INPUT TAX CREDIT

EARLIER SCENARIO
INPUT TAX CREDIT OF :
- CENTRAL SALES TAX
- ENTRY TAX
- LUXURY TAX
WAS NOT AVAILABLE.
INPUT TAX CREDIT OF
VAT WAS NOT
AVAILABLE TO A
SERVICE PROVIDER.
INPUT TAX CREDIT OF
EXCISE DUTY, SERVICE
TAX WAS NOT
AVAILABLE TO A
DEALER IN GOODS.

SECTION 2(59) OF CGST ACT:
“input” means any
goods other than
capital goods
used or intended
to be used by a
supplier in the
course or
furtherance of
business.

SECTION 2(60) OF CGST ACT:
“input service”
means any
service used or
intended to be
used by a
supplier in the
course or
furtherance of
business.
.

SECTION 2(19) OF CGST ACT:
“capital goods”
means goods, the
value of which is
capitalised in the
books of accounts of
the person claiming
the credit and which
are used or intended
to be used in the
course or furtherance
of business.

SECTION 2(62) & (63) OF CGST ACT
"input tax" in relation to a taxable
person, 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 … but
does not include the tax paid under the
composition levy.
“input tax credit” means the credit of
input tax.

SECTION 16: ITC ELIGIBILITY
Every registered person shall…
be entitled to take credit of
input tax charged on any
supply of goods or services or
both to him which are used or
intended to be used in the
course or furtherance of his
business and the said amount
shall be credited to the
electronic credit ledger of
such person.
EARLIER POSITION:
Inputs, Input
Services and
Capital goods were
eligible for credit
only when used in
or in relation to
manufacture of
final products or
for provision of
output services.

CGST ACT versus GSTN?
CAN THE CGST /
SGST PAID IN ONE
STATE BE TAKEN
AS CREDIT BY A
BUSINESS
REGISTERED IN
ANOTHER STATE?

WHICH SGST?
Section 2(104) of
CGST Act:
“State tax” means
the tax levied
under any State
Goods and Services
Tax Act.

BASIC CONDITIONS TO TAKE CREDIT
1. POSSESSION OF SPECIFIED DOCUMENTS.
2.RECEIPT OF GOODS / SERVICES BY PERSON
CLAIMING CREDIT… (what about goods
received in lots?)
3.TAX SHOULD BE PAID BY SUPPLIER TO THE
GOVERNMENT. (valid return)
4.CLAIMANT SHOULD PAY THE SUPPLIER, THE
VALUE (INCL. TAX) OF GOODS / SERVICES,
WITHIN 180 DAYS FROM DATE OF INVOICE.

CREDIT TO BE TAKEN ONLY ON:
• A TAX INVOICE (incl.
REVISED INVOICE)
ISSUED BY A SUPPLIER.
• INVOICE ISSUED BY THE
RECIPIENT FOR RCM
PURCHASES.
• A DEBIT NOTE ISSUED
BY THE SUPPLIER (incl.
SUPPLEMENTARY
INVOICES)
• A BILL OF ENTRY FOR
SIMILAR DOCUMENT
PRESCRIBED BY
CUSTOMS ACT OR
RULES THEREUNDER.
• AN INVOICE ISSUED BY
AN INPUT SERVICE
DISTRIBUTOR.

CAPITAL GOODS
THE ENTIRE
CREDIT CAN BE
TAKEN IN THE
YEAR OF
PURCHASE
ITSELF!
EARLIER, ONLY 50% OF CREDIT WAS
AVAILABLE IN THE YEAR OF PURCHASE;
BALANCE IN NEXT FINANCIAL YEAR

CAPITAL GOODS….
PROPORTIONATE
CREDIT SHOULD BE
REVERSED IN
RESPECT OF
EXEMPTED SUPPLIES
BASED ON THE
TURNOVER-BASED
FORMULA
PRESCRIBED.
DEPRECIATION
SHOULD NOT BE
CLAIMED UNDER THE
INCOME TAX ACT,
1961 ON THE TAX
COMPONENT OF
CAPITAL GOODS,
WHICH HAS BEEN
CLAIMED AS ITC.
THIS CONDITION DID NOT APPLY
TO CAPITAL GOODS EARLIER
SAME AS IT EXISTED PREVIOUSLY

