ಈ ಬ್ಲಾಗ್ನೊಂದಿಗೆ ಇನ್ಪುಟ್ ಟ್ಯಾಕ್ಸ್ ಕ್ರೆಡಿಟ್ (ITC) ಕಾರ್ಯವಿಧಾನದ ಜಟಿಲತೆಗಳಿಗೆ ಡೈವ್ ಮಾಡಿ. ಅರ್ಹತಾ ಮಾನದಂಡಗಳನ್ನು ಅರ್ಥಮಾಡಿಕೊಳ್ಳುವುದರಿಂದ ಹಿಡಿದು ಕ್ಲೈಮ್ ಕಾರ್ಯವಿಧಾನಗಳನ್ನು ಉತ್ತಮಗೊಳಿಸುವವರೆಗೆ, ITC ಪ್ರಕ್ರಿಯೆಯನ್ನು ಪರಿಣಾಮಕಾರಿಯಾಗಿ ನ್ಯಾವಿಗೇಟ್ ಮಾಡಲು ವ್ಯವಹಾರಗಳಿಗೆ ಸಹಾಯ ಮಾಡಲು ಒಳನೋಟಗಳನ್ನು ಪಡೆಯಿರಿ.
Input Tax Credit (ITC) explained
Input tax credit is a confusing mechanism that empowers businesses to claim credit for taxes paid on inputs used in producing or providing goods and services. This attractive provision eliminates the risk of double taxation by allowing businesses to deduct tax paid on purchases from their sales tax liability. The primary objective of this mechanism is to levy taxes separately on incremental value at each stage of the supply chain.
What is Input Tax Credit?
Input tax credit means that while paying tax on output, you can deduct tax already paid on inputs and pay the balance.
When you buy a product/service from a registered dealer you pay tax on the purchase. When selling, you collect tax. The taxes you pay at the time of purchase are output tax (tax on sales) and tax arrears liability (tax on sales minus tax on purchases) to the government. This procedure is known as utilization of input tax credit.
For example – you are a manufacturer of:
- Tax payable on product (final product) ₹450
- Tax paid on input (purchases) ₹300
- You can claim input credit of ₹300 and deposit only ₹150 in tax
Who can claim ITC?
A person registered under GST can claim ITC only if he fulfills all the conditions as prescribed.
- Dealer must have tax invoice
- The said goods/services have been received
- Returns have been filed.
- The levied tax is paid by the supplier to the government.
- When goods are received in installments ITC can be claimed only when the last lot is received.
- No ITC is allowed if depreciation is claimed on the taxable element of capital goods
A person registered under incorporation scheme in GST cannot claim ITC.
What can be claimed as ITC?
ITC can be claimed for business purposes only. ITC is not available for goods or services used exclusively for:
- Personal to us
- Exception supplies
- Supplies not specifically available by ITC
How to claim ITC?
All regular taxpayers must report the amount of Input Tax Credit (ITC) in their monthly GST returns form GSTR-3B. Table 4 requires a summary figure of eligible ITC, non-eligible ITC and ITC returned during the tax period. The format of Table 4 is given below:
Taxpayer could have claimed any amount of Provisional ITC till 9 October 2019. Later, the government restricted the provisional ITC as follows:
| Applicable Date | % of Provisional ITC |
| Upto 09.10.2019 | There is no limit |
| 09.10.2019 to 31.12.2019 | 20% |
| 01.01.2020 to 31.12.2020 | 10% |
| 01.01.2021 to 31.12.2021 | 5% |
| From 01.01.2022 | zero |
Accordingly, taxpayers can claim ITC only if it appears in their GSTR-2B. Hence, no provisional ITC can be claimed from 1st January 2022 onwards. Hence, reconciliation of purchase register with GSTR-2B is crucial for ITC claims.
Input Tax Credit Reversal
ITC can be claimed only on goods and services for business purposes. ITC cannot be claimed if they are used for non-business (personal) purposes or for making exempt supplies. Apart from these, there are some other situations where ITC can be refunded.
ITC is refunded in the following cases-
1) Non-payment of invoices within 180 days – ITC will be refunded for invoices not paid within the given 180 days.
2) Credit note issued by the seller to ISD – This is for ISD. If credit note is issued by seller to HO, then ITC is reduced
3) Partly for business purpose and partly for exempted supplies or personal use – This is for businesses using inputs for business and non-business (personal) purpose. ITC used on input goods/services used for personal purpose should be reverse proportional.
4) Capital goods partly for business and partly for exempted supplies or personal use – Same as above except that it relates to capital goods
5) ITC is less than reverse requirement- It is calculated after furnishing the annual income. If the total ITC on exempt/non-business purpose inputs is more than the ITC actually refunded during the year, the difference amount will be added to the output liability. Interest is applicable
Details of reversal of ITC are provided in GSTR-3B. Read our article to understand more about separating ITC for business and personal use and subsequent calculations.
ITC coordination
The ITC claimed by the individual must match with the details specified by his supplier in his GST return. If there is no match, the supplier and receiver will be informed about the discrepancies after filling GSTR-3B. Learn how to reconcile through our article on GSTR-2A reconciliation. Please read our article for detailed explanation of reasons for mismatch of ITC and procedure to be followed to apply for re-claim of ITC.
Documents required to claim ITC
The following documents are required to claim ITC:
- Invoice issued by supplier of goods/services
- Debit note (if any) issued by the supplier to the recipient
- Bill of Entry
- An invoice issued in certain circumstances such as a bill of supply issued in lieu of a tax invoice if the amount is less than Rs 200 or where reverse charge is applicable as per GST law.
- Invoice or credit note issued by Input Service Distributor (ISD) as per invoicing rules under GST.
- A bill of supply issued by a supplier of goods and services or both.
Special cases of ITC
ITC for capital goods
ITC is available for capital goods under GST. However, ITC is not available-
- Capital goods used exclusively for manufacturing exempted goods ii. Capital goods are used exclusively for non-business (personal) purposes
Note: No ITC is allowed if depreciation is claimed on the taxable element of capital goods.
ITC on job work
A major manufacturer may send goods to a job worker for further processing. For example, a shoe manufacturing company sends half-made shoes (uppers) to workers to fit the soles. In such a situation the principal manufacturer shall be allowed to take credit of tax paid on purchase of such goods sent on the job.
ITC is allowed when goods are sent to workmen in both cases :
- From the principal’s place of business
- directly from the supplier’s place of supply of such goods
However, to enjoy ITC, the goods sent must be received back by the principal within 1 year (3 years for capital goods).
Provided by ITC Input Service Distributor (ISD).
An input service distributor (ISD) can be the head office (mostly) or a branch office or registered office of a person registered under GST. ISD collects input tax credit on all purchases made and distributes it to all recipients (branches) under different heads like CGST, SGST/UTGST, IGST or Cess.
ITC on transfer of business
This applies in cases of mergers/mergers/ transfer of business. The transferor has available ITC, which is remitted to the transferee at the time of transfer of business.
Conclusion
Input Tax Credit (ITC) mechanism is essential for businesses to maximize tax benefits and maintain compliance. By implementing the strategies outlined in this guide, businesses can optimize their ITC claims, minimize tax liabilities and streamline their operations. The government’s portal allows businesses to apply GST online efficiently.
