Concept of Input Tax

Credit

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 Concept of ITC

 “Input tax" means IGST (including that on import of

goods), CGST, SGST and UTGST;
 Charged on any supply of goods or services and;
 Includes the tax payable under sub-section (3) and (4) of
section 9,
 Includes the tax payable under sub-section (3) and (4) of
section 5 of IGST Act,
 Includes the tax payable under sub-section (3) and (4) of
section 9 of SGST Act,
 Includes the tax payable under sub-section (3) and (4) of
section 7 of UTGST Act, excludes the tax paid under
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section 10 (composition levy)
 Principles on Input Tax Credit
 System for a seamless flow of credit
 Extends to inter-State supplies
 Credit utilization would be as follows [Sec 49(5)]:

Allowed for Payment of

Credit of:
IGST CGST SGST
IGST  (1)  (2)  (3)
CGST  (2)  (1)
SGST  (2)  (1)
*The numbers represent the order of utilization of credit
 Expectation: Accumulation of unutilized GST credits would be
avoided except in cases of exports
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 Conditions for Availment of ITC by a
Registered Taxable Person – Sec 16

Basis - tax Tax actually paid

invoice / debit by the supplier to He has
note issued by a the credit of the furnished the
Goods and/or
registered appropriate monthly return
services have
supplier, or other Government, in Form GSTR-3
prescribed been received* either in cash or under Section
taxpaying by utilization of 39
document ITC

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 Conditions for Availment of ITC by a
Registered Taxable Person – Sec 16

Note:
• Credit only upon receipt of the last lot/ instalment in case of goods received
in lots / instalments.
• Goods deemed to be received by a taxable person when the supplier
delivers the goods to the recipient/ any other person, on the direction
provided by the taxable person to the supplier.
• Exception in case of goods being directly sent to job worker
• If the recipient of services fails to pay (value + tax) within 180 days from
date of invoice, (ITC availed + interest @ 18%) shall be added to his output
tax liability. ITC available when amount discharged later

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 ITC in case of Capital Goods

Depreciation claimed on Tax component of ITC not Available

the cost of capital goods under IT Act

Example:
Cost of asset = Rs. 100
Tax-10%(say) = Rs. 10
Total Cost Rs. 110

If Depreciation If Depreciation
charged on Rs.100 charged on Rs.110
ITC Available ITC not Available

“capital goods” means the goods, the value of which is capitalized in the books
of accounts of the person claiming the credit and which are used of intended
to be used in the course or furtherance of the business 6
 ITC on the Basis of use of Inputs – Sec 17

Note:
For Business Attribution of
ITC Available
purposes
Use of input tax ITC to be
credit made as per
For Other ITC not the manner
Purposes Available prescribed in
the ITC Rules

“input” means any goods other than capital goods used or intended to be used
by a supplier in the course or furtherance of business

“input service” means any service used or intended to be used by a supplier in

the course or furtherance of business
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 ITC on the Basis of use of Inputs – Sec 17

Use of input tax

credit: Partly for
Note:
Attribution of
Zero- Non-
Taxable Exempt Nil-rated ITC to be
rated taxable
Supplies Supplies Supplies made as per
Supplies Supplies
the manner
prescribed in
ITC not
ITCITC
Available ITC not available
available the ITC Rules
Available

Alternative to apportionment between taxable and exempt supplies in case of

banking companies and financial institutions:
• Yearly option to avail a standard rate of 50% of eligible ITC on inputs, capital
goods and input services on a monthly basis
• 50% shall not be applied on tax paid on supplies made by one registered
person to another registered person having same PAN 8
 Restrictions on ITC – Sec 17(5)
Blocked credits

a) Motor Vehicles  Transportation of goods , or

 Making the following taxable
Except
ITC for services:
when i. Further supply of such vehicles
Motor
they / conveyances, or
Vehicles will
are ii. Transportation of passengers,
NOT be
used or
available
for iii. Training for driving / flying /
navigating such vehicles /
conveyances

Note: Where any amount has been paid on goods and / or

services, in lieu of tax, under composition scheme, no credit on
such amount would be allowed.
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 Restrictions on ITC – Sec 17(5)
Blocked credits
b) Supply of goods and services being:
Allowed ONLY if goods /
Food Cosmeti services of a particular
Beauty
and Outdoor Health c and
Treatme category are used
Beverag Catering Services Plastic
nt towards making taxable
es Surgery
outward supplies of the
Life / same category
health Rent-a-
Insuranc cab
e
Travel
Health and Benefits
Membersh
Allowed ONLY if where the services are Fitness to
ip of club
notified as obligatory for an employer to Centre employe
provide an employee or services of a es
particular category are used towards
making taxable outward supplies of the NEVER allowed 10
same category
 Restrictions on ITC – Sec 17(5)
Blocked credits
c) Construction of Immovable Property (other than plant and
machinery)
Goods or services received by a
Works contract taxable person for construction
services, except where of an
it is an input service for immovable property on his own
further supply of works account even when used in
contract service course or furtherance of
business;
Construction
includes re-
construction,
renovation, additions
ITC not Available or alterations or
repairs to the extent
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of capitalisation
 Restrictions on ITC : Sec 17(5)
Blocked credits
 Taxes on supply of goods or services paid u/s 10

