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How to Claim Maximum ITC and Time Limit?

Updated on :  

08 min read.

Claiming ITC (input tax credit) refers to claiming the credit of taxes paid on an entity’s inward supplies, which are used to carry out business. The main aim behind the introduction of GST was to avoid the cascading effect of taxes. Section 16 of the Central Goods and Services Tax (CGST) Act lays down the conditions for ITC, along with certain provisions and restrictions.

The mechanism of ITC allows the businesses to reduce their output tax liability by claiming credit of taxes already paid on their purchases. Thus, claiming maximum ITC is important to reduce the output tax liability and reduce overall working capital impact.

How to Claim Maximum ITC Under GST?

Here are Seven ways to claim maximum ITC under GST-

  1. Regularly follow-up with your vendors- Taxpayers should regularly follow up with their vendors to upload their sales invoices in the GSTR-1 on time. When the suppliers upload their sales invoices in the GSTR-1 return on time, the GSTR-2A/2B of the recipient taxpayer will get auto-populated with the ITC values, and the recipient will be able to claim this credit in their GSTR-3B return.
  2. Identify tax payable on an RCM basis- Under reverse charge, a recipient must pay the tax instead of the supplier. Thus, taxpayers should carefully analyse their expenses and identify inward supplies on which tax should be paid on a reverse-charge basis. Here is a list of goods and services on which RCM is applicable. This tax should be paid on time, thus enabling ITC claims on these amounts in the next tax period.
  3. Proper maintenance of books of accounts – Taxpayers should ensure that all their sales/purchases/expenses are recorded accurately. Invoice copies should be maintained either in digital mode or paper-based. This will, in turn, ensure accurate ITC claims and make way for easy reconciliations with the GST returns.
  4. Ensuring that eligible suppliers comply with e-invoicing norms- This is a must to claim ITC for all purchases made from suppliers eligible for e-invoicing. If suppliers are non-compliant and e-invoices do not get generated in time, recipient taxpayers will not be able to claim ITC. This is due to two main reasons. The first being, as per section 16(2)(a) of the CGST Act, the taxpayer should have a valid tax invoice. This means that the invoice should have a valid IRN and QR code and be digitally signed by the Invoice Registration Portal (IRP) to claim ITC.
    The second reason suppliers comply with e-invoicing norms is that the e-invoice data gets automatically captured in the GSTR-1 return of the supplier. From there, the recipient’s GSTR-2A/2B statements get auto-populated. Without the ITC data reflecting in the GSTR-2A/2B statements, the recipient will not claim ITC in their GSTR-3B. Hence, it is essential to get all e-invoicing eligible suppliers to comply with e-invoicing norms.
  5. Identify debit notes raised subsequently- Taxpayers should ensure that a proper system is in place to identify debit notes raised at a later date so that additional ITC can be claimed on time.
  6. Regular reconciliations- Taxpayers should regularly check their GSTR-2B and reconcile the same at frequent intervals with the purchase register. This will help in identifying defaulting suppliers and following up with them to upload the relevant invoices. Besides, there could be mismatches as well, which may lead to lower ITC. Thus, regular reconciliations are a must as they help identify missed/mismatched/unclaimed ITC and claim the same within the prescribed time frame. 
  7. Insertion of an indemnification clause in business contracts- Taxpayers should update all their business contracts with their suppliers with an indemnification clause for any delays in uploading invoices in GSTR-1. Delays in uploading of invoices in the GSTR-1 return creates a domino effect in the GSTR-2A/2B of the recipient taxpayer, who will not claim ITC, thus increasing their cash outflows for that tax period. There is no need for recipient taxpayers to bear this additional burden.
    Hence, an indemnification clause should be inserted, stating that a certain amount equal to the GST value or the value of supply made but not uploaded will be withheld until the supplier complies. This practice is beneficial in reducing supplier non-compliance.

What is the time frame within which ITC under GST can be claimed?

Claiming ITC under GST is time-bound.  Section 16(4) lays down the maximum time limit in which a taxpayer can claim ITC. As per this section, a registered taxpayer can claim ITC on an invoice or debit note of inward supply. 

  • Before the due date for filing Form GSTR-3B for September of the subsequent financial year, or
  • Before the filing of the annual return for the period to which such an invoice or debit note belongs, whichever is earlier.
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