Input tax credit (ITC) is an integral part of the Goods and Services Tax (GST). Chapter-V of CGST Act, 2019 predominantly talks about Input Tax Credit. Below are some key points on this:
1. Normally the Input Tax credit can be availed by a registered person (other than composition scheme registered person) on all inputs, input services and capital goods except those mentioned in section 17(5) of CGST Act, 2017.
2. The input tax credit cannot be availed if the output supply provided by the registered person is nil rated or exempted or used for personal consumption/purposes. If the output supply is partially under the above categories, then proportionate input tax credit can be availed by the registered person.
3. However, the input tax credit can be availed by registered persons making zero-rated outward supplies.
4. Payment of consideration to the vendor is not a condition for availing credit but if payment to the vendor is not made within 180 days from the date of issuance of the invoice, the availed credit must be reversed with 18% interest. Once payment is made to the vendor, the credit can be availed again.
5. The input tax credit can be availed on the satisfaction of 4 conditions-
- The recipient is in the possession of the tax payment document.
- The recipient has received the goods or services or both.
- The tax has been paid by the supplier to the government.
- The recipient has filed the return claiming such input tax credit.
6. Unlike erstwhile indirect taxes, input tax credit on capital goods can be availed immediately once the above 4 conditions are met and such capital goods are capitalized in the books of accounts (no provision says to avail credit over a period).
7. The order of availing input tax credit is as follows:
8. From the above table, we can understand that SGST/UTGST cannot be utilized for payment of CGST and vice versa.
9. Input Service Distributors can distribute all credits as the same category of credit if the distributor and credit recipient are in the same state/Union Territory. If the two persons are in different states/Union Territories, CGST, UTGST, SGST would be distributed as IGST. (IGST would always be distributed as IGST).
10. When capital goods on which ITC is availed is sold or goods repossessed are sold or scrapped, there are specific provisions to calculate ITC to be reversed.
11. The interest rate to be payable for wrongly availing input tax credit is 24% per annum.
12. The time limit to avail input tax credit for a financial year is the later of the due date of filing September month return of the subsequent financial year or the date of filing an annual return of that financial year.
13. There are provisions to claim a refund of unutilized ITC for registered persons making zero-rated supplies (Exports and supply to SEZs), UIN holders, Deemed Exports.
14. Composition scheme suppliers are not permitted to recover GST from recipients. So recipients would not pay GST to such suppliers, so there would be no question of availing ITC on purchases from composition scheme suppliers.
Article Written By- Saikrishna S || The Author can be reached at firstname.lastname@example.org.