Input Tax Credit under GST: Conditions to Claim

Input Tax Credit under GST: Conditions to Claim

Input Tax Credit under GST: Conditions to Claim

The Goods and Services Tax (GST) introduced the concept of Input Tax Credit (ITC), which allows taxable individuals to claim a credit for the GST paid on their purchases of goods and services used for business purposes. However, there are certain conditions that must be fulfilled before one can avail of this credit.

These conditions, outlined in the GST law, are similar to the ones in the pre-GST regime, with a few additional requirements such as GSTR-2B. Compliance with these rules is essential as they are direct and stringent in nature.

Recent Updates:

1st February 2023

Budget 2023 updates*

1. Section 16 has been amended to state that buyers who fail to pay their supplier the invoice value, including the GST amount, within 180 days from the date of issue of the invoice, must pay an amount equal to the ITC claimed along with interest under Section 50.

2. Sections 37, 39, 44, and 52 have been amended to restrict taxpayers from filing their GSTR-1, GSTR-3B, GSTR-9, and GSTR-8 for a tax period after three years from the due date.

3. Section 17(5) has been revised to include expenditure on CSR initiatives for corporates as ineligible ITC.

4. High sea sales and similar transactions that are neither supply of goods nor services are considered exempt, and therefore, ITC proportional to such sales cannot be claimed as per revised Section 17(3).

5. Amendments have been made to Schedule III, providing for retrospection from 1st July 2017.

6. Section 10 of the CGST Act has been amended to allow businesses that supply goods through an e-commerce operator to opt into the composition scheme.

*These amendments will be effective upon notification by the CBIC.

To learn more about the latest condition added to GST provisions and how to fulfill and claim ITC, please watch the video.

Conditions to Claim Input Tax Credit under GST

Section 16 of the CGST Act specifies the conditions that GST registered buyers must meet to claim ITC. Here is a summary of these conditions:

1. The goods or services purchased must be used for business purposes and not for personal use.

2. The buyer must possess the tax invoice, debit note, or any document proving payment towards the purchase.

Example: Mr. Manoj wants to claim an ITC of Rs.5,600, but he cannot do so if he hasn't received the invoice by the time he files the returns.

3. The supplier must file the tax invoice or debit note in Form GSTR-1, and it must appear in the buyer's Form GSTR-2B.

Example: Mr. Manoj received a tax invoice dated 13th January 2022 but did not find the ITC entry in GSTR-2B by 20th February 2022. In this case, he cannot claim the ITC while filing the returns.

4. From 1st January 2022, provisional ITC claims are no longer allowed. The ITC reported in GSTR-3B must match the actual ITC in GSTR-2B.

5. The buyer must have received the goods and/or services.

6. The buyer must file the GST returns in Form GSTR-3B.

7. If the goods are received in multiple lots or instalments, ITC can only be availed upon receiving the final lot or instalment.

8. The buyer must make the payment for the goods and/or services within 180 days from the invoice date. Failure to do so will require the reimbursement of the claimed ITC along with interest under Section 50. The claim can be made again once the payment is made.

9. Depreciation claimed on the tax component of a capital good purchased will make it ineligible for ITC.

10. ITC on a tax invoice or debit note must be claimed within the time limit specified by the GST provisions.

The article also lists items that are not eligible for ITC claims, such as motor vehicles with a seating capacity of 13 or less, services like food and beverages, general insurance, and corporate social responsibility (CSR) initiatives.

Time Limit to Claim Input Tax Credit under GST

The time limit to claim ITC against an invoice or debit note is the earlier of two dates:

1. 30th November of the next financial year

2. The date of filing the annual returns in form GSTR-9 for that financial year

For example, if XY Corp, a buyer, has a purchase invoice dated 8th December 2021, they can claim the GST paid on that purchase by either 30th November 2022 or the date of filing the GST annual return for FY 2021-22, which is 31st December 2022.

Certain exceptions apply for debit notes, and the condition must be considered with respect to the debit note itself, not the original invoice it is linked to.

Items on Which ITC is Not Allowed

There are several cases in which ITC cannot be claimed. These include motor vehicles with a seating capacity of 13 or less, certain services like general insurance and beauty treatment, membership in a club, health and fitness center, rent-a-cab service, works contract service for the construction of an immovable property, goods or services used for personal use, and more. However, there are exceptions and scenarios where the ITC may still be available.

Clear Solutions for Accurate and 100% ITC Claims

To ensure accurate ITC claims and avoid any discrepancies, businesses can utilize solutions like Clear GST and Clear Max ITC. These platforms offer advanced reconciliation engines, automated data reconciliations, vendor communication, and smart payment decisions to simplify and optimize the ITC claiming process.

By using these solutions, businesses can reduce the number of defaulting vendors, optimize input tax credit, and unblock their working capital, leading to increased profits.

Disclaimer: The information provided here is based on the latest available updates but is subject to change. It is advisable to refer to the official notifications and seek professional advice for complete accuracy and compliance.

