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TMI BlogAnnexure 11: Input Tax CreditX X X X Extracts X X X X X X X X Extracts X X X X ..... nce of business. Capital goods is defined in Sec 2(19) as goods, the value of which is capitalized in the books of account of the person claiming ITC and which are used or intended to be used in the course or furtherance of business. Input service is defined in Sec 2(60) as any service used or intended to be used by a supplier in the course or furtherance of business. b. Provisions of section 16(1) In accordance with Section 16(1) of the CGST/SGST Act, 2017: (i). Only a registered person other than persons under composition scheme is entitled to claim ITC. (ii). However, this claim is not unconditional and is subject to conditions and restrictions as prescribed. (iii). Self-assessed ITC taken in the return is credited to the electronic credit ledger of the taxpayer. (iv). ITC can be taken on such supply of goods or services or both to the registered person which are used or intended to be used in the course or furtherance of his business. c. Provisions of sec 16(2) provide conditions to avail of ITC - With effect from 01.01.2022 another condition to the effect that supplies in respect of which credit is being claimed have been declared by the supplier in his GSTR-1 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 018. f. Payment in respect of the supply as a condition to avail ITC: When a recipient fails to pay his supplier (other than supplies on which tax is payable under RCM), the amount of value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice, the recipient is liable to add the ITC availed on such supply to his output tax liability along with interest thereon. However, the recipient is also entitled to avail the credit of ITC once he makes the payment towards the amount of value of supply along with tax payable thereon. Capital goods and plant & machinery on which depreciation is claimed on the tax component under the Income Tax Act: Sec 16 (3) does not allow a registered person to take ITC on such a tax component of the cost of capital goods and plant and machinery, on which he has claimed depreciation under the provisions of the Income Tax Act, 1961. g. Time limit to claim ITC As per Sec 16(4), a registered person shall not be entitled to take ITC in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return (Form GSTR-3B) under section 39 for the month of Sep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir Form GSTR-1 which is auto- populated in Form GSTR-2A for the month of January 2020 of X. It is also found out that ITC is eligible for Rs. 60/- since nothing in this amount is restricted by Section 17(1)/(2)/(5) etc. In this case, X is eligible to avail of ITC to the tune of Rs. 66/- [Rs. 60/- + Rs. 6/- (=Eligible ITC: Rs. 60/- x 10%)] i. Apportionment of Credit [Sec 17(1)] Example: A registered person claims ITC as follows - a. ITC of Rs.20,000/- for purchase of taxable goods for resale. b. ITC of Rs.5000/- on rent payment for a two storied building, where 1st floor is used for business purpose and 2nd floor for residential purpose. c. ITC of Rs.1500/- for renting cab services both for business and for personal use. d. ITC of Rs.6000/- for purchase of furniture for residence. Ineligible ITC: Rs.1500/-: Restricted in accordance with section 17(5) Rs.6000/-: On purchase of Furniture for residence (for purpose other than business). Eligible ITC: Rs.20,000/- ITC to be apportioned in accordance with rule 42 Rs.5,000/-: Common Credit for service availed for both business and non - business purpose. Eligible to claim portion of ITC out of Rs.5, 000/- which is attri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... registered person: Rs.40,000/- + Rs.20,000/- = Rs.60,000/- Availability of Credit for a banking Company or a financial institution including NBFC [Sec 17(4)] Descriptions Options of availing of ITC Conditions Banking company or a financial institution including a non- banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances. * Either apportion the ITC as per provisions of section 17(2). OR * Avail 50% of the eligible ITC on inputs, capital goods and input services every month and the rest shall lapse. * Option once exercised shall not be withdrawn during the remaining part of the FY * The restriction of 50% shall not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN. k. Ineligible Input Tax Credit [Sec 17(5)] Input tax credit is not available in respect of certain inward supply of goods or services in accordance with Section 17(5) (blocked credit). The provision of Section 17(5) was amended w.e.f 1st February, 2019. Hence, the provisions are discussed accordingly: i. Motor vehicles and other conveyances (valid upto 31.01.2019)- Example: ABC Pvt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lability of ITC in respect of construction machineries like tractor, crane, road roller, tippers and dumpers etc. i.e. Whether they can be classified as motor vehicles? It may be noted that, most of the earth moving machineries require registration under MV Act as motor vehicle. Since, earth moving machineries like tractor, crane, road roller, tippers, dumpers etc are also considered as motor vehicles, they are not outside the restriction clause in section 17(5). It may further be noted in this regard that, fulfilment of conditions specified in section 16 and 17 of the CGST/SGST Act may not be sufficient sometimes for availing of ITC. Certain restrictions in respect of availability of ITC are also provided in the rate notifications. Illustration- Tax paid on purchase of a goods vehicle by a GTA would otherwise be available as ITC, but as per rate notification no.13/2017 - CT(R) dt.28.06.2017, services of a GTA in relation to transportation of goods is taxable @ 5% provided that the ITC on goods and services used in supplying the service has not been taken iv. Food, beverages, outdoor catering, beauty treatment etc (w-e-f 01.02.2019) Hence, w-e-f 01.02.2019, ITC would be avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the negative list. For the purpose of Input Tax Credit "plant and machinery" means apparatus, equipment, & machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures; (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. vi. Other unavailable credit - ITC is blocked in respect goods lost, stolen, destroyed, written off or disposed off by way of free gift or free samples. Confusion may arise that whether those goods are only inputs and capital goods or also manufactured end product or any intermediary products. Since, there is no such condition, so whether those goods are inputs, capital goods, finished product or any intermediary products ITC is required to be reversed when such goods are lost, stolen, destroyed, written off or disposed off by way of free gift or free samples. l. Availability of credit in special circumstances: a. Sec 18(1) and 18(2) - Supplier Stock held as Stock to be considered as on Inputs or Inputs contained in semi-finished ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purposes of Section 20 shall be- (i) if the recipients of credit have turnover in their States or UTs in the financial year preceding the year during which credit is to be distributed, the said financial year; or (ii) if some or all recipients of the credit do not have any turnover in their States or UTs in the financial year preceding the year during which the credit is to be distributed, the last quarter for which details of such turnover of all the recipients are available, previous to the month during which credit is to be distributed * "recipient of credit" means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor; * "turnover", in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entries 84 and 92A of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule. Example of distribution of ITC by ISD: A company has 6 numbers of GSTIN under a single PAN in the following States: i. In Delhi as normal taxpa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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