The process of deducting the tax paid on
inputs from the tax payable on sale of output, is known as Input Tax Credit.
Some of the
most commonly used Input Tax Credit
Rules are discussed hereunder as follows
GST
Rule No.
|
Title
of GST Rule
|
Section
under Law
|
Intent
of the Rule
|
1(1)
|
Documentary Requirements for claiming ITC
|
Section 31 & 34
|
To prescribe various documents on basis of
which ITC can be claimed
|
1(3)
|
No Input Tax Credit of GST paid under any
demand due to fraud, willful misstatement & suppression of facts.
|
||
2(1)
|
Reversal
of ITC in case of non-payment of consideration
|
Section
16(2)
|
Where a supplier has not made payment for
goods procured by it within a period
of 180 days from the date of issue of invoice, then supplier shall reverse
the ITC availed by him n such goods
|
2(2)
|
The amount of ineligible credit shall be
added to the output tax liability of the recipient
|
||
2(3)
|
Section
50(1)
|
Interest shall be payable by from the date
of availment of such ITC till the date of its addition in output tax
liability of the supplier
|
|
4
|
Procedure for Distribution of ITC by an Input Service Distributor
|
Prescribes
the procedure as well as
various conditions for distribution of ITC by Input Service Distributor
|
|
10
|
Conditions
& Restrictions in respect of inputs goods sent to the job worker
|
Section
143
|
Conditions & restriction on
availability of ITC subject to
movement of goods & compliance of various formalities.
|
1. ELIGIBILITY & CONDITIONS FOR AVAILING INPUT TAX
CREDIT
ITC Shall
Be Available Only If Following Conditions Are Satisfied:
i.
Registered Persons Only: Input Tax Credit shall only be available to
registered taxable persons only if such details as prescribed under GST Invoice
Rules are contained therein [Rule 1(2)] .
ii.
Payment to be made within 180 days: ITC on input services shall be claimed only when
payment of invoice value of such services along with tax component shall be
paid within a period of 120 days from the date of such invoice. Section 16(2) & [Rule 2(1)]
If
payment for input services have been made after expiry of 180 days from the date
of invoice, an amount equal to the input tax credit along with interest thereon
shall be added to the output tax liability of person claiming such ITC. Section 16(2) & [Rule 2(2)]
iii.
No ITC of GST paid in pursuance of any demand
raised by GST Authorities.
Where a demand has been raised on account of fraud,
willful misstatement & suppression
of facts, then any GST paid under such demand shall not be allowed as Input Tax
Credit. [Rule 1(3)]
iv.
Possession of Tax Invoice, Debit note etc: Person claiming ITC must have invoice, debit
note issued to him by the registered
taxable supplier.
v.
Receipt of entire Installments of goods: In case goods are to be received in
installments, then all the installments of such goods have been received.
vi.
Tax by
Supplier have actually been deposited to the credit of Central Govt: ITC shall be allowed only when such amount of tax has been
deposited by supplier with relevant government. One of the mechanisms to check
whether tax has actually been deposited with relevant government is through
matching of Invoices in electronic credit ledger .
Example:
If Ramesh Ltd. claimed ITC of Rs.
12,500 on purchase of goods from Shyam Ltd. then GST Electronic Credit ledger will check
whether Shyam Ltd has disclosed this sales in its return. If this transaction
is found in the return of Shyam Ltd, then GST system will treat this
transaction as matched & this credit of INR 12,500 shall be allowed to the
Ram & Co.
vii.
Furnishing of Return by the Supplier: A
registered person can claim ITC only when the supplier from whom goods have
been procured have filed his returns under GST.
2. INPUT TAX CREDIT ON GOODS SUPPLIED TO ANOTHER PERSON - CASE OF JOB WORKER [Section 143 of CGST
Act & Rule 10 ]
A person who is taxable under GST shall be eligible to claim ITC on the goods delivered to some other person if such goods are delivered on the request on the request of such taxable person. A challan shall be issued by principal manufacturer for delivery of goods to the job worker both in case of capital goods as well as inputs.
Further, details of challans of goods sent to job worker shall be included in Form GSTR1 of the principal manufacturer.
Example Principle manufacturer can claim ITC on goods delivered to a job worker on his instructions. In such a case receipt of goods by job worker will be considered as receipt of goods by principal manufacturer.
Further, goods sent to job worker shall be received back by the job worker within a period of 1year from the date of receipt of such goods, than it shall be treated as supply of goods by principal to job worker & consequently tax & interest liability shall arise for job worker.
3. CAPITAL GOODS SENT TO JOB WORKER.
Any registered taxable person who has claimed ITC on capital goods can send such capital goods directly to job worker without bringing the same to his principal place of business. Further, the capital goods so sent shall be received back by the principal manufacturer within 3 years from the date on which such goods were sent or the date of completion of job whichever is earlier otherwise it will be deemed as supply of capital goods & consequences of interest & taxes shall follow for job worker in respect of such capital goods.
The details of challans of goods sent to job worker shall also be included in Form GSTR1 of the principal manufacturer for that period.
4. INPUT TAX CREDIT ON CAPITAL GOODS.
(a) Under GST input tax credit shall be allowed in one installment provided GST component on such capital goods has not capitalized & no depreciation is claimed on such tax portion.
(b) ITC on manufacture(fabrication) of Capital Goods allowed.
If some inputs have been used for
manufacture(fabrication) of capital goods the cost of which have been
capitalized in the books of accounts then ITC shall be available in such cases
as was decided in the case of CCE , Balgaum v. Hindalco Industries Limited
(2012).
5. ITC ON GOODS PARTLY USED FOR BUSINESS
Proportionate ITC shall be allowed in cases where goods are partly used for business purposes & partly for non business purposes.
