Input Tax Credit under GST Act 2017

1. INPUT TAX CREDIT
(UNDER GST ACT,2017)
Erudition By:
Shraddha Sharma
shraddha625@gmail.com

2. CONTENTS :-
 Introduction
 Eligibility Conditions for Taking ITC and its limitations [u/s
16]
 Apportionment of Credit and its computation [u/s 17(3), Rule
42,43,37,]
 Blocked Credit [u/s 17(5)]
 Utilization of Input Credit
 Electronic Ledgers under GST & rules related to it [Rule 86B]
 Reversal of Input Tax Credit
 GSTR 2A, GSTR 2B and their comparison

3. INPUT TAX CREDIT
INPUT TAX
CREDIT
INWARD
SUPPLY -
All
Goods /
Services
used in
Business
All Taxes
paid while
purchasing
Inward
Supplies
Set off of
Taxes paid
on
purchases
against Tax
liability
raised on
sales
Introduction : What is ITC ?

4. Types of “INPUTS”
Capital Goods INPUT GOODS or
INPUTS
INPUT SERVICES
Sec. 2 (19) – CAPITAL GOODS-
means goods, the value of which
is capitalized the books of
accounts of the person claiming
the ITC and which are used or
intended to be used in the
course or furtherance of
business.
Sec. 2(59)- INPUTS means
any goods other than
capital goods used or
intended to be used by a
supplier in the course of,
or for the furtherance of
business.
Sec. 2 (60) – INPUT
SERVICE means any
service which is used or
intended to be used in
the course or
furtherance of
business.

5.  Taxes under CGST, SGST,UTGST and IGST including IGST on import of goods and services,
 Taxes paid under reverse charge under CGST, SGST,UTGST and IGST,
 Taxes paid by the recipient of supply if such supply is made by the unregistered person to registered
person under these ACT.
 Input Tax Credit (ITC) means credit of “INPUT TAX”
- INPUT TAXES are taxes paid on all business expenses incurred in relation to
taxable output/ supply means any supply of goods or services or both used or
intended to be used in the course or furtherance of business by a registered
person.
- Taxes paid on Personal expenses are not creditable and does not include tax
paid under Composition Scheme
 As per Sec. 2(62) Input Tax means
- All taxes under CGST, SGST,UTGST and IGST which is charged on any supply of
goods or services or both received by a registered person in the course or
furtherance of his business (INPUTS). Like-
Introduction : What it ITC ?

6. Taxes Paid on Inputs bought for Business
Taxes Payable on Outward Supply

7. Some More Terminologies
 OUTPUT TAX - U/s 2(82) Tax which is chargeable on taxable supply of goods or
services or both made by a person registered under this Act (OUTWARD SUPPLY)
or by his agent but excludes tax payable by him on reverse charge basis.
 EXEMPT SUPPLY – U/s 2(47) Supply of Goods/Services/Both which
- attracts Nil Tax Rate or
- Wholly Exempt from tax u/s 11 of CGST Act or u/s 6 of IGST Act
and
- Includes Non Taxable Supply.
 NON TAXABLE SUPPLY – Means Supply of Goods/Services/Both which is not leviable
to tax under this Act or IGST Act.
 INWARD SUPPLY – U/s 2(67) it means receipt of goods/services/both whether by
purchase, acquisition or any other means with or without consideration.
 REVERSE CHARGE - Means the liability to pay tax is beared by the recipient of
goods or services instead of the supplier of such goods or services.

8. Eligibility Conditions for Taking ITC
and its limitations [Section 16]
 ELIGIBILITY - Every Registered person
- Credit is allowed for input supply which are used or intended to be used in
the course or furtherance of his business.
 CONDITIONS - Tax Invoice :One should possesses the tax invoice, debit note or other tax
paying documents
- Receipt of Good or services or both:- He has received the goods or
services or both . If goods are received in lots/installments then on receipt
of last installment/lot. It includes goods received by the agent or third
person under his direction before or during movement of goods i.e. if
goods are sold in transit.
- Tax on the supply is paid by the supplier.
- Return u/s 39(i.e. GSTR -3B) and u/s 37(GSTR-1) is furnished
- Tax Invoice or Debit note should be reflect in GSTR-2B