TIME LIMIT TO TAKE CREDIT (GEN. CASES)
CANNOT BE TAKEN AFTER DUE
DATE FOR FILING MONTHLY
RETURN FOR SEPT OF
FOLLOWING FINANCIAL YEAR
(20TH OCT) TO WHICH SUCH
INVOICE OR INVOICE RELATING
TO SUCH DEBIT NOTE PERTAINS
OR ANNUAL RETURN FOR
CURRENT FINANCIAL YEAR (31ST
DEC), WHICHEVER IS EARLIER.
ONE YEAR
FROM THE
DATE OF ISSUE
OF SPECIFIED
DOCUMENTS.
EARLIER
POSITION:

APPORTIONMENT OF CREDIT
• CREDIT RESTRICTED TO
SO MUCH OF INPUT TAX
AS IS ATTRIBUTABLE TO
THE PURPOSES OF
BUSINESS.
• WHERE BOTH TAXABLE
AND EXEMPT SUPPLIES
ARE MADE, CREDIT TO
BE RESTRICTED TO THE
EXTENT OF TAXABLE
SUPPLIES, INCLUDING
ZERO-RATED SUPPLIES.
FOR APPORTIONMENT,
THE FOLLOWING
OUTWARD SUPPLIES WILL
BE TREATED AS EXEMPT
SUPPLIES–
a) Supplies under RCM,
b) Transaction in
securities,
c) Sale of land,
d) Sale of building (except
construction ….)

OPTION FOR FINANCIAL SECTOR
A BANKING COMPANY /
A FINANCIAL
INSTITUTION INCLUDING
A NBFC, ENGAGED IN
ACCEPTING DEPOSITS,
EXTENDING LOANS OR
ADVANCES, MAY OPT TO
TAKE 50% OF TAX PAID
ON INPUTS, INPUT
SERVICES AND CAPITAL
GOODS.
THIS SHALL NOT APPLY TO TAX
PAID ON SUPPLIES MADE BY
ONE REGISTERED PERSON TO
ANOTHER REGISTERED PERSON
HAVING THE SAME PAN.

LYING-STOCK CREDIT
PERSON ENTITLED TO
BE CREDIT, ONLY IF HE
APPLIES FOR
REGISTRATION WITHIN
30 DAYS OF LIABILITY.
PERSON VOLUNTARILY
REGISTERED.
STOCK AS ON WHICH
DATE?
INPUTS & INPUTS
CONTAINED IN (SEMI-)
FINISHED GOODS

LYING-STOCK CREDIT
PERSON CEASING
TO OPERATE
UNDER
COMPOSITION
SCHEME.
STOCK AS ON WHICH
DATE?
INPUTS; INPUTS
CONTAINED IN (SEMI-)
FINISHED GOODS; AND
CAPITAL GOODS

LYING-STOCK CREDIT
WHEN
EXEMPTED
SUPPLY
BECOMES
TAXABLE INPUTS, INPUTS CONTAINED IN (SEMI-)
FINISHED GOODS AND CAPITAL GOODS
EXCLUSIVELY USED FOR SUCH EXEMPT
SUPPLY AS ON THE PREVIOUS DAY.

TIME LIMIT TO TAKE CREDIT
LYING STOCK
CREDIT:
TAX INVOICES
SHOULD NOT BE
MORE THAN ONE
YEAR OLD.

IF SUPPLY BECOMES EXEMPT…
WHEN A PERSON OPTS FOR
COMPOSITION SCHEME OR IF
THE SUPPLY BECOMES WHOLLY
EXEMPT, HE SHALL PAYAN
AMOUNT EQUAL TO CREDIT OF
INPUT TAX IN RESPECT OF
INPUTS, INPUTS CONTAINED IN
(SEMI-) FINISHED PRODUCTS
HELD IN STOCK AND ON
CAPITAL GOODS, ON THE DAY
IMMEDIATELY PRECEDING SUCH
OPTION OR EXEMPTION.

REMOVAL OF CAPITAL GOODS
In case of supply of capital goods
or plant and machinery, on which
input tax credit has been taken,
the registered person shall pay an
amount equal to the input tax
credit taken on the said capital
goods or plant and machinery
reduced by such percentage points
as may be prescribed or the tax on
the transaction value of such
capital goods or plant and
machinery determined under
section 15, whichever is higher.
WHAT
ABOUT
INPUTS
?