Example: Mr. X a Chartered Accountant, provides professional services to M/s ABW ltd. Further, X also provides income tax consultancy for filing ITR of director of M/s ABW ltd. Mr X raised a combined invoice of Rs. 60,000. In such cases , ITC in relation to personal ITR of director of M/s ABW Ltd shall be disallowed whether clearly identifiable in the invoice raised by Mr. X or calculation in proportionate basis whether taking hors devoted as base or any other reasonable basis.
6. AVAILABILITY OF ITC ON EXEMPT SUPPLIES.
Person making supply of exempt goods shall not be eligible to avail ITC in respect of inputs used in supply of such goods.
7. ITC IN CASE OF BANKS, FINANCIAL INSTITUTIONS, NBFC SUPPLYING EXEMPT SERVICES.
Banks, Financial Institutions, NBFC's can avail ITC by exercising any of the following two options:
a) To take proportionate ITC in proportion of
taxable services as per Section 17(2)
b) To avail 50% of ITC in all inputs, capital
goods in that particular month.
8. ITC IN CASE OF CONSTRUCTION SERVICES.
Any expenditure on construction services shall not be eligible for ITC to the extent it has been capitalized in the books of accounts. Further, any expenditure on construction activity shall be eligible for ITC provided it has not been capitalized in the books of account & consequently no depreciation has been claimed on it.
Example: Expenditure on repair & maintenance in
factory building that has been charged
to P& L account shall be eligible for ITC. Further, any capital expenditure
on construction activities which has
been capitalized in the books of accounts shall not be eligible for ITC.
9. DISTRIBUTION OF ITC BY AN INPUT SERVICE DISTRIBUTOR
a)
An input
service distributor shall distribute the ITC pertaining to a particular month
in that month only & details of such distribution shall be incorporated by
it in Form GSTR -6 [Rule 4]
b) Input Service Distributor shall distribute
the amount of Eligible & ineligible input tax credit separately which will
lead to allocation of ineligible credit to those states to which it pertains. Further, the amount of CGST, SGST
& IGST shall be separately disclosed.
c)
ITC shall be
allocated on the basis of ratio between
turnover of supplier & total
aggregate turnover.
Formula = Turnover of the supplier * Total Input Credit to be distributed
Aggregate Turnover of all Suppliers
d) If Input Service Distributor & Supplier are
located in the same state : Then
i.
CGST will be tfd as CGST
ii.
SGST will be tfd as SGST
iii.
IGST will be tfd as IGST
However, if ISD & supplier are located in different states, then CGST/IGST & SGST credit shall be tfd as IGST Credit.
e)
ISD shall
issue an ISD Invoice as prescribed under Rule 7(1) of invoice rules indicating
that such invoice is issued for
distribution of Credit only. ISD shall issue a debit note to the
respective supplier for reduction of
credit. Further any reduction in ITC shall be apportioned to the individual
supplier in the ratio in which ITC was originally distributed to the suppliers.
10. REVERSAL OF ITC UNDER GST.
Reversal of credit under GST means reversal of the credit already taken by the taxpayer. Our objective of this article is to decode the circumstances under which Input Tax Credit already availed by the taxpayer shall be reversed.
Situations under ITC under GST shall be Reversed:
i.
Supplier opting for Composition Scheme: Where a
registered person who has already availed ITC, but later opted to pay GST under
Composition Scheme, he shall pay an amount by way of debit in Electronic Cash Ledger,
equal to ITC on stock in trade & inputs forming part of stock of finished
goods held in stock including Capital Goods as may be determined in a
prescribed manner on the basis of individual invoices for inputs to be used in
manufacturing or production .
ii.
Goods or services or both procured by the
supplier becomes subsequently exempt.
In case goods procured by a
supplier becomes exempt after their procurement then , the supplier who has procured
such inputs shall be liable to reverse
the GST Input Tax Credit already availed by him in the books of accounts as
well as in the GST Returns filed by him on the basis of invoices of such inputs.
Form GST ITC-03 : ITC to be reversed in situation (i) &
(ii) shall form part of the output tax
liability of the supplier and the details of such amount shall be furnished
in FORM GST ITC-03 and the details furnished here shall be
duly certified by a practicing chartered accountant or cost
accountant.
iii.
Cancellation of registration.
In case of registered person
whose registration is cancelled, he shall be liable to pay by way of debit in
the Electronic Credit Ledger, equivalent to ITC in respect of inputs held in
stock and inputs contained in semi-finished or finished goods held in stock or
capital goods on the day immediately preceding the date of cancellation of
registration or the output tax payable on such goods, whichever is higher, as
may be determined in the prescribed manner.
FORM GST ITC- 10 : The ITC so determined to be reversed in
case of Cancellation of registration shall form part of the output tax
liability of the registered person and the details of the amount shall be
furnished in FORM GST ITC-10 and the details so furnished shall be duly
certified by a practicing chartered accountant or cost accountant.
Note: Input
Tax Credit to be reversed shall be determined on basis of market price of goods
if invoices for stock in trade are not available with the supplier.
If invoices for goods held as stock in trade
are not available with the supplier, then Input Tax Credit shall be calculated
& reversed on the basis of prevailing market price as on the date of occurrence of any of the
events mentioned above.
Reversal of
ITC for Capital Goods:
Capital goods which are held in stock or are
being used by the manufacturer, the
Input Tax Credit to be reversed shall be determined on the basis of remaining useful
life in months i.e. on a pro-rata basis.
For the purpose of calculation of
remaining life useful life shall
be taken as Five years.
Contributed by Team GST at Sandeep Ahuja & co
