In reference to a taxpayer, “Input Tax” refers to the Products and Services Tax levied on him for any provision of services and/or services to him or transactions he makes that are utilized or are designed to be utilized in the furthering of his organization.

What is the meaning of Input Tax Credit?

Input tax credit means the ability to deduct the tax you’ve previously paid on inputs while paying taxes on output.

For example, if you’re a producer, the output tax on the finished product is 4,500 INR. The input tax on the purchases is 3,000 INR. You can seek a 3,000 INR Input Tax Credit and just have to pay 1,500 INR in taxes.

What is Input Tax Credit under GST?

If you are subject to the Goods and Service Tax Act, you can use the Input Credit Framework, which implies that if you are a GST-registered producer, distributor, broker, e-commerce provider, aggregator, or any other of the people listed below, you can seek Input Tax Credit.

To collect ITC, various requirements must be met. When it comes to resolving tax liabilities, ITC is among the most important components for every organization. It is the foundation of GST and a primary source of worry for registered people. The rules for claiming ITC set by the GST statute are more or less in accordance with the pre-GST system. These guidelines are likewise fairly specific and strict.

Conditions for Claiming GST Input Tax Credit

A registered individual will be able to receive ITC (Input Tax Credit) if the following requirements are met:

  1. Having a receipt of a tax bill, debit notice, or payment paperwork
  2. Purchase of goods and/or services
  3. Commodities provided by the provider to another person under the instruction of a registered individual in exchange for a document transferring the goods
  4. Submission of the Goods and Services Tax return in GSTR-3B form
  5. When items are obtained in lots or installments, Input Tax Credit can be claimed when the final lot or installment is received.
  6. If the provider fails to provide goods and/or services within 6 months or 180 working days of the bill date, Input Tax Credit previously collected by the receiver will be included in the recipient’s output tax due, with interest charged on the tax concerned. Input Tax Credit will be available for a claim after the supplier has been paid.
  7. If the depreciation amount on the tax portion of a capital product has been collected, no Input Tax Credit will be awarded.
  8. The deadline for claiming Input Tax Credit on an invoice or debit note is the earliest of the following dates: The deadline for submitting the GST Return for September of the upcoming fiscal year or the date for submitting the appropriate Yearly Returns for that fiscal year.

Notice: Regarding Debit Notes, the aforementioned requirement must be applied to the direct debit note, not the actual invoice to which it is attached.

  1. ITC credits are often utilized to influence exempt and taxable supply, as well as business and non-commercial activities.
  2. A normal tax paying citizen can only receive provisional Input Tax Credit in GSTR-3B up to 5% of the Input Tax Credit obtainable in GSTR-2B. It indicates that the sum of Input Tax Credit recorded in GSTR-3B will just be an amount of real Input Tax Credit in GSTR-2B plus 5% of real Input Tax Credit in GSTR-2B. As a result, synchronizing the purchase register or cost ledger with the GSTR-2B becomes critical.
  3. Aside from the aforementioned restrictions, certain commodities are identified as being ineligible for Input Tax Credit requests under CGST Act Section 17(5).

How does Input Tax Credit under GST work?

Goods and Services Tax (GST) consists of three categories of taxes namely,

  • SGST – State Goods and Service Tax
  • CGST – Central Goods and Service Tax
  • IGST – Integrated Goods and Service Tax

Assume there is a vendor, Mr. Bhuvan, who sells his products to Mr. Ashish. Mr. Ashish, the buyer, will be able to seek credit on his purchases depending on the received invoices in this case.

The procedure will be completed in 3 steps:

  1. Mr. Bhuvan would submit all tax invoices generated under the Goods and Services Tax Return 1 (GSTR 1).
  2. The specifics of Mr. Ashish’s purchases will auto-populate/be represented in the Goods and Services Tax Return 2A (GSTR 2A), and the same information will be fetched when Mr. Ashish files Goods and Services Tax Return 2 (GSTR 2).
  3.  Mr. Ashish will verify the data that the transaction was made and accurately recorded by the vendor, and the taxes on buying will be allocated to Mr. Ashish’s ‘Electronic Credit Ledger,’ which he may then balance against future production tax due and receive the refunds.

How do I obtain GST Input Tax Credit?

To claim GST Input Tax Credit –

  • You should have a taxation invoice or a debit note provided by a licensed dealer.
  • You must have received the products/services by now. When items are delivered in installments, credit against the taxation invoice will be granted upon delivery of the last amount or installment. 

Note: If the receiver fails to pay the price of the services or the applicable tax within three months of the invoice’s issuance and has already claimed input credit depending on the taxation invoice, the credit amount will be applied to his output tax amount due, together with the applicable interest.

