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GST has been considered one of the most revolutionary economic reforms in India in recent times. It is now applied all over the country with millions of businesses adapting to this new age tax regimen.
One of the highlights of GST is the ‘Input Tax Credit’ calculation. In simple terms, Input Tax Credit (ITC) allows businesses to reduce the tax liability by taking into consideration the tax you have already paid on purchases.
There are specific guidelines on calculating ITC while submitting your GST returns. This article elaborates on the ways to calculate your ITC, how to claim it, and situations where you cannot claim it.
About Input Tax Credit Under GST
Input Tax Credit can be considered as a type of tax rebate you get for the taxes you have already paid on your purchases.
ITC eliminates the cascading effect of taxes, or simply put, it removes ‘tax on tax’. ITC is one of the most significant aspects of the GST system. Under this tax structure, the whole supply chain will be subject to GST imposed at the same time by the central and state governments. Although the tax levied by the central or state governments would be part of the same tax regime, the tax credit collected at one stage would be available as a set-off for the payment of the tax at each following stage.
One of the main goals of GST was to eliminate the cascading impact of taxation that occurred under Excise, VAT and Service Taxes. GST input tax credit allows taxpayers to claim it irrespective of their business location, making it easier for products to be marketed and imported all through the country.
4 types of taxes under GST can be claimed under ITC:
For a company to settle tax obligations, GST input tax credit requirements are very important. Tax Credit does not extend to any type of inputs, and various laws and regulations may apply to each state or region. Input tax credit is also applicable for a dealer who has bought products for reselling.
In respect of IGST, CGST, SGST & UTGST, the tax charged when the products are on hand, goods are ordered, services are received, goods are imported into the market, capital goods are acquired can be taken as input tax credits, while output tax is being calculated.
To Pay IGST
Take Input Tax Credit from taxes paid towards CGST, SGST/UTGST, and IGST
To Pay CGST
Take Input Tax Credit from taxes paid towards CGST and IGST
To Pay SGST/UTGST
Take Input Tax Credit from taxes paid towards SGST/UTGST and IGST
In the first instance, ITC in IGST has to be entirely used before ITC in CGST/SGST is used.
In the case of CGST liability, CGST credit is to be used first and then IGST credit. However, it must be taken into account that no IGST credit is pending
In the case of SGST liability, SGST credit is to be taken first and then IGST credit. However, it must be taken into account that no IGST credit is pending
CGST credit cannot be used to cover SGST liability and vice versa, SGST credit cannot be used to offset CGST liability.
The primary goal at the time of setting off an input tax credit against tax liabilities is to have a certain amount of tax collected after all the provisions of the Act have been complied with.
There are 4 different ITC Forms;
ITC 01 – ITC for new GST Registration
This form is used when:
ITC 02 – Transfer of ITC in case of sale/merger etc.
ITC 03 – Reversal of ITC
Form ITC 03 is to be filed when:
ITC 04 – ITC on goods sent to Job Worker
Form ITC -04 is filed by the taxpayer who sends goods to the job worker. It includes taxpayer whose:
Section 18 of the CGST Act allows for a few special circumstances where input tax credit may be claimed –
Section 17(5) of the CGST Act, 2017 applies a few exemptions to claim Input Tax Credit:
Input Tax Credit has to be availed earlier than one of the below two dates:
Instances where tax has been paid under reverse charge basis, ITC may be availed in the same month in which the payment is made, under the following conditions –
1. Can I claim Input Tax Credit on an invoice that is more than a year old?
No, you must have claimed it before the annual filing of the current financial year or before the due date for GST return filing for the month of September of the next financial year. Hence, you cannot claim ITC on an invoice that is more than a year old. However, in case of capital goods, ITC can be claimed up to 5 years from the date of invoice.
2. Can I claim Input Tax Credit on both goods & services?
Yes, since GST is applicable on both goods & services, ITC is also applicable on both goods & services.
3. Can I claim Input Tax Credit on an invoice where I have received only part of the shipment?
For invoices where you have received only part of the shipment, ITC may be claimed only upon receipt of last lot or instalment.
4. Who all are eligible to claim the Input Tax Credit?
Input Tax Credit can be claimed by a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned, who are registered under GST, are eligible to claim input credit for tax paid by them on their purchases.
5. What are the documents required to claim Input Tax Credit?
One of the following documents is required to claim Input Tax Credit:
6. Can I raise an Input Tax Credit request in Tamil Nadu against the SGST I paid in Maharashtra?
No, SGST paid in one state cannot be utilized to claim Input Tax Credit in another state.
7. I have received the goods and the payment will be made within a month. Can I claim ITC now?
No, you can claim ITC only once the payment is made and the seller has remitted the relevant GST for his account.
Goods And Services Tax
GST Act And Rules
GST Composition Scheme
GST E Way Bill
GST Invoice Format And Rules
GST Offline Tools
GST On Cars
GST On Food
GST On Gold
GST On Medicines
GST On Real Estate
GST On Transport
GST Payments And GST Refunds
GST Registration Process
GST Return Forms
GSTin Single Tax Identification Number
How To Use A Digital Signature
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