Input Tax Credit (16-21)

Chapter
V: Input Tax Credit

16

Eligibility and conditions for taking
ITC:

►    
ITC charged
on supply used for business can be taken only if:

◆     
Invoice or debit note is in possession

◆     
Invoice or
debit note is
furnished by supplier in GSTR-1/IFF and
the same is communicated to recipient in Form GSTR-2B (Notification No.40/2021)

◆     
Entire supply has been received

◆     
ITC is not restricted in GSTR-2A/GSTR-2B

◆     
Tax has been paid in cash or through utilization of ITC

◆     
Filed the return u/s 39

►    
If the
recipient fails
to pay the consideration & tax other than tax on reverse charge, within 180 days from date
of issue of invoice, ITC taken & interest shall be paid by him along with interest u/s 50. On payment to supplier, he can
avail the ITC again.

►    
ITC cannot be taken after the 30^th of November following the end of the FY
or date of furnishing the relevant annual return, whichever is earlier.

►     
ITC shall not be allowed on the tax component of the cost of capital goods and plant
& machinery if depreciation is claimed on tax component under IT Act.

ITC can be availed in following order as specified u/s 49:

ITC available in electronic credit ledger

To be used only against following taxes in the same order

Integrated
tax

Integrated,
Central & State or Union territory tax

Central
tax

Central
& integrated tax

State
tax

State
& integrated tax

Union
territory tax

Union
territory & integrated tax

The ITC on account of central tax, State tax or Union
territory tax shall be utilized only after the ITC available on account of
integrated tax has first been utilized fully. Further, for payment of
Integrated tax, the ITC on account State tax or Union territory tax shall be
utilized only after ITC on account Central tax has first been utilized fully.

17

Restrictions on ITC:

►    
If supply
is used
partly for business and
partly otherwise, ITC shall be restricted to so much of input tax which is
attributable to the purposes of business.

►    
If supply
is used for effecting partly taxable supplies
including zero-rated supplies and partly exempt supplies, ITC shall be
restricted to so much of input tax which is attributable to the taxable
supplies. The value of exempt supply shall include supplies on which tax is
paid on reverse charge, transactions in securities, sale of land and subject
to Schedule II 5(b), sale of building; but excludes the activities referred
to in Schedule III (except paragraph 5) and paragraph 8(a).

►    
A banking
company or a financial institution shall have the option to avail 50% of ITC
every month and the rest shall lapse and the option once exercised shall not
be withdrawn during the FY.

►    
ITC is not available for:

◆     
Motor vehicles having approved seating capacity up to
13 persons (including driver), except
when they are used for making taxable supply of transportation of passengers
or for further supply of such vehicles or for training on driving of such
vehicles.

◆     
Vessels and aircraft except
when they are used for transportation of goods or making taxable supply of
transportation of passengers or for further supply of such vessels or
aircraft or for training on navigating such vessels or flying such aircraft.

◆     
Services
of general
insurance, servicing, repair and maintenance of
vehicles, vessels or aircraft referred
above except the case where it is used for the purpose specified above or the
person receiving this service is either a manufacturer of such vehicles or
provider of general insurance services on such vehicles.

◆     
Supply of
food & beverages, outdoor catering, beauty treatment, health services, plastic surgery, leasing,
renting or hiring of motor vehicles, vessels or aircrafts referred above except when used for the
purposes specified above, life insurance and health insurance. However, ITC
is available for inward supply of a category is used for making an outward
taxable supply of the same category or as a part of composite or mixed
supply. Supply of membership
of a club, health & fitness center

◆     
Travel benefits given to employees on vacation if employer is not obligated to provide the same
under any law.

◆     
Works contract services or supplies for construction of an immovable
property (other than plant &
machinery) except where input service is used for output supply of works
contract service

◆     
Supply on
which composition
levy has been paid u/s 10

◆     
Supply
used for personal
consumption

◆     
Supply received by a non-resident taxable person except on goods imported by him

◆     
Goods/
services received by a taxable person, used/intended for activities relating
to obligations under Corporate Social Responsibility u/s 135 of Companies Act, 2013 (w.e.f. 01-Oct-23)

◆     
Goods lost, stolen,
destroyed, written off or disposed of by way of gift or free samples

◆     
Any tax paid u/s 74, 129 & 130

18

ITC on stock:

►   
A person
can take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held
in stock on day immediately preceding the dates given below:

Case

Dates

Applied for registration within 30 days from date of becoming liable to registration and has been
granted such registration

Date from which liable to pay tax

Registered u/s 25(3)

Date of grant of registration

Switch from composition levy to normal levy

Date from which liable to pay tax u/s 9

Exempt supply becomes taxable supply

Date of on which the supply becomes taxable

►   
On switch
from composition levy to normal levy or exempt supply becoming taxable
supply, ITC can be taken on capital goods reduced
by prescribed percentage points, held in stock on the day immediately
preceding the date from which he becomes liable to pay tax.

►   
In the
above cases, ITC cannot
be taken after 1 year from the
date of issue
of invoice.

►   
If any
person who has taken
ITC opts to pay tax u/s 10 or the supply become wholly exempt, input tax in respect of inputs
held in
stock and inputs contained in
semi-finished or finished goods held in stock and on capital goods, reduced
by prescribed percentage points, on the day immediately preceding the date of
exercising of such option or the date of such exemption, shall be paid. After payment, the balance of ITC, if any, in electronic
credit ledger shall lapse.

►   
On supply
of capital
goods or plant and machinery, on
which ITC
has been taken, an amount equal to
the ITC taken on the said capital goods or plant and machinery reduced
by prescribed percentage points or the tax on the transaction value,
whichever is higher, shall be paid. However, where
refractory bricks, moulds & dies, jigs & fixtures are supplied as
scrap, the taxable person may pay tax on the transaction value.

►   
On sale,
merger, demerger, amalgamation, lease or transfer of business with specific provisions for transfer of liabilities, ITC which remains unutilised can be transferred to successor.

19

The
principal shall be allowed ITC on inputs & capital goods sent to a job-worker even if the goods are directly sent to the job worker without
being brought to his place of business. However, inputs should be utilized or
received back within 1 year and capital goods should be received back within
3 years (except moulds & dies, jigs & fixtures or tools).

20

The
Input Service Distributor (ISD) shall distribute the credit against a document of
credit. The ITC on input services attributable to a recipient shall be
distributed only to that recipient. Credit shall be distributed on prorata
basis of the turnover of such recipient to aggregate turnover of all
recipients for relevant period.

Relevant
period is:

◆   
If the
recipients have turnover in the FY preceding year of distribution, then that
year

◆   
Otherwise,
the last quarter for which turnover of all the recipients is available,
previous to the month during which credit is to be distributed

‘Turnover’
is the turnover reduced by tax levied under entries 84 and 92A of List I
& entry 51 & 54 of List II of the 7^th Schedule to the
Constitution i.e., excise duties and VAT.