Claiming the Input tax credit

How to claim the Input tax credit?

All the regular taxpayers have to report the amount in the GSTR 3B.

A taxpayer can claim the input tax credit on a provisional basis in GSTR 3B up to 20% of the eligible ITC that is reported by the supplier in the auto-generated GSTR 2A return. The taxpayer must cross-check the GSTR 2A figures before proceeding with the GSTR 3B.

Before the 9th of October 2019, a taxpayer was able to claim any amount of the provisional input tax credit. But CBIC has notified that from October 9, 2019, a taxpayer can claim only 20% of the eligible ITC available in the GSTR 2A as the provisional input tax credit.

This means that the amount of input tax credit that is reported in GSTR 3B will be the total of the actual ITC in GSTR 2A and the provisional ITC, which is 20% of the actual eligible ITC in GSTR 2A. It is important to match the purchase register with the GSTR 2A becomes very important.

Reversal of Input Tax Credit

The input tax credit can be reversed in certain circumstances, which are mentioned below:

• Failure to pay the supplier within 180 days from the invoice date.

• The goods and services, whether inputs or capital goods, are used for personal purposes.

• Goods and services utilized for producing or supplying the exempted goods or services.

• Sale of capital goods or plant and machinery on which the input tax credit was claimed.

• The credit notes are issued by the input service distributor.

• The supplies are ineligible under section 17(5) of the Act.

• A change from the registered regular dealer to a composite dealer, where the input tax credit is reversed.

• The amount that is reversed may be added to the output tax liability in the month in which it is reversed,

• Interest is to be paid from the date the credit is availed till the date when the amount is reversed and paid.

• There is no time limit applicable for reclaiming the reversed credit.

Availing credit under the Reverse Charge Mechanism

How to avail of the credit when the tax has been paid under the Reverse Charge Mechanism?

• When the tax has been paid under the Reverse Charge Mechanism,  the input tax credit may be availed in the same month in which the payment is made, provided the following conditions are satisfied.

• The liability has been discharged through cash.

• The goods or services have been used for business purposes.

• Self-invoicing is done on the purchases as no tax invoice can be issued by the unregistered supplier.

Reconciliation of Input tax credit

Input tax credit claimed by the person has to match the details that are specified by the supplier in the GST return. In case there is a mismatch, the supplier and the recipient will be informed about the discrepancies once the GSTR 3B is filed.

• Special cases of Input tax credit.

• Input tax credit for Capital goods.

• ITC is not available for capital goods that are used exclusively for making exempted goods and exclusively for personal purposes.

Here, ITC will be allowed only if depreciation has been claimed on the tax component of the capital goods.

Input tax credit on the Job work

A principal manufacturer may send goods for further processing to a job worker. In such cases, ITC will be allowed on the goods that are sent to the job worker in these cases:

• From a principal place of business.

• Directly from the place of supply of the supplier of such goods.

• To enjoy the input tax credit the goods must be received back by the principal within 1 year.

• The input tax credit is provided by the Input Service Distributor.

An input service distributor can be the head office, a branch office, or the registered office of the person who is registered under GST. The input tax credit is collected by the input service distributor on all the purchases that are made and distributed to all the recipients.

Input tax credit on the transfer of business

This is applicable in the case of amalgamations/ mergers and the transfer of business. The transferor will have the available input tax credit which will be passed to the transferee at the time of the transfer of business.

Goods and Services not eligible for Input Tax Credit

Under GST, the input tax credit is not available in respect of the following goods or services:

Motor vehicles, except when they are supplied in the course of business or used for providing taxable services like:

• Transportation of passengers.

• Transportation of goods.

• Providing training on driving, flying, and navigating such vehicles.

• A further supply of such vehicles or conveyance.

• Supply of goods and services concerning food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where a registered taxable person uses such inward supply of goods or services of a particular category for making an outward taxable supply of the same category of service.

• Membership of a club, health, and fitness centre.

• Rent a cab, life insurance, health insurance, except where it is statutorily obligatory for an employer to provide such services.

• Travel benefits extended to employees on vacation, such as leave or home travel concession.

• Goods and services received by the principal in the construction of immovable property, other than plant and machinery, except where it is an input service for the supply of works contract service.

• Goods and services received by a taxable person for constructing an immovable property on his account, other than plant and machinery, even when used in the furtherance of business.

• Goods and services on which tax has been paid under the composition scheme.

• Goods and services used for personal consumption.

• Goods lost, stolen, written off, or disposed of by way of gift or free samples.

• Tax paid after detection of fraud, wilful misstatement, or suppression.

• Tax paid for the release of detained or seized goods.

• Tax paid for the release of confiscated goods.