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GST Input Credit – A Complete Guide

'Input Tax Credit' or 'ITC’ is the amount of Goods and Services Tax (GST) paid by a taxable person on any purchase of goods and/or services used or to be utilized for business.

Input credit means that when you pay tax on your output, you can deduct the tax you already paid on your inputs. Assume you are a manufacturer - the tax payable on output (FINAL PRODUCT) is Rs. 1000; the tax payable on input (PURCHASES) is Rs.450; you can claim an INPUT TAX CREDIT of Rs.450 and only pay Rs.550 in taxes.

Only once certain requirements are met, may the ITC value be deducted from the GST payable on the taxable person's sales. Except for a few exceptions, such as GSTR-2B, the criteria imposed by the GST law are largely consistent with the pre-GST regime. These guidelines are straightforward and sometimes harsh.

Updates on Input Tax Credit, as of February 2022

Budget updates - February 1st, 2022

1. If ITC is prohibited in GSTR-2B, accessible under Section 38, it cannot be claimed.

2. The deadline for claiming ITC on invoices or debit notes issued during a fiscal year is moved to the sooner of two dates. First, the 30th of November of the following year, or the date of filing annual returns.

3. Section 38 has been totally renamed 'Communication of details of inward supplies and input tax credit' in accordance with Form GSTR-2B. It specifies the method, time, conditions, and limitations for ITC claims and has eliminated the two-way communication process in GST return filing on the suspended return in Form GSTR-2. It also indicates that taxpayers will be given information on which ITCs are eligible and which are not.

4. Section 41 has also been revised to remove references to provisional ITC claims and replace them with self-assessed ITC claims subject to conditions.

5. Sections 42, 43, and 43A, which deal with the provisional ITC claim process, matching, and reversal, are repealed.

December 29, 2021

CGST Rule 36(4) is revised to remove the 5% additional ITC over and above the ITC shown in GSTR-2B. Starting 1st of January 2022, businesses can claim ITC only if the supplier reports it in GSTR-1/IFF and it appears in their GSTR-2B.

December 21, 2021

ITC claims will be allowed only if they show in GSTR-2B as of January 1, 2022. As a result, taxpayers no longer have the option of claiming a 5% provisional ITC under CGST Rule 36(4) and ensuring that every ITC amount claimed is represented in GSTR-2B.

Invoice Matching Mandatory To Claim Input Tax Credit

Under the Goods and Services Tax (GST) regime, the Finance Ministry has set January 1, 2022 as the deadline for implementing rules that make 100% invoice matching necessary. This means that an assessee will only receive input tax credit (ITC) for invoices that are matched.

The system generates ITC for each assessee based on returns filed by their supplier. These measures reduce the risk of overstating ITC and receiving more benefits than are due. Earlier laws permitted assessees to claim a 10% higher ITC without providing supporting invoices, however this was later lowered to 5%. From January 1, this provision will no longer be in effect, and 100% invoice matching will be implemented.

Eligibility And Conditions To Claim Input Tax Credit

When you are covered under the GST Act, you have access to the Input Credit Mechanism. That is, if you are a registered GST manufacturer, supplier, agent, e-commerce operator, aggregator, or any of the persons specified above, you are qualified to claim INPUT CREDIT for tax paid on your PURCHASES.

There are four conditions that must be met for ITC to be credited to an assessee in relation to a supply. First, he should obtain a tax invoice or debit note from a registered supplier, as well as any other tax-paying documentation. Second, he has either received the goods or the services, or both. Third, tax on the supply has been paid. Fourth, a tax return has been filed.

After the first condition, a new clause is added that states, "the details of the invoice or debit note referred to in clause (a) have been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner specified under Section 37."

How To Apply For Input Tax Credit?

In the case of IGST, CGST, SGST, and UTGST, the tax paid while the items are on hand, goods are ordered, services are received, goods are imported into the market, and capital goods are purchased can be claimed as input tax credits while the output tax is calculated.

To Pay IGSTTake Input Tax Credit from taxes paid towards CGST, SGST/UTGST, and IGST
To Pay CGSTTake Input Tax Credit from taxes paid towards CGST and IGST
To Pay SGST/UTGSTTake Input Tax Credit from taxes paid towards SGST/UTGST and IGST

Note:

It should be noted that in the first instance, ITC in IGST must be completely used before ITC in CGST/SGST can be used.

In the case of CGST liability, the CGST credit must be used first, followed by the IGST credit. However, it should be noted that no IGST credit is pending.

In the case of SGST liability, SGST credit must be obtained first, followed by IGST credit. However, it should be noted that no IGST credit is pending.

CGST credit cannot be used to cover SGST liability, nor can SGST credit be used to offset CGST liability.

When calculating an input tax credit against tax liabilities, the primary purpose is to collect a specified amount of tax after all of the Act's provisions have been met.

What Are The Forms Used To Apply For Input Tax Credit?

There are 4 different ITC Forms;

1. ITC 01 – ITC for new GST Registration

2. ITC 02 – Transfer of ITC in case of sale/merger etc.

3. ITC 03 – Reversal of ITC

4. ITC 04 – ITC on goods sent to Job Worker

Time Limits To Apply For Input Tax Credit

  • Due date for filing GST returns for the month of September of the next fiscal year
  • Date of submission of the current fiscal year's annual return

Documents On Which Input Tax Credit May Be Applied For –

  • Tax invoices issued by authorized suppliers
  • A debit note has been issued in relation to the prior tax invoice issued by the registered supplier.
  • Invoice issued by a recipient of goods or services who has paid tax using the reverse charge system.
  • In the case of import, a bill of entry or equivalent paper. A receipt or credit note issued by the Input Service Distributor.

FAQs

1. Can I claim Input Tax Credit on an invoice older than a year?

No, you must have claimed it by the end of the current fiscal year or before the due date for GST return filing in September of the next fiscal year. As a result, you cannot claim ITC on an invoice that is older than a year. In the case of capital items, however, ITC can be claimed for up to 5 years from the date of invoicing.

2. Is it possible to claim Input Tax Credit on both products and services?

Yes, because GST is levied on both products and services, ITC is likewise levied on both goods and services.

3. Can I claim Input Tax Credit on a bill for which I only received a portion of the shipment?

ITC may be claimed only upon receipt of the final lot or installment for invoices where you have received only a portion of the shipment.

4. Who is eligible for the Input Tax Credit?

Input Tax Credit can be claimed by a manufacturer, supplier, agent, e-commerce operator, aggregator, or any of the above-mentioned individuals who are registered under GST.

5. What documentation is necessary to claim the Input Tax Credit?

To claim Input Tax Credit, one of the following documentation is required:
  • Invoice issued by a supplier of products or services, or both. Invoice issued by the recipient, together with proof of tax payment.
  • A supplier-issue debit note
  • Bill of entry or similar document required under the GST Customs Act's Input Tax Credit Mechanism Revised invoice
  • Input Service Distributor issued this document.

6. I received the goods and will make the payment within a month. Can I still claim ITC?

No, you can only claim ITC after the payment has been paid and the seller has remitted the applicable GST for his account.

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