What is Input Credit under GST ? & How to claim it?
A significant change that GST introduced was the mechanism of input credit under GST.
Pro Tip: Get up and running with e-Invoicing in 3 minutes Request a free demo
Latest Updates
17th December 2022
The following are recommendations from the 48th GST Council meeting-
(1) CGST Rule 37(1) is going to be amended retrospectively from 1st October 2022 for reversing ITC as per the second proviso to Section 16 of CGST Act, only to the extent of the invoice value not paid to the supplier versus the value of the supply, along with tax payable.
(2) GST Council will insert Rule 37A in CGST Rules that will define steps to reverse ITC claimed on taxes not deposited by the supplier within a specified date. Further, the process of re-availing such ITC where the supplier pays it subsequently will be provided in compliance with Section 16(2)(c) of the CGST Act.
(3) Procedure will be given to verify ITC differences between GSTR-3B and GSTR-2A for FY 2017-18 and 2018-19. It would reduce the need for litigations and give much-needed clarity to taxpayers and officers.
(4) ITC will be available for the scenario stated in Section 12(8) of the IGST Act – the place of supply is a foreign country, but the GST-registered recipient is in India, in cases of goods transportation/courier/mail services.
Here’s a quick check about you can expect from this post –
- For beginners – Don’t worry if you have never heard of ‘input credit’ before. We’ll start from scratch.
- For businesses – If you are a business, you may have already heard of VAT input credit, and you will soon know how it differs from GST input credit.
What is input credit?
Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs. Say, you are a manufacturer – tax payable on output (FINAL PRODUCT) is Rs 450 tax paid on input (PURCHASES) is Rs 300 You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes. See here:
Input Credit in GST
Input Credit Mechanism is available to you when you are covered under the GST Act. Which means if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned here, registered under GST, You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.
How to claim input credit under GST?
To claim input credit under GST –
- You must have a tax invoice(of purchase) or debit note issued by registered dealer
- You should have received the goods/services
Note: Where goods are received in lots/instalments, credit will be available against the tax invoice upon receipt of last lot or installment. Note: Where recipient does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.
- The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit
- Supplier has filed GST returns
- Supplier has uploaded the invoice in their GSTR-1 and it appears in GSTR-2B of the recipient or buyer. Know more.
Possibly the most path-breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it. Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST compliant as well.
There’s more you should know about input credit –
- It is possible to have unclaimed input credit. Due to tax on purchases being higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.
If tax on inputs > tax on output –> carry forward input tax or claim refund If tax on output > tax on inputs –> pay balance No interest is paid on input tax balance by the government
- Input tax credit cannot be taken on purchase invoices which are more than one year old only in cases of special circumstances under Section 18(1). The period is calculated from the date of the tax invoice.
- Since GST is charged on both goods and services, input credit can be availed on both goods and services (except those which are on the exempted/negative list).
- Input tax credit is allowed on capital goods.
- Input tax is not allowed for goods and services for personal use.
- No input tax credit shall be allowed after GST return has been filed for September following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.
Type of Taxes under GST
All existing taxes such as VAT, CST, Excise Duty, Service Tax, Entertainment Tax shall go away and GST will replace them.
There are 3 types of taxes under GST
- State GST – SGST
- Centre GST – CGST
- Integrated GST – IGST
Now let’s understand how INPUT CREDIT works under GST
Suppose there is a seller Mr A and he sells his goods to Mr B. Here Mr B i.e the buyer will be eligible to claim the credit on purchases based on the invoices. Let’s understand how:
Step 1: Mr A will upload the details of all tax invoices issued in GSTR 1.
Step 2. The details with respect to sales to Mr B will auto-populate/ get reflected in GSTR 2A or GSTR-2B, the same data will be pulled when Mr B will file GSTR 2 (i.e details of inward supply).
Step 3: Mr B will then accept the details that the purchase has been made and reported by the seller correctly and subsequently the tax on purchases will be credited to ‘Electronic Credit Ledger’ of Mr B and he can adjust it against future output tax liability and get the refund.
In the next blog, we will learn about situations when credit can not be utilised and other provisions related to input tax credit under GST.
