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 (as
amended by GSTR-1A)/IFF and the details of
input tax credit are communicated to recipient in Form GSTR-2B (Notification No.40/2021, 19/2022, 12/2024)

◆     
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.

A registered person can claim ITC for invoices or debit notes
pertaining to FY 2017-18 to 2020-21, in return filed up to 30-Nov-2021.

►     
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.

►     
If a registered
person’s registration is cancelled under section 29 but subsequently revoked
by an order (either u/s 30 or by an Appellate authority/ Appellate Tribunal/
Court), and if their ITC was not restricted on the date of order or
cancellation of registration, they can claim ITC for such invoices or debit
notes, in a return u/s 39:

◆     
Filed up to 30^th of
November following the financial year to which such invoice or debit note
pertains, or filing annual return, whichever is earlier.

◆     
Filed within 30 days
from the date of order of revocation of cancellation of registration, for the
period from cancellation date/effective cancellation date of registration
till the date of order of revocation of cancellation of registration

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

◆     
Goods/ services or
both received by a taxable person for construction of an immovable property (other than plant
and machinery) on their own account, even
if used for business purposes. Construction includes reconstruction,
renovation, additions, alterations or repairs to the extent they are
capitalized.

◆     
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 in respect of any period up to Financial Year 2023-24

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

Any office
of the supplier that receives tax invoices for input services, including
invoices in respect of services taxable u/s 9(3) or 9(4) (reverse charge),
must be registered as Input Service Distributor (ISD) under Sec.24(viii), if it handles invoices for or on behalf
of distinct persons referred to in Sec. 25, and shall distribute the input
tax credit in respect of such invoices.