Input Tax Credit under GST – Conditions To Claim

“Input Tax” in relation to a taxable person, means the Goods and Services Tax charged on him for any supply of goods and/or services to him, which are used or are intended to be used, for the furtherance of his business. Input Tax Credit under GST – Conditions To Claim ITC must be fulfilled and forms one of the most critical activity for every business to settle its tax liability.

ITC is the backbone of GST and a major matter of concern for the registered persons. The conditions for eligibility to ITC and eligible ITC have been prescribed which is more or less in line with pre-GST regime. These rules are also quite particular and stringent in its approach.

Input Tax Credit under GST – Conditions To Claim

A registered person will be eligible to claim Input Tax Credit (ITC) on the fullfilment of the following conditions:

1. Possession of a tax invoice or debit note or document evidencing payment

2. Receipt of goods and/or services

3. Goods delivered by supplier to other person on the direction of a registered person against a document of transfer of title of goods

4. Furnishing of a return

5. Where goods are received in lots or installments ITC will be allowed to be availed when the last lot or installment is received

6. Failure of the supplier towards supply of goods and/or services within 180 days from the date of invoice, ITC already claimed by recipient will be added to output tax liability and interest to paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed

7. No ITC will be allowed if depreciation has been claimed on the tax component of a capital good

8. Time limit to claim ITC against an Invoice or Debit Note is earlier of below dates:

The due date of filing GST Return for September of next Financial year
OR
Date of filing the Annual Returns relevant for that Financial year

For instance,  XY Corp, a buyer has a Purchase Invoice was dated 8th July 2017( FY 2017-18), wants to claim GST paid on that purchase. As per the criteria laid down to reckon the time limit:

The Due date of filing GST return for September 2018( belonging to FY 2018-19) is 20th October 2018 and the Date of filing GST Annual Return for FY 2017-18 is 31st December 2018, whichever is earlier will be the time period within which XY Corp has to claim ITC. Therefore, the date is 20th October 2018 and XY Corp can claim this ITC in any of the months between July 2017 to September 2018.

Note: For Debit Notes, above condition must be considered with respect to Original Invoice Date.

9. Common credit of ITC used commonly for

• Effecting exempt and taxable supplies
• Business and non-business activity

10. Since 9 October 2019, a regular taxpayer can claim provisional ITC in GSTR-3B only to the extent of 20% of the ITC available in GSTR-2A. It means the amount of ITC reported in GSTR-3B from 9 October 2019 will be a total of Actual ITC in GSTR-2A and provisional ITC being 20% of actual ITC in GSTR-2A. Hence, matching purchase register or expense ledger with GSTR-2A becomes crucial.

Here is a video that will help you understand the conditions for claiming ITC:

Items on which credit is not allowed

1. Motor vehicles and conveyances except the below cases
2. Such motor vehicles and conveyances are further supplied i.e. sold
3. Transport of passengers
4. used for imparting training on driving, flying, navigating such vehicle or conveyances
5. Transportation of goods
6. food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery

But if the goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available

Example: Mr. Dev purchases cosmetic creams to supply it to a customer, then credit of ITC paid on purchases will be allowed.

7. Sale of membership in a club, health, fitness centre.

8. rent-a-cab, health insurance and life insurance except the following:

1. Government makes it obligatory for employers to provide it to its employees
2. goods and/or services are taken to deliver the same category of services or as a part of a composite supply, credit will be available

Example: Mr. Dev takes the service of rent-a-cab to supply to Mr. Manoj, a customer, then the credit of ITC paid on purchases will be allowed.

9.travel benefits extended to employees on vacation such as leave or home travel concession.

10. Works contract service for construction of an immovable property (except plant & machinery or for providing a further supply of works contract service)

11. Goods and/or services for the construction of an immovable property whether to be used for personal or business use

12. Goods and/or services where tax have been paid under composition scheme

13. Goods and/or services used for personal use

14. Goods or services or both received by a non-resident taxable person except for any of the goods imported by him.

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

16. ITC will not be available in the case of any tax paid due to non-payment or short tax payment, excessive refund or ITC utilized or availed by the reason of fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.

To read understand the basics of Input Tax Credit, Click Here.