Input Tax Credit under GST: Conditions to Claim

The Goods and Services Tax (GST) introduced the concept of Input Tax Credit (ITC), which allows taxable individuals to claim a credit for the GST paid on their purchases of goods and services used for business purposes. However, there are certain conditions that must be fulfilled before one can avail of this credit.

These conditions, outlined in the GST law, are similar to the ones in the pre-GST regime, with a few additional requirements such as GSTR-2B. Compliance with these rules is essential as they are direct and stringent in nature.

Recent Updates:

1st February 2023

Budget 2023 updates*

1. Section 16 has been amended to state that buyers who fail to pay their supplier the invoice value, including the GST amount, within 180 days from the date of issue of the invoice, must pay an amount equal to the ITC claimed along with interest under Section 50.

2. Sections 37, 39, 44, and 52 have been amended to restrict taxpayers from filing their GSTR-1, GSTR-3B, GSTR-9, and GSTR-8 for a tax period after three years from the due date.

3. Section 17(5) has been revised to include expenditure on CSR initiatives for corporates as ineligible ITC.

4. High sea sales and similar transactions that are neither supply of goods nor services are considered exempt, and therefore, ITC proportional to such sales cannot be claimed as per revised Section 17(3).

5. Amendments have been made to Schedule III, providing for retrospection from 1st July 2017.

6. Section 10 of the CGST Act has been amended to allow businesses that supply goods through an e-commerce operator to opt into the composition scheme.

*These amendments will be effective upon notification by the CBIC.

To learn more about the latest condition added to GST provisions and how to fulfill and claim ITC, please watch the video.

Conditions to Claim Input Tax Credit under GST

Section 16 of the CGST Act specifies the conditions that GST registered buyers must meet to claim ITC. Here is a summary of these conditions:

1. The goods or services purchased must be used for business purposes and not for personal use.

2. The buyer must possess the tax invoice, debit note, or any document proving payment towards the purchase.

Example: Mr. Manoj wants to claim an ITC of Rs.5,600, but he cannot do so if he hasn't received the invoice by the time he files the returns.

3. The supplier must file the tax invoice or debit note in Form GSTR-1, and it must appear in the buyer's Form GSTR-2B.

Example: Mr. Manoj received a tax invoice dated 13th January 2022 but did not find the ITC entry in GSTR-2B by 20th February 2022. In this case, he cannot claim the ITC while filing the returns.

4. From 1st January 2022, provisional ITC claims are no longer allowed. The ITC reported in GSTR-3B must match the actual ITC in GSTR-2B.

5. The buyer must have received the goods and/or services.

6. The buyer must file the GST returns in Form GSTR-3B.

7. If the goods are received in multiple lots or instalments, ITC can only be availed upon receiving the final lot or instalment.

8. The buyer must make the payment for the goods and/or services within 180 days from the invoice date. Failure to do so will require the reimbursement of the claimed ITC along with interest under Section 50. The claim can be made again once the payment is made.

9. Depreciation claimed on the tax component of a capital good purchased will make it ineligible for ITC.

10. ITC on a tax invoice or debit note must be claimed within the time limit specified by the GST provisions.

The article also lists items that are not eligible for ITC claims, such as motor vehicles with a seating capacity of 13 or less, services like food and beverages, general insurance, and corporate social responsibility (CSR) initiatives.

Time Limit to Claim Input Tax Credit under GST

The time limit to claim ITC against an invoice or debit note is the earlier of two dates:

1. 30th November of the next financial year

2. The date of filing the annual returns in form GSTR-9 for that financial year

For example, if XY Corp, a buyer, has a purchase invoice dated 8th December 2021, they can claim the GST paid on that purchase by either 30th November 2022 or the date of filing the GST annual return for FY 2021-22, which is 31st December 2022.

Certain exceptions apply for debit notes, and the condition must be considered with respect to the debit note itself, not the original invoice it is linked to.

Items on Which ITC is Not Allowed

There are several cases in which ITC cannot be claimed. These include motor vehicles with a seating capacity of 13 or less, certain services like general insurance and beauty treatment, membership in a club, health and fitness center, rent-a-cab service, works contract service for the construction of an immovable property, goods or services used for personal use, and more. However, there are exceptions and scenarios where the ITC may still be available.

Clear Solutions for Accurate and 100% ITC Claims

To ensure accurate ITC claims and avoid any discrepancies, businesses can utilize solutions like Clear GST and Clear Max ITC. These platforms offer advanced reconciliation engines, automated data reconciliations, vendor communication, and smart payment decisions to simplify and optimize the ITC claiming process.

By using these solutions, businesses can reduce the number of defaulting vendors, optimize input tax credit, and unblock their working capital, leading to increased profits.

Disclaimer: The information provided here is based on the latest available updates but is subject to change. It is advisable to refer to the official notifications and seek professional advice for complete accuracy and compliance.

Download App

Explore More

Managing assets totalling over 1 crore+