CHANGE IN CONSTITUTION OF BUSINESS
DUE TO SALE, MERGER,
DEMERGER, AMLAGAMATION,
LEASE OR TRANSFER OF
BUSINESS WITH SPECIFIC
PROVISIONS FOR TRANSFER
OF LIABILITIES, TRANSFER OF
CREDIT IS ALLOWED TO THE
NEW BUSINESS, IN SUCH
MANNER AS MAY BE
PRESCRIBED.
• IN CASE OF
DEMERGER, THE
INPUT TAX CREDIT
SHALL BE
APPORTIONED IN
THE RATIO OF THE
VALUE OF ASSETS
OF THE NEW UNITS
AS SPECIFIED IN THE
DEMERGER
SCHEME.

BURDEN OF PROOF
SECTION 155 OF CGST
ACT:
Where any person
claims that he is
eligible for input tax
credit under this Act,
the burden of proving
such claim shall lie on
such person.

INELIGIBLE CREDITS…
• MOTOR VEHICLES FOR
PASSENGER TRANSPORT.
• CATERING, HEALTH &
COSMETIC SURGERY
SERVICES.
• CLUB / GYM MEMBERSHIP.
• NON-OBLIGATORY
RENT-A-CAB, LIFE / HEALTH
INSURANCE SERVICES.
• TRAVEL BENEFITS TO
EMPLOYEES.

NEGATIVE LIST (SAMPLES)
• WORKS CONTRACT
SERVICES FOR
CONSTRUCTING
IMMOVABLE PROPERTY
(EXCEPT PLANT/
MACHINERY).
• GOODS / SERVICES FOR
CONSTRUCTION OF
IMMOVABLE PROPERTY
(EXCEPT PLANT /
MACHINERY).

WHAT IS PLANT & MACHINERY?
“plant and 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—
(i) land, building or any other
civil structures;
(ii) telecommunication towers;
and
(iii) pipelines laid outside the
factory premises.

NEGATIVE LIST (…continued)
• Goods / services on which tax has been paid
under section 10 (composition supplier);
• goods and/or services used for personal
consumption;
• Goods or services received by a non-resident
taxable person except goods imported by him.
• goods lost, stolen, destroyed, written off or
disposed of by way of gift or free samples; and
• any tax paid in terms of sections 74 (fraud,
suppression, willful misstatement cases).

RECOVERY OF WRONG CREDIT
SECTIONS 73 / 74 OF
CGST ACT:
WHEN ITC IS AVAILED
OR UTILISED WRONGLY,
IT SHALL BE
RECOVERED ALONG
WITH INTEREST.
NORMAL PERIOD TO ISSUE ORDER:
3 YEARS FROM DUE DATE FOR ANNUAL
RETURN (SCN TO BE ISSUED AT LEAST 3
MONTHS PRIOR TO PASSING OF ORDER)
EXTENDED PERIOD TO ISSUE ORDER:
5 YEARS FROM DUE DATE FOR ANNUAL
RETURN (SCN TO BE ISSUED AT LEAST 6
MONTHS PRIOR TO PASSING OR ORDER)

JOB WORK OF GOODS ON WHICH ITC IS TAKEN
- GOODS CAN BE SENT
DIRECTLY TO JOB
WORKER.
AFTER JOB WORK:-
- INPUTS TO BE RETURNED
IN 1 YEAR.
- CAPITAL GOODS TO BE
RETURNED IN 3 YEARS.
- MOULDS / DIES/ JIGS /
FIXTURES HAVE NO TIME
LIMIT.

IN THE NEXT CLASS, WE’LL SEE…
• Section 20: Input
Service Distributor.
• Section 41: Provisional
nature of credit .
• Sections 42-43:
Matching and reversal
of ITC.
• Section 49: Utilisation
of ITC.
• Section 50: Interest on
ineligible credit.
• Section 54: Refund of
unutilised credit.
• Section 97: Advance
ruling in respect of
ITC.
• Sections 73 & 74:
Penalty for taking
ineligible credit.

THANKS FOR YOUR EAR