Can An Unregistered Person Claim ITC of VAT by Registering under GST?

Updated on: Jul 21st, 2021


2 min read

claim VAT credit under GST

The answer is, Yes! As is the case with excise duty, unregistered persons can claim available VAT credit by registering under GST.   The credit of both VAT and entry tax will be available.

How much ITC can you claim?

claim VAT credit under GST

If Proof of Payment of VAT Is Available

The taxpayer can take entire input VAT credit on goods held in stock and used in semi-finished or finished goods (held in stock) on the appointed day (1st July 2017). The following conditions will have to be satisfied for this:

  • The taxpayer should prove that goods will be used for making taxable supplies, i.e., the final sales must be taxable.
  • The registered person should be eligible for input tax credit on such inputs (i.e., he does not opt for composition levy)
  • Registered person should have invoices which prove that he has paid for input VAT.
  • The invoices should not be more than 12 months old on the date immediately preceding the appointed day (i.e., on 30th June 2017. The invoices cannot be earlier than 1st July 2016).

If Proof of Payment of VAT Is Not Available

A registered person (earlier not registered under VAT), holding goods which were taxed only at first point in the state and subsequent sales of which were not taxed, will be allowed to avail input tax credit on stock-in-hand on the appointed day (1st July 2017).

The credit will be allowed at the rate of40% of the SGST

applicable after the appointed date (1st July 2017). ITC of 60% will be applicable if the total GST rate is 18% and above.  If IGST is paid on the sale of such goods, then 30% ITC is available if the IGST rate is 18% and above and 20% for other cases.

This amount will be credited to the taxpayer’s electronic ledger only after payment of output SGST on the sale of those goods. This is available for six tax periods from the appointed date (i.e., till 31st December 2017 which is 6 months from 1st July 2017). The following conditions will have to be satisfied for this:

  • Those goods should not be exempted from current VAT.
  • The registered person should have the document for procurement of these goods (e.g. he should possess challans).
  • A registered person availing this scheme must separately submit the details of stock in hand on 1st July.
  • The registered person must give details of sales of such goods in the FORM GST TRAN-1 at the end of each month during which the scheme is in operation.
  • The amount of credit allowed will be credited to the electronic credit ledger maintained in the FORM GST PMT-2 on the Common Portal.
  • The stock of goods on which the credit is availed must be easily identified by the registered person and must be stored accordingly.

The amount of credit specified in the application in the FORM GST TRAN-1 will be credited to the electronic credit ledger of the applicant maintained in the FORM GST PMT-2 on the Common Portal.

NOTE: This scheme is available only if there is no proof of payment for inputs. If there is no proof at all regarding the goods (e.g., there are no challans, no goods received note) then this scheme of 40% will not available.

Have questions about the transition to GST? Register with us at Clear Tax and browse through various articles on the transition to GST.

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