 Goods or services or both received by a non-resident taxable person

except on goods imported by him, shall not be allowed

 Goods or services or both used for personal consumption

 Goods lost, stolen, destroyed, written off or disposed of by way of gift or

free supplies and

 Any tax paid in accordance with the provisions of sections 74, 129 and
130.
Plant and machinery means means apparatus, equipment, and machinery
fixed to earth by foundation or structural support that are used for making
outward supply of goods or services or both and includes such foundation
and structural supports but excludes— (i) land, building or any other civil
structures; (ii) telecommunication towers; and (iii) pipelines laid outside the
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factory premises.
 Eligibility and Time Limit for Availing 13

ITC
Earlier of :
1. Annual Return
Admissible to filing Date
2. Return filing
take ITC on ITC amount will be date for
supplies used /
Registered Taxable credited to the September of
intended to be
Person – 16(1) electronic Credit the following
used in the course
Eligibility and Time Limit of ITC

Ledger FY
/ furtherance of
business
Person applied
ITC available in On the day
for registration
Availment

respect of: immediately

within 30 days of
a) Inputs preceding the
becoming liable One Year
b)Semi-finished date from which
to register, and
Good he becomes liable from the
registration
c) Finished Goods to pay tax date of issue
granted
On the day of tax
Person applied for immediately invoice 18(2)
Voluntary Same as above preceding the
Registration date of
registration
 Eligibility and Time Limit for Availing 14

ITC Earlier of :
1. Annual Return
filing Date
2. Return filing
date for
September of
the following
Eligibility and Time Limit of ITC Availment

ITC available in
On the day FY
respect of:
Registered taxable a) Inputs/ Capital immediately
preceding the date
person ceases to Goods from which he
pay composition tax b)Semi-finished becomes liable to One Year from
Good pay tax u/s 8
the date of
c)Finished Goods
issue of tax
invoice 18(2)
On the day
Where exempt immediately
preceding the
supply become Same as above date on which
taxable supply supply becomes
taxable
 Eligibility of ITC in case of New
Registrations – Sec 18(1)

Entitled to Relevant
credit of Date: As on
Person liable Who applies input tax the
for for w.r.t inputs preceding
registration registration held in date on
u/s 25(1) within 30 stock, semi- which he
( days finished or becomes
finished liable to pay
goods tax

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 Eligibility of ITC in case of New
Registrations (Voluntary Registration) –
Sec 18(1)

Entitled to credit
Relevant Date: As
of input tax w.r.t
Person liable for on the preceding
inputs held in
registration u/s date on which
stock, semi-
25(3) registration is
finished or
granted
finished goods

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 Switching from Composition / Exempt
Supply to Normal Tax / Taxable Supply
– Sec 18(1)
Entitled to credit
of input tax w.r.t
Relevant Date: As
inputs held in
Person ceases to on the preceding
stock, semi-
pay tax u/s 10 date on which
finished or
liable to pay u/s 9
finished goods
and Capital Goods

Entitled to credit
of input tax w.r.t Relevant Date: As
inputs held in on the preceding
Goods or Services
stock, semi- date from which
becoming taxable
finished or supply becomes
finished goods taxable
and Capital Goods

Credit on Capital Goods to be available after reducing 5% per quarter of a year

or part from the date of invoice or such other document on which capital
goods were received by taxable person 17
 Conditions for claiming credit under –
Sec 18(1)
 Purchase invoice should not be earlier than 1 year from
the relevant date

 Declaration in Form GST ITC-01 to be filed within 30 days

from the date of him becoming eligible

 Details of Inputs held in stock / semi finished or finished

goods and capital goods to be furnished in Form GST ITC-
01 within 30 days from the relevant date