9. - Pay invoice value to the supplier within 180 days of the date of
issuance of invoice.
If no such payment then the entire credit taken on such supply shall be
added to output tax liability along with interest thereon. He can take the
credit again on making the payment for the value of supply and tax thereon
- No credit with respect to the amount of tax (if tax is capitalized) on
which depreciation is claimed.
- Credit of input tax can be taken till the last date of filing Annual Return
or actual date of filing annual return whichever is earlier.
LIMITAION- Rule 36(4) Input tax credit is allowed only to the extent of 5% more to
the eligible credit that is appearing in GSTR-2A. Further, the taxpayer has to
consider the condition of section 16 and section 17 before applying rule 36(4)
condition(w.e.f. 01/01/2021)

10. Apportionment of credit [Section 17(1)
to 17(4)]
(1) Where the goods/services/both are used partly for the business purposes and
partly for non-business purposes, then ITC is allowed only for input tax
attributable to business purposes
(2) Where the goods/services/both are used partly for taxable supply (including
zero rated supply) and partly for exempted supply then credit is restricted to
attributable to the taxable supply(including zero rated supply).
(3) Exempt supply includes non taxable supply and supplies taxable under reverse
charge, transaction in securities, sale of land and sale of building.

11. (4) A banking Company, Financial institution, and NBFC have the option to
take proportionate credit as discussed above or avail, every month, 50% of the
eligible input tax credit on inputs, capital goods and input services in that month
and the rest shall lapse.
Provided that the option once exercised shall not be withdrawn during the
remaining part of the financial year.
Provided further that this restriction is not applicable with respect to tax paid
on supplies made within same PAN.
NOTE : For the purpose of Section 17(1) and 17(2) –
Manner of determination of input tax credit in respect of INPUTS OR INPUT
SERVICES and reversal thereof are provided under Rule 42 of CGST Rules
AND
Manner of determination of input tax credit in respect of CAPITAL GOODS and
reversal thereof are provided under Rule 43 of CGST Rules

12. BLOCKED CREDIT Sec-17(5)
ITC is not available in respect of certain inward supply of goods or services as per Section
17(5) of the CGST Act 2017 as follows –
1) Motor Vehicles and Conveyances -
I. ITC is not available for Motor vehicles used to transport persons, having a seating capacity of
less than or equal to 13 persons (including the driver) including leasing, renting or hiring
thereof.
II. Services of general insurance, servicing, repair and maintenance of aforesaid motor vehicles.
Except when they are supplied in the usual course of business or are used for
providing taxable services of:
Transportation of passengers
Transportation of Goods
Imparting Training or Motor drivingskills
Further supply of such vehicle or conveyance.

13. MOTOR VEHICLES
Transportation of Passenger
(tour & travelers)
Transportation of Goods
Importing Training or
Motor Vehicle Skills
Further Supply of Vehicles or conveyance
(Car Dealers)
Businesses other than those mentioned
above are not allowed for ITC Claim

14. 2) Vessels and Aircraft - ITC is not available for Vessels and Aircrafts including services of
general insurance, servicing, repair and maintenance thereof EXCEPT when they are used -
(a) for transportation of goods;
(b) for making the following taxable supplies
Further
supply of
such
vessels or
aircrafts
Transportation
of passengers
Imparting
training on
navigating
such
vessels
Imparting
training on
flying such
aircraft

15. 3) Supply of following goods or services or both:
 Food Beverages, beauty treatment, cosmetic and plastic surgery, health services, outdoor
catering
 Membership of club/health and fitness centre
 Travel benefits extended to employees on vacation such as leave or home travel
concession
 Rent a cab, life insurance and health insurance (unless govt. makes it mandatory to provide
such facilities to the employee)
EXCEPT where such inward supply of goods or services or both of a particular category is
used by a registered person for making an outward taxable supply of the same category of
goods or services or both or as part of a taxable composite or mixed supply;
4) Works Contract Services – ITC not allowed for works contract services when supplied for
construction of immovable property, other than plant and
machinery, EXCEPT where it is an input service for
furtherance of business (like received by works contractor) .

16. (5) Goods and/or services received for construction of an immovable property on
his own account, other than plant and machinery, even when used in course
or furtherance of business
(6) Goods and/or services on which composition tax has been paid under section
10
(7) Supplies used for personal consumption
(8) Goods lost/ stolen/ destroyed/ written off or disposed of by way of
gift/free sample
(9) Any tax paid after issuance of SCN with respect to such SCN, detention or
confiscation

17. Manner of Utilization of ITC
To Pay IGST
To Pay CGST
To Pay
SGST/UTGST
Take Input
Credit
from
Taxes paid
on
purchases
in
mentioned
sequence
(1) IGST
(2) CGST
(3) SGST/UTGST
(1) CGST
(2) IGST
(1) SGST/UTGST
(2) IGST
NOTE : CGST cannot be used to pay SGST/UTGST liability and SGST/UTGST cannot
be used to pay CGST liability

