Budget 2021 update :Section 16 amended to allow taxpayers’ claim of the input tax credit based on GSTR-2A and GSTR-2B. Henceforth, the input tax credit on invoice or debit note may be availed only when the details of such invoice or debit note have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note.
A significant change that GST introduced was the mechanism of input credit under GST.
Here’s a quick check about you can expect from this post –
Update as on 22nd December 2020
1. Following are the changes in Rule 36(4) from 1st January 2021:
- The ITC shall be available as per the invoices uploaded by respective suppliers either in their GSTR-1 or by using the Invoice Furnishing Facility (IFF).
- The recipients can claim provisional input tax credit in GSTR-3B to the extent of 5% instead of earlier 10% of the total ITC available in GSTR-2B for the month.
2. Certain taxpayers cannot make payment from their electronic credit ledger in excess of 99% of the total tax liability for the tax period as per a new rule 86B.
3. GST Registration can be canceled if the conditions laid down under Section 16 of the CGST Act are not complied with.
Update as on 3rd April 2020
The CBIC has notified that taxpayers can claim input tax credit in the GSTR-3B return from February 2020 to August 2020, without applying the rule of capping provisional ITC claims at 10% of the eligible ITC as per GSTR-2A.
While filing the GSTR-3B of September 2020, the taxpayers must cumulatively adjust ITC as per the above rule from February 2020.
Update as on 1st Jan 2020
The CBIC has revised the extent of provisional input tax credit claims from 20% to 10%.
Update as on 9th October 2019
The CBIC has notified that the input tax credit that can be availed by a registered person in respect of invoices or debit notes, will be restricted to 20% of of the eligible credit available in respect of invoices or debit notes as per details uploaded by the suppliers.
Part 1# What is input credit?
- 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.
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.
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
Note: Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of last lot or installment.
- You should have received the goods/services
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
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
Part # 2 Type of Taxes under GST
- Input tax credit cannot be taken on purchase invoices which are more than one year old. 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.
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
SGST – State GST
CGST – Centre GST
IGST – Integrated GST
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, 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.