 Declaration in Form GST ITC-01 to be certified by a

practicing Chartered Accountant or Cost Accountant if the
value of credit claimed exceeds Rs. 2,00,000 18
 ITC – Change in Constitution of
Taxable Person Sec 18(3)
Transfer of
Unutilized ITC in
On account of:
 Sale, the books allowed
 Merger, to such:
Change in  Sold,
Constitution of  Demerger,
 Merged,
Registered  Amalgamation,
 Demerged,
Taxable Person  Lease, or
 Amalgamated,
 Transfer of
 Leased, or
business  Transferred
 Business
ITC shall be apportioned in the ratio of value of assets of the new units in case of
demerger scheme

 Transferor to submit certificate from a practicing Chartered Accountant certifying

whether the sale / merger / de-merger / amalgamation / lease / transfer has been
done with specific provision for transfer of liabilities

 Transferee to furnish details of credit available in Form GST ITC-02 19

 Switching from regular to over
composition- Pay and Exit – Sec 18(4)
Eligible credit under earlier law carried forward in the
return

Amount equivalent to the credit of input tax in respect of

input held in stock or input contained in semi-finished
goods or finished goods held in stock and capital goods as
on appointed day

Such amount shall be payable by debiting the

electronic credit ledger or cash ledger

Balance in electronic credit ledger shall lapse

Declaration for input tax reversed to be submitted in Form GST

ITC-3
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 Supply of Capital goods on which ITC
already taken – Sec 18(6)
ITC availed earlier
Supply of Capital LESS 5% for every
goods on which ITC Pay Tax on higher quarter
had been taken of: OR
earlier Tax on Transaction
Value
Note: Any credit wrongly taken shall be subjected to the recovery
provisions Purchase Date of Jan 01,
Laptop 2015
Purchase Price 50,000
Taxes Paid 10,000
May 05,
Sale Date 2017
Sale Value of Laptop 10,000 Particulars Amount
Input Tax Credit Availed 10,000

Particulars Amount Less: 5% per quarter (For 10

quarters) 5,000
Sale Value of Laptop 10,000
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IGST @ 18% 1,800
 ITC Rules – Credit in Special
Circumstances
 Credit of Capital Goods as provided to a person switching from
composition to regular scheme and a person whose exempt
supply becomes taxable supply (Section 18 (1)(c) and (d), shall
be claimed after reducing such tax by 5% per quarter from the
date of issue of invoice;

 A declaration within 30 days shall be furnished in all the

scenarios as specified in Section 18 (1) for details relating to
inputs, semi-finished, finished and capital goods as the case
may be;

 CA/CMA certificate is necessary in case claim for input tax

exceeds 2 lakhs;
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
 ITC Rules (Rule 36-45) – Manner of
Reversal
I. Reversal of credit where inputs or input services are used partly for
business purposes or partly for effecting exempt supplies –
 Total input tax in a tax period to be denoted as ‘T’
 Amount of input tax used exclusively for the purposes other than
business ‘T1’
 Amount of input tax used exclusively for effecting exempt supplies ‘T2’
 Amount of blocked credit as per Section 17 (5) ‘T3’
 Amount of input tax to be credited to electronic credit ledger ‘C1 = T-
(T1+T2+T3)’
 Amount of input tax used exclusively for effecting taxable and zero
rated supplies ‘T4’
 T1, T2, T3, T4 to be determined at invoice level in GSTR-2
 Common Credit “C2 = C1-T4”
 Credit attributable towards exempt supplies “D1 = C2*(E/F)
where
 ‘E’ is the aggregate value of exempt supplies, that is, all supplies other
than taxable and zero rated supplies, during the tax period, and 23

 ITC Rules – Manner of Reversal

 Remaining credit available for business purpose and for

taxable and zero rated supplies “C3 = C2 - (D1+D2)”;
 C3 to be computed separately for CGST, SGST, UTGST and
IGST;
 D1 and D2 shall be added to output tax liability provided
invoice wise segregation has been made;
 Credit calculated on provisional basis shall be computed
finally before due date of filing returns for the month of
September following the end of the FY to which credit
relates;
 In case amount calculated exceeds the provisional
calculation the differential amount shall be added to the
output tax liability and interest from the month of April of
next FY till the date of payment to be paid; 24

 ITC Rules – MannerParticulars
Terms used in
of Reversal- Illustration
Amount
Rule
T Total Input Tax of Input and Input Services 500.00
T1 ITC for Non Business 100.00
T2 ITC for Exempt Supply 50.00
T3 ITC of Blocked Credits (Inputs Only) 25.00
C1 = T- Valid ITC in ECL 325.00
(T1+T2+T3)
T4 ITC for Taxable Supply 200.00
C2= C1-T4 Common ITC 125.00
E Value of Exempt Supplies 2000.00
F Aggregate Turnover 5000.00
D1= E/F*C2 Value of ITC for Exempt Supply (From Common 50.00
ITC)
D2= C2*5% Value of ITC for Non Business Purpose ( From 6.25
Common ITC)
C3= C2-(D1+D2) Eligible ITC from Common ITC 68.75
T4+C3 Total Eligible ITC for Use 268.75

