Input tax credit available under GST explained
Input tax credit
- GST being a value added tax where every person in chain need to pay tax on their value
- All person in chain pay on their output using the cash and input tax credit
- They pass on the burden of tax to the next person in chain
- But the ultimate consumer have to bear the burden of tax in the end.
Total = 118
PP 100 +18
Payment = 25.20 – 18 = 7.2 which ITC
PP 140 + 25.2
Payment = 36 – 25.2 = 11
200 + 36 = total cost = 236 to be bear by its ultimate customer.
Issue in current ITC scheme
- ITC of CST is not available to manufacturer
- Traders not eligible for ITC of Excise /service tax
- Service provider is not eligible for ITC of VAT
- Cascading effect.
Manner of taking input tax credit
Input tax credit will be available for supplier which are used or intend to be used in the course or furtherance of his business.
Input tax credit will be available in the time and manner prescribed in section 44 of mgl . Section 44 provides the manner in which the input tax credit will be utilized some of the important provision are summarized here.
|Ledger||Utilization of balance in ledger||When the credit will be available for adjustment|
|Every deposit should be credited to cash ledger||Cash ledger can be utilized for the payment of tax, interest, penalty, fee or any other amount payable under the provision of act or the rule made thereunder.||The date of credit to the account of the appropriate government in the authorized bank shall be deemed to be date of deposit in the electronic cash ledger.|
|The self-assessed input tax credit shall be credit to his electronic cash ledger||The amount available in the electronic credit ledger may be used for making any payment toward output tax payable||The input tax credit will be available from the date it is self-assessed in the return of taxable person.|
Sequence of utilization of input tax credit of various taxed in GST
In GST there will be three taxes CGST and SGST will be levied on intra state supply of where as IGST will be levied on inter state supply
|Input tax nature||First||Second||Third|
Here CGST and SGST of only same state will be available for adjustment.
ITC will be available on the fulfillment of following conditions
- Tax invoice or debit note issue by the supplier registered under this act is available .
- Goods / service received by recipient or by any of his agent on his behalf.in case of supply in lots the credit will be available at the time of delivery of last lot.
- The tax charge in respect of such supply has been actually paid either in cash or through utilization of input tax credit admissible in respect of the said supply
- Recipient has furnished the return under section 34.
- No credit in GST will be available if the amount of tax is added to cost of capital goods for claiming depreciation .In other words if the depreciation is claimed in income tax including GST then no credit will be available here.
- No credit will be available after filing the returns for September of next year or annual returns whichever is earlier.
When credit will not be available or will be partially available
|When the goods and /or service are used partly for the
Purpose of any business and partly for other business
|Credit shall be restricted to so much of the input tax as is attributable to the purpose of his business||17(1)|
|When the goods and /or service are used partly for taxable supplier (including zero rates)and party exempted supplies
Exempted supplies include reverse charge supply
|Credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero rates suppliers.||17(2)|
|When taxable is a
Non-banking financial institutions
|There will be two options:
Either avail the credit as apportioned
Or avail the amount of equal to 50% of all eligible input tax credit every month
Note : option one exercised can’t be changed for whole year.
When credit is available only if specified or same category of output supply is made
|Motor Vehicles or other conveyance||When used for following output supplies
Furtherance supply of such vehicles or conveyance
Transportation of passengers
Imparting training on driving flying navigating such vehicles of conveyance
When used for transportation of goods (even when for self)
|Credit for input supplies of
Food and beverage
Cosmetic and plastic surgery
|Will be available when outward supply of same will be made by taxpayer|
|Input tax credit for following input:
Rent a cab
Health insurance being in force
|No credit will available expect where the government notifies the services which are obligatory for an employer to provides to its employees under any law for the same .|
|Input tax credit for the travel benefits extended to employees||Will be available but If the benefits are extended when employees is on leave no credit will be available
|Work contract when not used for output service of work contract||When taken for movable goods allowed
When taken for plant and machinery allowed (even if its immovable)
When taken for immovable property : Not allowed
|When goods service used for construction of immovable property||No credit will be allowed for such input|
When no credit will be available
- Goods and service for personal consumption
- Goods lost stolen destroyed written off or disposed of by way of gift or free sample
- Any tax paid in terms of
- Section 67 determination of tax not paid, short paid, erroneously refunded input tax credit wrongly taken of utilized for the reason of fraud, willful misstatement or suppression of facts.
- Section 89 :detention ,seized ,and release of goods conveyance in transit
- Section 90 : confiscation of goods and or conveyance and levy of penalty.