The technical aspects of the scheme of Input Tax Credit (ITC)

A.  Who can avail ITC?

Any registered person can avail credit of tax paid on the inward supply of goods or services or both, which is used or intended to be used in the course or furtherance of business.

B. What are the pre-requisites for availing credit by registered person?

a. He is in possession of tax invoice or any other specified tax paying document.

b. He has received the goods or services. “Bill to ship” scenarios also included.

c. Tax is actually paid by the supplier.

d. He has furnished the return.

e. If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.

f. He should pay the supplier, the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.

C. What are the documents on the basis of which input tax credit can be availed?

a. Invoice issued by a supplier of goods or services or both

b. Invoice issued by recipient along with proof of payment of tax

c. A debit note issued by supplier

d. Bill of entry or similar document prescribed under Customs Act

e. Revised invoice

f. Document issued by Input Service Distributor

D. What is the time limit for availing Input Tax Credit?

No ITC beyond September of the following FY to which invoice pertains or date of filing of annual return, whichever is earlier

E. How the Input Service Distributor will distribute the available credit?

The Input Service Distributor (ISD) may distribute the credit available for distribution in the same month in which, it is availed. The credit of CGST, SGST, UTGST and IGST shall be distributed as per the provisions of Rule 4(1) (d) of ITC Rules. ISD shall issue invoice in accordance with the provisions made under Rule 9(1) of Invoice Rules.

F. Under what circumstances ITC is not available as mentioned in section 17(5) of CGST Act, 2017?

a. motor vehicles and other conveyances except under specified circumstances.

b. goods and/or services provided in relation to:

i. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances;

ii. Membership of a club, health and fitness center;

iii. Rent-a-cab, life insurance, health insurance except where it is obligatory for an employer under any law;

iv. Travel benefits extended to employees on vacation such as leave or home travel concession;

 c. Works contract services when supplied for construction of immovable property, other than plant & machinery, except where it is an input service for further supply of works contract;

d. Goods or services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;

e. Goods and/or services on which tax has been paid under composition scheme;

f. Goods and/or services used for private or personal consumption, to the extent they are so consumed;

g. Goods lost, stolen, destroyed, written off, gifted, or free samples;

h. Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.

G. What are the special circumstances under which ITC is available?

a. A person who has applied for registration within 30 days of becoming liable for registration is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day immediately preceding the date from which he becomes liable to pay tax.

b. A person who has taken voluntary registration under section 23(3) of the CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day, immediately preceding the date of registration.

 c. A person switching over to normal scheme from composition scheme under section 10 is entitled to ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as normal taxpayer.

d. Where an exempt supply of goods or services or both become taxable, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) relatable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply, subject to reductions for the earlier usage as prescribed in the rules.

e. ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier.

f. In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilised ITC shall be allowed to be transferred to the transferee.

 g. A person switching over from composition scheme under section 10 to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) as well as capital goods will have to be paid.

h. In case of supply of capital goods or plant and machinery, on which ITC is taken, an amount equivalent to ITC availed minus the reduction as prescribed in rules (5% for every quarter or part thereof) shall have to be paid. In case the tax on transaction value of the supply is more, the same would have to be paid.

 

Source: https://www.cbic.gov.in/resources//htdocscbec/gst/ITC%20_Mechanism.pdf;jsessionid=A65882D167A7788A7FC8CD3DD8579E6B