  • The provider has deposited the tax amount levied on your goods to the government either in cash or by obtaining input tax credit.
  • The vendor has submitted Goods and Service Tax returns.

The most revolutionary Goods and Service Tax change is that input tax credit is only available if the vendor has remitted the tax he obtained from you. As a result, before you can seek an input tax credit, it must be matched and confirmed. As a result, in order for you to receive an input tax credit on your purchases, all of your vendors must also be Goods and Service Tax registered.

Items for which Input Tax Credit is not Permitted

Sl. No.

Particulars

Exceptions

01

Motor Vehicles

  • Longer supply of these vehicles or modes of transportation

  • Passenger transportation

02

Conveyances of Other Kinds

  • Providing driving and navigation instruction for these kinds of vehicles.

  • Goods transportation conveyances

  • Automobiles for the conveyance of people with a load of more than 13 people, along with the driver, when utilized for commercial reasons

  • Buses for worker pick-up and drop-off (if allowed capacity exceeds 13 people which includes the driver) – part of the above.

03

Meals, outdoor caterers, beauty care, cosmetic medical services, and plastic surgeries

  • Unless an enrolled person consumes an inward provision of products or goods or both of a specific category in order to make an outgoing taxable provision of the same type of services or goods or both, as a component of a taxable compound or a composite supply.

  • ITC is accessible in the case of meals and drinks or medical services if an employer is required to offer such products or services to workers by any legislation in place at the moment.

04

Insurance plans, maintenance, and repair for automobiles and modes of transportation are not permitted.

  • Only permitted under this heading if ITC on automobiles is permitted;

  • If the Input Tax Credit on any sort of automobile is not permitted, the insurance costs, maintenance, and repairs for such cars are also prohibited.

05

Club Membership

Nil

06

Participation in a Medical Center

Nil

07

Participation at a Health Club;

Nil

08

Rent-a-cab, Life Insurance Plans, Health Insurance Plans

  • The legislature specifies the services that a company is required to give to its workers under any already enacted law; or

  • A recognized individual uses such an inward provision of products or services or even both of a certain type to make an outward taxable provision of the identical Category of services or goods or even both or as a component of a taxable composition or mixed provision.

09

Benefits of Employee Vacation 

Nil

10

Benefits of LTA (Leave Travel Benefits)

Nil

11

Working Contact Services when construction services are provided for an Immovable Asset

  • Unless it is an intake service for the prolonged provision of works contract services and equipment and machines.

12

Services or goods when construction services are provided for an Immovable Asset

  • With the exception of services or goods obtained on his personal account, where such goods and/or services, are employed in the conduct or promotion of business, and equipment and machinery.

13

Services or goods, or maybe both, on which taxes have been charged in accordance with Section 10

  • Composition Scheme Section 10

14

A Non-resident person receiving services or goods, or maybe both.

  • Except in the case of products brought by him

15

Services or goods, or maybe both, utilized for consumption

Nil

16

Lost goods

Nil

17

Written off goods

Nil

18

Destroyed Goods

Nil

19

Stolen Goods

Nil

20

Goods given away as a gift or as freebies

  • Worker rewards are excluded from GST up to a sum of 50,000 INR for each worker – Schedule I of the CGST Act of 2017.

21

Taxes charged in line with Section 74, Section 129, and Section 130.

  • In cases of deception, misrepresentation, and so on.

Latest Updates on Input Tax Credit under GST

  • Feb 1, 2021

    Section 16 of the Budget 2021 has been revised to allow tax paying citizens to seek the input tax credit depending on Goods and Service Tax Returns – 2A and Goods and Service Tax Returns – 2B. In the future, the input credit on an invoice or a debit note could be claimed only if the contents of that debit note or invoice have been provided by the vendor in the report of outward deliveries and notified to the recipients of the debit note or invoice.

  • May 1, 2021

    The Central Goods and Services Tax Rule 36(4), which limits provisional ITC claims to 5% of Goods and Service Tax Returns – 2B in Goods and Service Tax Returns -3B, has been eased for April 2021. This regulation can be applied retrospectively for April as well as May, whereas Goods and Service Tax Returns – 3B for May 2021 is required.

  • May 28, 2021

    The Central Goods and Services Tax Rule 36(4) should be applied retrospectively for April, May, as well as June 2021 while submitting Goods and Service Tax Returns – 3B for June 2021.


FAQ’s

Input taxes refer to the CGST, SGST, IGST, or UTGST levied on a registered individual’s supply of products and/or services. It also comprises reverse charge taxes and integrated tax products and services tax levied on items imported. It excludes taxes paid under the composition levy.


A licensed taxpayer under the Goods and Service Tax Act who pays taxes due in the conduct or promotion of business may seek and use Income Tax Credit recorded in the digital ledger.