GST Input Tax Credit

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What is Input Tax Credit?

Input Tax Credit (ITC) is the relaxation given to the taxpayer to avail the facility of adjusting the amount of tax already paid by him at the time of purchase of the input goods. It means that at the time of paying the output tax on sale of the products the tax liability can be reduced to the amount of the tax already paid by the person at the time of purchasing the input goods by him.

Lets understand the same by an example:
Output Tax Payable on Sale of Good B
Input Tax Paid on Purchase of Good A
Output Tax Paid on Sale of Good B
INR 400/-
INR 150/-
INR 250/-
Conditions to claim Input Tax Credit:
Following conditions are required to be fulfilled before claiming Input Tax Credit:
  1. The person must have a Tax Invoice/Debit Note (of purchase) in his possession
  2. The person must have received the goods/services
  3. The tax charged on the purchases must have been paid to the Government by the supplier either through cash or though electronic ledger.
  4. Supplier must have filled the GST Return.
  5. Credit will not be allowed in case depreciation has been claimed under Income Tax Act, 1961 on the tax amount of a capital good.
  6. In case the goods are received in lots, the credit will also be available in lots.
Eligibility

ITC can be claimed only when the goods or services or both on which input tax has been paid is being used for the business purposes.

ITC in case of following CANNOT be claimed:
  • Goods/Services or part of such goods/services are used for person use
  • Goods/Services or part of such goods/services are used for effecting the exempted supplies
  • Supplies for which ITC is not available u/s 17(5) of the CGST Act, 2017:
    1. Motor Vehicles and other conveyances subject to certain exception
    2. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where an 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 an element of a taxable composite or mixed supply.
    3. Membership of a club, health and fitness centre
    4. Rent-a-cab, life insurance and health insurance subject to certain exception
    5. Works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service
    6. Goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business
    7. Goods or services or both received by a non-resident taxable person except on goods imported by him
    8. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
    9. Goods or services or both on which tax has been paid under composition levy scheme.
Manner of Availing Input Tax Credit
  • Pay IGST (Integrated GST)
  • Avail Input credit from:
  • Input IGST
  • Input CGST
  • Input SGST
  • Pay CGST (Central GST)
  • Avail Input credit from:
  • Input CGST
  • Input IGST
  • Pay SGST (State GST)
  • Avail Input credit from:
  • Input SGST
  • Input IGST