Updated on: Feb 16th, 2024
11 min read
‘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.
1st February 2023
Budget 2023 updates*
1. Section 16 is amended to state that buyers who fail to pay their supplier the invoice value, including the GST amount, within 180 days from the date of issue of the invoice, must pay an amount equal to the ITC claimed along with interest under Section 50.
2. Sections 37, 39, 44, and 52 are amended to restrict taxpayers from filing their GSTR-1, GSTR-3B, GSTR-9 and GSTR-8 for a tax period after the expiry of three years from the due date.
3. Section 17(5) is revised to include another item under ineligible ITC being expenditure on CSR initiatives for corporates.
4. High sea sales and similar transactions that are neither supply of goods or services are considered exempt and hence ITC proportional to such sales cannot be claimed as per revised Section 17(3).
5. Schedule III has been amended to provide for paras (7) and (8) and explanation (2) to take retrospective effect from 1st July 2017.
6. Section 10 of the CGST Act has been amended to allow businesses that supply goods through an e-commerce operator to opt into the composition scheme.
*These amendments 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-
I preach the words, “Learning never exhausts the mind.” An aspiring CA and a passionate content writer having 4+ years of hands-on experience in deciphering jargon in Indian GST, Income Tax, off late also into the much larger Indian finance ecosystem, I love curating content in various forms to the interest of tax professionals, and enterprises, both big and small. While not writing, you can catch me singing Shāstriya Sangeetha and tuning my violin ;). Read more
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