• Input Tax Credit (TC) is the credit for tax paid on
inputs. Every dealer is liable for output tax on the
taxable sale effected
• by him. The basic principle of GST is that every
business pays tax only on the value addition done by
them. ITC is the
• mechanism by which the business sets off their
output tax against the input tax.
• So, it becomes important to understand the list of
items on which one can can claim the TC and the
consequences of ITC
• that has been wrongly claimed. Also, how the
mechanism for the same can be automated.
3. Understanding Input Tax
Credit - Tax Perspective
1. Input Tax Credit
• Let's assume that you are the owner of ABC Garments.
Now, you have purchased the goods (garments) for selling
on which you pay the freight for delivery. You also
purchase a laptop for recording all your business
transactions and make the payments for all these
transactions along with the tax (GST) to your vendor. So,
for you, the purchase of garments is an input as you are
using the same for the purpose of your business
• The purchase of a laptop falls under 'Capital Goods' as the
same will be capitalized in your books of accounts and the
payment for freight services is considered as 'Input
Services as the same is used for the furtherance of
• Let's look at the definition of the same in the next slide..
4. 2. Definitions
• Input: Any goods other than capital goods used or intended to
be used by a supplier in the course of, or for the furtherance of
• Capital Goods: Goods, the value of which is capitalized in the
books of account of the person claiming the IC and which are
used or intended to be used in the course or furtherance of
• Input Services: Any service used or intended to be used by a
supplier in the course or furtherance of business.
• Input Tax: Input Tax in relation to a registered 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 and includes
• the integrated goods and services tax charged on import of
• the tax payable under RCM in certain supplies of
goods/services and also when registered dealer purchases
more than Rs. 5,000 in a day from an unregistered dealer
Input tax comprises: all taxes paid - IGST, CGST, UGST and
SGST - on forward charge or reverse charge basis including
imports of goods and/or services excluding taxes paid on
composition basis. Provision is silent on tax paid by e-
5. Input Tax Credit: Means credit of 'Input Tax
Reverse Charge: Means the liability to pay tax by the
recipient of goods or services instead of the supplier of
such goods or services.
Output Tax: In relation to a taxable person, this refers
to the tax chargeable under this Act on taxable supply
of goods or services or both made by a person or by
his agent but excludes tax payable by him on reverse
6. 3. Ineligible Credits
There are some inputs
services/capital goods on
which the input credit is not
allowed even if the same is
used for the purpose of, or
furtherance of the
They are as follows:
10. Conditions for Claiming Input
A taxpayer can claim the Input Tax Credit only if they fulfill all the conditions
• Taxpayer must be in possession of a tax invoice, debit note or such other
taxpaying document as may be prescribed.
• Taxpayer has received the goods and/or services. The goods are deemed
to be received by the taxable person when goods are delivered by supplier
to recipient or other person on direction of the registered person whether
an agent or otherwise before or during movement of goods by way of
transfer of documents of title of goods or otherwise.
• Tax charged for such supply is actually paid to the credit of the appropriate
Government, either through cash or through utilisation of input tax credit
admissible in respect of such supply.
• Taxpayer has furnished GST returns.
11. 5. Proportionate Credit
• The goods and/or services are used by a registered taxable
person partly for business and partly for non-business; he
Is eligible to input tax credit of goods and/or services
attributable to the purposes of business.
• The goods and/or services are used partly for effecting
taxable supplies (plus zero rated supplies) and partly for
effecting exempt supplies then he will be eligible for credit
attributable to the taxable supplies including zero-rated
• For this purpose, exempted supply shall include supplies
on which the recipient is liable to pay tax on reverse charge
• A banking company or a financial institution including a
non-banking financial company, engaged in supplying
services by way of accepting deposits, extending loans or
advances shall have the option to either comply with the
the above provision or avail of, every month, an amount
equal to fifty per cent of the eligible input tax credit on
inputs, capital goods and input services in that month.
• Explanation- The option once exercised shall not be
withdrawn during the remaining part of the financial year.
13. 1. Where a recipient fails to pay to the supplier of goods or services or both, other
than the supplies on which tax is pay-able on reverse charge basis, the
amount towards the value of supply along with tax payable thereon within a
period of one hundred and eighty days from the date of issue of invoice by the
supplier, an amount equal to the input tax credit availed by the recipient shall
be added to his output tax liability, along with interest thereon, in such manner
as may be prescribed.
Provided also that the recipient shall be entitled to avail of the credit of input
tax on payment made by him of the amount towards the value of supply of
goods or services or both along with tax payable thereon.
2. Where the registered taxable person has claimed depreciation as per Income
Tax Act on cost of capital goods, ITC shall be denied.
3. Where the goods are received in installment or lots, ITC shall be available at
the time receiving of final installment or lot.
4. Input Tax Credit for pipe line and telephone tower fixed to earth by foundation
and structural support shall be available as follows:
• 1/3 in the first year when goods received
• 13 in the next year
• the balance in subsequent financial year
5. ITC shall not be allowed after filing of the GST return (GSTR-3) for the month
of September following the end of fi-nancial year to which the invoice relates or
furnishing of the annual return whichever is earlier.
14. Conditions to be Fulfilled to Take
Credit of Eligible Duties or Taxes
• The goods used for making taxable supplies
• Under the current tax regime, input tax credit is not allowed which leads to
increased prices of goods or services. Under GST, the credit of such input
taxes or duties will be allowed will lead to decreased prices of such goods
or services. This benefit must be passed to the recipients of such goods or
services through reduced prices
• The taxable person must be eligible for such input tax credit under GST
• Taxable person must be in possession of invoice and/ or other documents
evidencing payment of duty under current law
• The date of invoice and/ or other documents must be issued is within 12
months from the date of transition to GST i.e. appointed date
• The supplier of services is not eligible for any abatement under GST. In the
case where the registered taxable person is not in possession of invoice
and/ or other documents evidencing payment of duty under the current law,
the credit of input tax will be allowed subject to such limitations, conditions
ad safeguard as may be prescribed by the law