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 ITC Rules – Manner of Reversal
II. Reversal of credit where capital goods are used partly for business
purposes or partly for effecting exempt supplies:
 Amount of input tax in respect of capital goods used exclusively for non
business purposes or used for effecting exempted supplies shall be
indicated in GSTR-2 and shall not be credited in ECL
 Amount of input tax in respect of capital goods used exclusively for
effecting taxable supplies including zero rated supplies shall be
indicated in GSTR-2 and shall be credited in ECL
 Amount of input tax for remaining capital goods shall be denoted as ‘A’
and useful life shall be taken as 5 years
 In case where capital goods subsequently used for business purposes or
for effecting taxable supplies including zero rated supplies, input tax
credit shall be included in A after reducing 5% for every quarter
 The aggregate amount of A shall be denoted as Tc
 Input tax attributable to common capital goods “Tm=Tc/60”
 Input tax at the beginning of tax period for capital goods having
remaining residual life during tax period ‘Tr’ which is aggregate of Tm of
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all capital goods
 ITC Rules – Manner of Reversal
 Amount of credit attributable towards exempted supplies “Te=(E/F)*Tr,
where,
 ‘E’ is the aggregate value of exempt supplies, that is, all supplies other
than taxable and zero rated supplies, during the tax period, and
 ‘F’ is the total turnover of the registered person during the tax period:
 Amount of Te along with applicable interest shall be added to output tax
liability during every tax period of the residual life of the concerned
capital goods
 Te to be computed separately for CGST, SGST, UTGST, IGST
For the purpose of this rule –
(1) “capital goods” shall include “plant and machinery” as defined in the
Explanation to section 17;
(2) for determining the value of an exempt supply as referred to in sub-section
(3) of section 17:-
(a) the value of land and building shall be taken as the same as adopted for the
purpose of paying stamp duty; and
(b) the value of security shall be taken as one per cent. of the sale value of such
security. 27
 ITC in respect of goods sent for job
work – Sec 19
Inputs/ Capital Goods sent for
job work

Principal Received back or directly supplied Job Worker

from job-worker’s premises within
1 year (inputs) or 3 years (capital
goods) of being sent out

ITC available if the conditions and restrictions under job work are
satisfied
If not received / directly supplied in time: Principal to pay ITC
availed + Interest.
He can reclaim this ITC on receiving back such inputs/ capital
goods.
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 Input Service Distributor – Sec 20
 ITC is distributed to supplier of goods and / or services of same
entity having the same PAN

 Deemed as ISD is a supplier of Service for distributing credit

 Common Services used at for

Office /
Distribution of Credit where ISD and
Corpora
recipient are located in different State
te
under CGST ACT, SGST ACT or UTGST Act
office
of
Distribution of Credit where ISD and
Supplie
recipient are located in within State
r
under CGST ACT, SGST ACT or UTGST Act

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 Input Service Distributor
ISD and Recipient
in Same State
ISD and (Business vertical)
Recipient in
Different States

CGST Act SGST Act CGST Act SGST Act

Credit of CGST Credit of SGST

or IGST as IGST as IGST Credit of CGST or Credit of SGST or
IGST as CGST IGST as SGST

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 Conditions to distribute credit : Input
Service Distributor
 Credit distributed to recipient through prescribed documents containing
prescribed details. Such document should be issued to each of the
recipient of credit.

 Credit distributed should not exceed the credit available for distribution

 Tax paid on input services used by a particular location (registered as

supplier) has to be distributed only to that location.

 Credit of tax paid on input service used by more than one location who
are operational is to be distributed to all of them based on the pro rata
basis of turnover of each location in a State to aggregate turnover of all
such locations who have used such services

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 Excess Credit distributed by Input
Service Distributor – Sec 21

Excess Credit Distributed by

ISD

Credit distributed in excess Excess credit distributed to

of what was available one or more suppliers

Recovery of such excess

credit with interest from the
recipient

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 ITC Rules – Credit Distribution
Procedure in case of ISD
I. Distribution to one or more recipients – Section 20(2)(d)(e)

 Credit to be distributed to recipients whether registered or not,

from amongst the total of all the recipients to whom input tax
credit is attributable, including the recipient(s) who are engaged
in making exempt supply, or are otherwise not registered for any
reason –

C1 = (t1/T)*C

where,
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of person R1
during the relevant period, and
“T” is the aggregate of the turnover of all recipients during
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the relevant period;
Thank You

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