Short payment of tax or Excessive Refund
• ITC utilised or availed by way of Fraud, Will-full mis-statements or Suppression of Facts

Further input tax credit is not allowed on following items:

• Food & Beverages, Outdoor Catering, Beauty Treatment, Health Services, Cosmetic & Plastic Surgery except when the goods and/or services are availed to deliver the same category of services or as a part of composite supply
• Membership of Club or Fitness Centre or Health Centre
• Credit on Motor Vehicles/Vessels and aircraft and expenses related to them (i.e. insurance, servicing and repair and maintenance) except when they are supplied in the “normal course of business” or are used for providing “Transportation of goods or Passengers”, or “Imparting Training on Motor Driving Skills”
• Rent-a-Cab service, Health Insurance and Life Insurance except when the Govt. makes it obligatory for the employers to provide it to their employees, or where the goods and/or services are taken to deliver the same category of services or as a part of composite supply
• Travel Benefits to Employees. Eg: Leave Travel Allowance
• Works Contract Services, when supplied for the Construction of Immovable Property except when a) Works Contract Services supplied for Construction of Plant & Machinery or b) One Works Contract Service is input for another works contract service c) When the value of works contract services is not capitalized, ITC is allowed to all the recipients irrespective of their line of business.
• Goods and/or Services for Construction of Immovable Property, whether to be used for Personal or Business use
• Goods/ Services received by a Non-Resident Taxable person except for Goods imported by a Non-Resident taxable person
• Goods which are lost/ stolen/ destroyed/ written off/ disposed of by gift/ free sample

4. Conditions for Claiming Input Tax Credit under GST

Only a Registered Person can claim the benefit of Input Tax Credit of GST subject to fulfilment of the following conditions:-

• He is in possession of Tax Invoice or any other specified tax paid document
• He has received the goods or services. “Bill to ship” scenarios also included
• Tax charged in respect of such supply has been actually paid by the supplier
• He has furnished the prescribed GST returns
• Where the goods against an invoice are received in lots or instalments, the registered taxable person shall be entitled to take credit upon receipt of the last lot or instalment.
• Input tax credit is allowed only on purchases made for selling taxable or zero rated goods or services. ITC is not allowed for purchases made for exempted supplies or for Non business purpose.
• The payment should be made within 180 days from the date of issue of invoice. If payment is not made within 180 days, the amount of credit availed by the recipient is required to be added to his output tax liability along with prescribed interest. However, once the amount is paid to supplier, the recipient would be entitled to avail the credit again. In case of part payment, proportionate credit would be allowed. This condition of payment of value of supply plus tax within 180 days does not apply in the following situations :Supplies on which tax is payable under reverse charge
• Deemed supplies without consideration
• Addition made to the value of supplies on account of supplier’s liability, in relation to such supplies being incurred by the recipient of the supply (i.e. expense incurred on behalf of recipient of the supply)

5. Time limit to avail Input credit

ITC is not allowed after any of the following:

• due date of return for month of September of next financial year
• annual return filed for relevant year (Filing date, not due date)

Time limit does not apply to claim for re availing of credit that had been reversed due to non-payment of amount to supplier within 180 days.

6. Documents on the basis of which the ITC can be claimed

• Invoice issued by supplier of goods or services or both
• Invoice issued by Recipient along with proof of payment of Tax
• A Debit note issued by the supplier
• Bill of entry or similar document prescribed under the Customs Act
• Revised Invoice
• Document issued by the Input Service Distributer

7. ITC on capital goods and its reversal on sale

• ITC taken on such capital goods less 5 percentage points per quarter of a year or part thereof from the date of invoice
• Sale price of capital goods multiplied by GST rate

Where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined.

8. Input Tax Credit in case of Imports

9. Special circ*mstances under which ITC is available

• A person who has applied for GST Registration within 30 days of becoming liable for Registration is entitled to claim ITC in respect of goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax
• A person who has taken voluntary registration under section 23(3) of the CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day immediately preceding the date of registration
• A person switching over to the normal scheme from the composition scheme under the section10 is entitled to ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as a normal taxpayer
• Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) relatable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply subject to reductions for the earlier usage as prescribed in the rules
• ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier
• In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilised ITC shall be allowed to be transferred to the transferee

10. Other Relevant Points regarding GST Input Tax Credit

• If the tax paid on inputs is more than the tax paid on output, the ITC can either be carried forward or claimed as refund in accordance with provision of law.
• The balance tax after claiming the input tax credit is need to be deposited with the appropriate authority by the 20th of the next month in prescribed manner.
• The GST paid under the Reverse Charge Mechanism can also be claimed as Input Tax Credit
• A person switching over from composition scheme under section 10 to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) as well as capital goods will have to be paid.