Video on Input Tax Credit (Concept and Manner of taking Credit )

[Puneet Agrawal]

Link to the video : https://www.youtube.com/watch?v=UnTX60ZfvnY

GST 10 point series on Input tax credit – concept

 

1. One of the major reason for introducing GST is making the credit mechanism seamless so that there is no cascading effect of taxes.
2. In the Model GST law provisions relating to input tax credit are majorly covered in Section 16, 16A, 17, 18, 28, 29 and 35 of the CGST Act/ SGST Act. Vide Section 27 of the IGST Act, provisions relating to input tax credit and utilization thereof, as applicable in CGST Act would apply even in respect of IGST.  
3. “Input tax credit” in relation to taxable person means credit of :
   1. {IGST and CGST}/{IGST and SGST}
   2. charged on
   3. any supply of goods and/or services to him (includes even importation)
   4. which are used, or are intended to be used, in the course or furtherance of his business and
   5. includes the tax payable on reverse charge basis
4. Thus as per the definition of input tax credit there is no need for creating a relationship between the goods or services availed and the output of a taxable person the only requirement is that such goods should be “used in the furtherance of business”.
5. The expression “in the course or furtherance of business” would cover all activities related to the functioning of a business. For example in relation to a manufacturer, business cannot be restricted only to the activity of manufacturing the final products; rather it would comprise of all the integrated activities comprising of whole of the business operations of the taxable person.
6. Unlike the current Indirect taxes, in the GST regime there is no need to fit the goods and services received, within the four corners of inputs/ input services/ Capital goods. Although the terms “inputs”, “inputs services” and “capital goods” are defined in the model GST law, their relevance is kept minimum.
7. Only a registered taxable person is allowed to take credit of input tax admissible to him. Thus registration is a pre-requisite for taking credit of input tax.
8. The eligible input tax credit would be credited to the electronic credit ledger and it can be used for payment of taxes under the Act or Rules made thereunder.
9. For newly registered person, ITC is allowed in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day preceding the date from which the person becomes liable to pay tax provided he applies for registration within 30 days of becoming liable to obtain registration.
10. A taxable person shall not be entitled to take input tax credit in respect of any supply after the earlier of following two events
    1. filing of return under section 27 for the month of September following the end of financial year to with such invoice pertains; or
    2. filing of the relevant annual return

GST 10 Point Series on Manner of taking Input tax credit - conditions and restrictions

1. Registered taxable person shall be entitled to take credit of input tax only if the following conditions are satisfied:
   1. he is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document as prescribed, issued by registered supplier;
   2. he has received the goods or services;
   3. the tax charged in respect of such supply has been actually paid to the credit of the appropriate government; and
   4. he has furnished the return under section 27
2. Return furnished under section 27 by a registered taxable person without payment of full tax due as per such return shall not be treated as a valid return for allowing input tax credit in respect of supplies made by such person.
3. The third condition as per the list above is a severe provision. When the buyer of goods and services has already paid tax to the supplier, he should be allowed to claim credit of such tax. Also buyer has no resources to track that such tax has been deposited by supplier in government treasury. This provision is defeating the very purpose of GST i.e. to ensure availability of credit of tax paid in a easy and convenient manner to taxpayers.
4. Where the goods against an invoice are received in lots or installments, the registered taxable person shall be entitled to the credit upon receipt of the last lot or installment.
5. Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act 1961, the input tax credit shall not be allowed on the said tax component.
6. At first, taxable person is only allowed to take the credit of input tax, as self assessed in the his return, on a provisional basis and such amount shall be credited to the electronic credit ledger.
7. The claim of input tax credit shall be finally accepted once
   1. the details of inward supplies furnished by the taxable person is matched with
   2. the corresponding details of outward supplies furnished by corresponding taxable person.
8. Where after matching it is discovered that the ITC claimed by recipient in respect of inward supply is in excess of tax declared by the supplier for the same supply or the outward supply is not declared by supplier in his valid return then:
   1. The discrepancy shall be communicated to both i.e. the recipient and the supplier
   2. If such discrepancy is not rectified by the supplier in his valid return for the month in which discrepancy is communicated then the amount of discrepancy shall be added to the output tax liability of the recipient for the month succeeding the month in which discrepancy is communicated
   3. The recipient is also required to pay interest on said addition of output liability at the rate specified under Section 36(1).
9. Input tax credit will not be available in respect of the following:
   1. Motor vehicle: however credit is allowable on motor vehicle in certain cases such as when used in course of business etc.
   2. specified goods and services when used primarily for personal use or consumption of any employee
   3. Goods and services acquired in the execution of works contract
   4. goods and services on which tax has been paid under composition scheme
   5. goods and service used for private or personal consumption
10. Where the goods and services are used by the registered taxable person partly for effecting taxable supplies and partly for effecting non-taxable supplies, including exempt supplies but excluding zero-rated supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the taxable supplies including zero-rated supplies.

Discussions to this article

[Ganeshan Kalyani]

Will the registration under GST process would start now only or it will start only after the GST comes into effect ?