18. E-Ledgers under GST: Electronic Cash,
Credit and Liability Ledger
 E-Ledgers are electronic form of different passbooks for GST available to all GST
registrants on the GST Portal
 Types of E-Ledgers :
A. Electronic Cash Ledger : Amount of GST deposited in cash or through bank to
government by registered person reflects in Electronic Cash Ledger. Its like an e-
wallet.
B. Electronic Credit Ledger : All eligible Input Tax Credit that is claimed by a registered
dealer in the GST returns (GSTR-2A or GSTR-3B) reflects in Electronic Credit Ledger.
Balance of Input Tax Credit available (ITC) in Electronic Credit Ledger cannot be
utilized for payment of interest, penalty or late fees
C. Electronic Liability Ledger : This ledger contains the total GST liability and the
manner in which it has been paid – in cash or through credit.

19. Rule 86 – Electronic Credit Ledger
 Ledger shall be maintained in Form GST PMT 02
 Every claim of input tax credit under the Act shall be credited to the said ledger.
 Ledger shall be debited to the extent of discharge of any liability.
 Where refund of any unutilized amount from E-Credit ledger is claimed, the amount of claim is
debited in the said ledger. If the refund is rejected (either fully or partly), the amount debited earlier,
to the extent of rejection, shall be re-credited to the E-Credit ledger by officer.
Rule 86A – Conditions of use of amount available in electronic credit
ledger
 The Commissioner or an officer authorized by him, if have reasons to believe that ITC credit has been
fraudulently availed or is ineligible in E-Credit Ledger, then they may not allow debit of an amount
equivalent to such credit in E-Credit ledger for discharge of any liability u/s 49 or for claim of any
refund of any unutilized amount.
 If upon being satisfied that conditions for disallowing debit of electronic credit ledger as above, no
longer exist, they may allow such debit.
 Such restriction lapses after the expiry of one year from the date of imposing such restriction

20.  Applicability: This rule is applicable to registered persons having taxable value of supply (other
than exempt supply and zero-rated supply) in a month which is more than Rs.50 lakh. The limit
has to be checked every month before filing each return.
 Restriction imposed: The applicable registered persons cannot use ITC in excess of 99% of
output tax liability. In simple words, more than 99% of the output tax liability cannot be
discharged by using input tax credit.
Exceptions to the Rule:
1. If the persons mentioned below have paid more than Rs.1 lakh as Income Tax under Income
Tax Act, 1961 in each of the last two FYs if filed before due date;
 The registered person
 Proprietor, karta or Managing Director of the registered person
 Any of the partners or whole time directors or any other person as the case may be.
Rule 86B – Restrictions on use of amount available in
electronic credit ledger

21. 2. If the registered person under concern has received a refund of amount greater than Rs.1 lakh in
the preceding financial year on account of export under LUT or due to inverted tax structure.
3. If the registered person has paid off his output tax by E-Cash Ledger of an amount in excess of 1%
cumulatively of the total output tax liability up to the said month in the current financial year.
4. If the registered person under concern is any of the following:
 Government department
 Public sector undertaking
 Local authority
 Statutory Authority

22. Reversal of Input Tax Credit
 Meaning :
In certain situations, even if the basic conditions for claiming ITC is satisfied, ITC claimed must be reversed.
Reversal of ITC means the credit of inputs utilized earlier would now be added to the output tax liability,
effectively nullifying the credit claimed earlier. Depending upon when such reversal is done, payment of interest
may also be required.
 Conditions for ITC Reversal :
Circumstances When is ITC reversal required
(1) The recipient fails to pay consideration to
the supplier (whether fully or partly) for a
particular supply
Rule-37- Within 180 days from the
date of issue of invoice
(2) Depreciation under the Income Tax Act has
been claimed on the GST component of capital
goods purchased
Reversal is required at the time of
closing Books of accounts for that year

23. Circumstances When is ITC reversal required
(3) Inputs(Input +CG) have been used to
make an exempt supply or non business
use.
Rule 42 & 43- Reversal is require for that
portion of common credit which is used to
exempt supplies or for non business use.
(4) Cancellation of GST registration While filing Form REG-16 under various
situations. We have to reverse input claim
on capital goods
(5) Reversal of 50% of ITC by banking and
other financial companies under special
rule
At the time of filing regular return.

