Input Tax Credit under GST: Conditions, Time Limit, Claim Procedure

If you are businessman you are very much aware about Input Tax Credit under VAT regime. Here we talk about Input Tax Credit under GST.

The concept is almost same in GST regime as under previous tax regime.

Input Tax Credit term is very simple. Suppose you purchased raw material for creating some final product. So, you have paid some tax while purchasing raw material. That tax will be called input tax credit which will be debited while you will sale your final product.

Let’s take example to clear concept of Input Tax Credit under GST.

Suppose you have shop of electronic items. You have purchased some products from various wholesalers as follows:

Purchased Details

DealersAmountGSTTotal
Purchased product 1 from A Ltd. @ 18% GST10000180011800
Purchased product 2 from B Ltd. @ 12% GST20000240022400
Purchased product 3 from C Ltd. @ 18% GST30000540035400
Total60000960069600

Sale Details

DealersAmountGSTTotal
Sale product 1 from A Ltd. @ 18% GST12000216014160
Sale product 2 from B Ltd. @ 12% GST22000264024640
Sale product 3 from C Ltd. @ 18% GST32000576037760
Total660001056076560

Input Tax Credit Detail

Total Input Tax Credit (Picked from total column of purchased detail)9600
Less: Output Tax10560
GST Payable960

Therefore, when the individual is paying tax on final output or good, the tax can be reduced as it has already been paid (for the input). Therefore, the paid input tax will be credit for final output tax and the individual will have to pay only the remaining liable tax.

Input Tax Credit Key Terms:

  • Input: As per the GST law, input refers to the goods used by supplier (except capital goods) for making outward supplies.
  • Input Service: Input service refers to any service that a supplier has used during his/her business for generating supplies outwards.
  • Input Tax: It is the tax imposed for receiving goods or services that will be further used for generating final goods or services.

Conditions essential to get ITC (Input Tax Credit) Entitlement under GST

An individual can gain ITC (Input Tax Credit) entitlement under GST after satisfying the following conditions:

  • The individual must be a taxable person under the GST
  • Goods or services used for claiming the ITC must have been taken for business-related activities only
  • ITC can only be claimed on zero-rated and taxable supplies
  • If the structure of the registered taxable individual changes as a result of sale, transfer or business merger, then any ITC still unused will be transferred to the sold, transferred or merged business
  • ITC (Input Tax Credit) can be credited in the ECL (Electronic Cash Ledger) on common portal in provisional manner for per the instructions of current GST law
  • For claiming ITC, supporting documents are required such as debit note, tax invoice, supplementary invoice etc
  • An individual can claim ITC only if he or she has received goods or services
  • For claiming ITC, it should be paid via ECL (electronic cash ledger) or ECL (electronic credit ledger)
  • All applicable returns under the GST should be mandatorily filed under the Section-27 such as GST-7A, 7, GA, 6, 2A, 2, 1 etc.
  • For Goods received in packages or lots, an individual can claim ITC (Input Tax Credit) only after he/she has received the final package or lot

Time-limit for availing ITC across India:

Other conditions:

For the above conditions, ITC is claimable only within 1 year from issue date of the tax invoice related to the supply. In other cases, last date for claiming ITC shall be earlier of:

  • Before filing valid returns for September month (under Section-27) following end of Financial Year to which invoice has been given, or
  • Before filing annual return

As per the Section-30, annual return should be filed by 31st December following financial year end.

An individual cannot claim ITC under the following conditions:

  • ITC (Input Tax Credit) cannot be claimed by an individual if the goods/services are used for private purpose
  • If the individual has acquired the goods/services under contract resulting in contraction of the immovable property (other than plant and machinery), then ITC is not applicable
  • If the tax on the goods/service is paid under the GST (Goods and Service Tax) composition scheme, ITC is not applicable
  • If the goods or services are used for building immovable properties (other than plant & machinery) and such properties are not transferred
  • If the goods or services are used by the employees for personal consumption
  • If depreciation is claimed on cost of the capital goods, they will not be eligible for ITC

How to use ITC (Input Tax Credit)?

On CGST: First CGST should be paid, and the remaining amount should be for paying IGST. ITC of the CGST cannot be used for paying SGST.

On SGST: First SGST should be paid. The remaining amount is to be paid for IGST.

On IGST: First IGST should be paid, and the remaining amount should be for paying CGST. ITC of the IGST cannot be used for paying SGST (only in case of last priority)

Reversal of ITC (Input Tax Credit)

Proportionate ITC amount shall be reversed in case of goods/ services used for non-business or business purposes.

Categories GST

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