It is a GST that is paid by a Taxpayer when it makes purchases of goods or avails any services and utilises such tax lower its GST obligation when it sells some goods or provides certain services. Input Tax credit simply refers to the ability to deduct the tax paid on inputs from the output tax due and pay the remaining balance.
For example, if Mr. A has purchased goods worth Rs.10000 along with GST at 5% of Rs.500(10000*5%) which he has paid to his Supplier. The same goods Mr. A want to sell at Rs.16000 after charging GST at 5% of Rs.800 (16000*5%) which he has collected from his Customer. So at the time of paying GST to the Government he will only pay Rs.300 (Rs.800- Rs.500). He was able to pay less only because he was able to avail the benefit of Input tax credit of Rs.500. If he was not eligible to avail the credit, then he would simply be paying entire amount of Rs.800 to the Government.
There are certain conditions laid down in the GST Act for availing the benefits of Input tax credit which are as follows: -
1.Goods or services brought should only be used for further business purpose. That means if it is availed for personal consumption then ITC would not be availed.
2.Buyer shall retain such tax invoice, debit note, or other document as evidence of such payment.
3.Such tax invoice or debit note is filed by the supplier in Form GSTR-1 and it appears in the Buyer’s GSTR-2B form.
4.The goods or services have been delivered to the buyer. The delivery of the products by the supplier to the buyer, the buyer's agent, the buyer's representative, or another person as directed in accordance with a document transferring title to the goods constitutes receipt of the goods.
4.The buyer must furnish the GST returns in Form GSTR-3B.
5.Where the goods are received in lots or instalments, ITC will be allowed to be availed when the last lot or instalment is received.
6.The buyer must pay towards the supply of goods and/or services within 180 days from the invoice date. If they fail to do so, then the ITC already claimed will be added back to output tax liability and interest must be paid on such tax. ITC claim will be reinstated once the payment is made to the supplier.
7.If depreciation has been claimed on the tax portion of a capital goods (Assets) purchase, no ITC will be permitted.
8.Input tax credit can be claimed only before 30th November of the following year or before filing of Annual GST returns whichever is earlier. That means to avail Input tax credit for Financial Year 2022-23, ITC for this year can only be claimed on or before 30th November,2023.
9. If Goods are lost or stolen or confiscated after the purchase, then ITC on such inward supply of goods are not eligible for Input tax credit.
Even if the above conditions as mentioned in Question No. 02 is fulfilled still there are certain goods or services on which Input tax credit can never be claimed as laid down under section 17(5) of the CGST Act,2017. These type of goods or services are popularly called as Blocked credit list or Blocked ITC which are as follows: -
(a) Motor vehicles, Aircraft, Vessels and insurance repairs, maintenance done on such MVs Aircraft or Vessels.
(b) Food and beverage outdoor category beauty treatment treatments.
(c) Works contract services.
(d) Input and Input service used for construction of immovable property.
(e) Inputs under composite scheme.
(f) Inputs for NRTP (non-residential taxable person)
A motor vehicle means, any mechanically propelled vehicle used on roads but does not include a vehicle running on fixed rails or a special vehicle used in a factory or an enclosed premises having less than four wheels with an engine capacity not exceeding 25 cubic centimetres.”
Definition of Motor Vehicles exclude –
(a) Vehicles running upon fixed rails (i.e vehicles running on railways)
(b) Special purpose vehicles for being used in a factory or any enclosed premises.
(c) Vehicles with less than 4 wheels fitted with engine capacity upto 25cc. (i.e. motor cycle or bicycle)
Since Input tax credit cannot be availed on Motor vehicles as they are normally included under Blocked list of ITC however there are situations during which credit will still be available when they are used for making the following taxable supplies, namely: -
(a) Used by an Organisation which is engaged in further supply of such motor vehicles;( i.e. dealer or a supplier of Motor Vehicles)
(b) Used by an organisation which is engaged in the business of transportation of passengers
(c) Organisation that imparts training on driving such motor vehicles (i.e. motor driving schools)
Aircraft & Vessels comes under blocked category that means ITC on Aircrafts & Vessels cannot be availed, however, credit will be available when they are used for making the following taxable supplies, namely;
(a) Used by an organisation which is engaged in further supply of such vessels or aircraft (i.e. dealer or supplier of vessels & aircraft)
(b) Used by an organisation which is engaged in the business of transportation of passengers; or
(c) Organisation that imparts training on navigating such vessels; or
(d) Organisation that imparts training on flying such aircraft.
Expenses done on repairs or maintenance or payment of insurance premium on such Assets that are already under the blocked ITC list, ITC on such expenses can also not be claimed. However the input tax credit in respect of such services shall be available –
Where received by a taxable person engaged in:
(a) Expenses incurred by a taxable person who is engaged in manufacturing of such motor vehicles, vessels or aircraft; or
(b) Expenses incurred by a taxable person who is engaged in further supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him.
1.ITC on cars purchased by a manufacturing company for official use of its employees is blocked.
2.ITC on cars purchased by a car dealer for sale to customers is allowed.
Expenses done while availing services of foods, beverages and outdoor catering are normally not allowed for taking ITC. However, Input tax credit in respect of Food and beverages and Outdoor catering will be permitted if there is an obligation on the Employer to provide the facility of Foods, Beverages and catering to his Employee under any other law goods or services is obligatory for an employer to provide to its employees under any law for the time being in force.
1. A manufacturing company purchases food items for being served to its customers then ITC on such goods is blocked.
2. A Manufacturing Company registered under the Factories Act having more than 250 workers. They also have canteen within the Factory premises. Input tax credit on availing the canteen services would be allowable.
ITC on GST paid on Beauty Treatment comes under the list of Blocked Credit and any GST amount paid by a taxable person on Beauty Treatment is not available for ITC.
However, the Input Tax Credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward supply taxable of the same category of goods or services.
ITC on GST paid on health insurance and life insurance is not available, However Input tax credit shall be admissible if the same is obligatory on the Employer to provide to its employees under any law for the time being in force.
If services are availed for construction of an Immovable property then the ITC will not be allowed.
However, credit is available-
(a) Where it is an input service for further supply of works contract service.
(b) Where it is supplied for construction of plant and machinery.
Goods or services both received by a taxable person for construction of an immovable property on his own account including when such goods or services or both are used in the course or furtherance of business are not allowed for claiming an Input tax credit. However, credit is allowed if they are used for construction of plant and machinery.
Goods or services or both received by non-resident taxable person are not eligible for claiming an Input tax credit. However, ITC on goods imported by a Non-Resident taxable person is allowed.
When there is supply of goods or services or both by a person who is registered under Composition scheme to a taxable person who is registered under Normal scheme or vice versa, Input tax credit will be blocked for both taxable person’s, the recipient as well as the supplier.