24. Circumstances When is ITC reversal required
(6) ITC has been availed on ‘blocked credit At the time of filing regular returns upto the
date of filing annual return
(7) Inputs used in goods that were lost,
destroyed, stolen, etc
At the time of filing the regular returns in
relation to the month in which such loss
had occurred
(8) Inputs used in goods that were given
out as free samples
At the time of filing the regular returns in
relation to the month in which such free
samples were given out.
Rule 42 : Computation method for ITC reversal on the Input/Input Services that
are exempt or used for personal consumption
Rule 43 : Computation method for Reversal of ITC on capital goods
Rule 44 : Reversal of ITC in case of cancellation of GST registration or switches to
composition scheme
Rule 44A : Balance transitional ITC to be reversed on 1st July 2017 for gold dore
bar

25.  Reporting of ITC reversal in GSTR-3B
The amount of ITC reversal needs to be calculated by the taxpayer himself and filled up in
Table 4B of GSTR-3B. The ITC reversed that needs to be reported is of two types –
As per rule 42 & 43 of CGST/SGST Rules where the ITC attributable to exempt or non-
business supply is required to be calculated by us using the formula mentioned earlier and
entered in this field – thus this field will not be auto-populated; and
Others where ITC reversal due to other circumstances will have to be reported.
 Reporting of ITC reversal in GSTR-9
GSTR-9 (annual return) will also need to be filled up with details regarding ITC reversed for
the whole year. Wherever possible, the details will be auto-filled on the basis of the data
entered in the monthly Form GSTR 3B but changes can be made by the taxpayer wherever
required. Table 7 contains the details of ITC reversed and ineligible ITC for the financial year.
The relevant details need to be provided for the whole year accordingly.

26. Return GSTR 2A
 It is a purchase-related tax return that is automatically generated for each business by the GST portal.
 When a seller files his GSTR-1, the information is captured in GSTR 2A
 GSTR 2A is an auto-generated read only document from the following returns of the sellers/counterparty-
Return Filed By
GSTR 1 Regular registered seller
GSTR-5 Non Resident
GSTR 6 Input Service Distributor
GSTR 8 Ecommerce

27. Return GSTR 2B
 GSTR-2B provides eligible and ineligible Input Tax Credit (ITC) for each month, similar to GSTR 2A but remains
constant for a period
 GSTR-2B is available to all normal, SEZ and casual taxpayers. Every recipient can generate it on the basis of the
GSTR-1, GSTR-5 and GSTR-6 furnished by their suppliers. The statement will clearly show document-wise
details of ITC eligibility.
 The contents of GSTR-2B is as follows:
(1) Summary statement showing ‘ITC available’ and ‘ITC not available’ for every section.
(2) Document-wise details such as invoices, credit notes, debit notes, etc. to view and download.
(4) Cut-off dates and advisory for generating and using GSTR-2B.
(5) Import of goods and import from SEZ units/developers
 The input tax credit will be marked as ‘not available’ in the following two scenarios
(a) Where the time limit to avail input tax credit on an invoice or debit note has expired under section 16(4) of
the CGST Act (earlier of 30th September of the year following the financial year or date of filing annual
returns).
(b) The state of the supplier and place of supply is the same, whereas the recipient is located in another state.

28. Comparison of GSTR-2A with GSTR-2B
Parameters for
Comparison
GSTR 2A GSTR 2B
Type of Statement A progressive auto-drafted
statement that provides ITC
details
A constant auto-drafted
statement that provides ITC
details
Nature of the
statement
Dynamic, as it changes from day
to day, as and when a supplier
uploads the documents
Static, as the GSTR-2B for
one month, cannot change
based on future actions of
the supplier.
Frequency of
availability
Monthly Monthly
Source of information GSTR-1 or IFF*, GSTR-5, GSTR-6,
GSTR-7, GSTR-8, ICES
GSTR-1 or IFF*, GSTR-5,
GSTR-6, ICES

29. Parameters for
Comparison
GSTR 2A GSTR 2B
GSTN advisory on ITC
claims
Does not contain
information/advisory on the
action a taxpayer is supposed to
take
Contains an advisory against
each section on whether the
ITC is eligible, ineligible or
reversible, for the taxpayer
to take action accordingly in
his GSTR-3B
When will ITC entries get
reflected from various
sources?
GSTR-1: Saved/filed/submitted
GSTR-6: Submitted
GSTR-7 and GSTR-8: Filed
GSTR-1, GSTR-5, or GSTR-6:
Filed
Cut-off date for entries,
to view the statement
for a tax period
Not applicable, as it’s a
dynamic statement
11th/13th of the succeeding
month (depending on the
type of return)
The statement will be
generated on the 14th of the
succeeding month