‘Input Tax Credit’ or ‘ITC’ means the Goods and Services Tax (GST) paid by a taxable person on any purchase of goods and/or services that are used or will be used for business.
Input ITC can be reduced from the GST payable on the sales by the taxable person only after fulfilling some conditions. These conditions given under the GST law are more or less in line with the pre-GST regime, except for a few additional ones such as GSTR-2B. These rules are direct and maybe stringent in nature.
Latest Updates
23rd July 2024
*In the Union Budget 2024, the Finance Minister proposed the following amendments:
- Clause (i) of Section 17 of CGST Act is being amended to restrict blockage of input tax credit for tax paid under Section 74 for demands pertaining up to FY 2023-24 and remove the reference to sections 129 (Detention, seizure and release of goods and conveyances in transit) and section 130 (Confiscation of goods or conveyances and levy of penalty).
- Clause (f) of section 31 of CGST Act is being amended to provide for an enabling provision to prescribe the time period within which the invoice has to be issued by the recipient under reverse charge mechanism
- Paragraphs 8 and 9 are being inserted in Schedule III of CGST Act to provide that the activity of apportionment of co-insurance premiums by the lead insurer to the co-insurers in the co-insurance agreement and the services by insurers to reinsurers in respect of ceding/re-insurance commission will, subject to certain conditions, be treated neither as a supply of goods nor as a supply of services.
- New sub-sections (5) and (6) are being inserted in section 16 of CGST Act to relax the time limit to avail input tax credit as per section 16(4) of the CGST Act with effect from 01.07.2017, as follows:
- In respect of initial years of implementation of GST, i.e., financial years 2017-18, 2018-19, 2019-20 and 2020-21:
In respect of an invoice or debit note for the Financial Years 2017-18, 2018-19, 2019-20 and 2020-21, the registered person shall be entitled to take input tax credit in any return under section 39 which is filed upto the 30th day of November, 2021- with respect to cases where returns have been filed after revocation:
The time limit to avail input tax credit in respect of an invoice or debit note, in cases where returns for the period from the date of cancellation of registration/ effective date of cancellation of registration till the date of revocation of cancellation of the registration, will be extended till the date of filing the said GSTR-3B return, subject to certain conditions, if the said return is filed by the registered person within thirty days of the order of revocation of cancellation of registration.*This will come into force once notified by the CBIC.
Check out the latest condition added to GST provisions to fulfil and claim ITC, by watching the video-
Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered buyers to claim ITC. The conditions are summarised as follows:
*This provision will come into force once notified by the CBIC.
The time limit to claim ITC against an invoice or debit note is earlier of two dates, given below:
For instance, XY Corp, a buyer with a purchase invoice dated 8th December 2021 (FY 2021-22), wants to claim GST paid on that purchase. As per the criteria laid down to find out the time limit, the two dates are as follows:
The earlier of the two is the date up till when the XY Corp can claim ITC of FY 2021-22. Therefore, the last date is 30th November 2022 and XY Corp can claim this ITC in any of the tax periods between April 2021 to October 2022.
Note: For debit notes, the above condition must be considered with respect to the debit note itself and not the original invoice that it is linked to.
The input tax credit is not available for claims in the following cases-
For further explanation of ineligible ITC claims, read our article on ‘Ineligible ITC under GST’.
Many conditions are there to claim ITC before the last date passes. An Indian enterprise must verify the ITC details before claiming it in Form GSTR-3B for a tax period. It involves regular reconciliation of GSTR-2B with books of accounts. Further, it requires frequent follow-ups with suppliers who have not reported tax invoices or debit notes.
All these require a robust and smart solution that requires the least manual effort!
Clear GST ensures that your GSTR-2B data is fetched without manual intervention. Our advanced reconciliation engine matches data between books and GSTR-2B to identify gaps, with the option to define custom matching logic and claim 100% ITC in GSTR-3B.
Clear GST also allows users to annually reconcile ITC across financial years for accurate preparation of GSTR-9 and GSTR-9C.
Clear Max ITC is India’s first end-to-end enterprise solution for maximising the claims of the input tax credit. Clear Max ITC platform has exclusive features to improve your input tax credit claims with value additions such as the following-
1. It hosts the fastest AI-based reconciliations to match invoices without any errors and help you identify 100% ITC.
2. Automated data reconciliations take place by direct data pulls from the GSTN and the ERP at regular intervals.
3. Automated vendor communication helps you to keep follow-up efforts at a bare minimum.
4. Smart payment decisions are synced to a business’s ERP based on automated vendor categorisation through an intelligent vendor scoring mechanism.
5. Advanced user access management helps you define access rights for each team and keeps data absolutely secure.
The platform firstly sets up a two-way connection between it and your ERP/accounting system. It schedules automatic reconciliations of the GST details at regular time intervals and also syncs vendor payment decisions.
Your team can fix the vendor payment terms to automatically hold the GST value or the entire invoice due if your vendor has not filed GST returns. It further syncs this decision with the ERP for all future payments. If any invoice is missing and identified so, communication is auto-sent to the concerned vendor via email, WhatsApp, etc.
With passing time, you will notice that the Clear Max ITC solution has helped you reduce the number of defaulting vendors, optimise input tax credit, and unblock your working capital. We’ve seen that the solution has helped many of our clients reduce their GST cash outflows and Increase profits by up to 7% just by way of ITC maximisation.
For further understanding, read more articles on ITC-
Removal of provisional ITC and restricting it to GSTR-2B from 1st Jan 202
All about adjustment of Input Tax Credit under GST
Document and forms for claiming ITC under GST
Optimising credits in the amended Rules for Input Tax Credit utilisation
Input Tax Credit (ITC) in GST is the tax paid on purchases used for business, which can be offset against GST payable on sales. Recent amendments aim to relax time limits for claiming ITC and add additional conditions. Section 16 of the CGST Act outlines conditions, including holding tax invoices, timely payment, and no ITC on certain items. Clear Solutions offer a smart platform for accurate and maximum ITC claims.