Input Tax Credit
Input Tax Credit
The input tax credit is the central tax (CGST), state tax (SGST), integrated tax (IGST), or cess that is paid by a person and has a GST registration on the supply of goods or services. GST input tax includes the tax that is paid on a reverse charge basis and the IGST charged on the import of goods. But, input tax does not include the tax paid on the composite taxation scheme.
The input tax credit is the tax paid by a business on the purchase and this tax is used to reduce the tax liability when a sale is made. The taxation levy is based on the value that is added at each stage of the supply chain until it reaches the consumer.
The Goods and the Service Tax Act is levied on the goods and the services based on the principle of value addition. To negate the cascading effect of the tax liability that is paid on the procurement of the raw materials, consumables, plants, and machinery, etc. This element of offsetting the tax liability is called the input tax credit.
Every person with a GST registration in the supply chain takes part in control, collects the GST tax, and remitting the amount that is collected. To avoid double taxation and the cascading effect of the tax input credit is provided to set off tax paid on the procurement of the raw materials, consumables, goods, or services that are used in the manufacturing, supply, and sale of goods or services.
The business can achieve neutrality using the input tax credit mechanism in the incidence of tax and ensure that the input tax element is not entering into the cost of production or the cost of supply of goods and services.
Conditions for taking an input tax credit
The prerequisites for taking the input tax credit are as follows:
- Only registered taxpayers are allowed to take the benefit of ITC
- Conditions to be satisfied for taking ITC are
- Requisite Documents to be presented for proving your ITC claim
- A document must contain relevant information
- Receipt of goods or services shall be produced
- Tax charged is duly paid to the government
- Filing of return
- If depreciation is claimed on tax component, ITC will not be admissible
- Time limit for availing ITC
- Apportionment of the input tax credit
- ITC treatment in case of input goods and services
Claim ITC under GST
Only a person who is registered under GST is entitled to take credit of tax paid on inward supplies, i.e., purchases of goods or services or both used in the course of furtherance of business. Means Unregistered suppliers are not allowed to take input tax credit for the amount of tax paid on inward supplies of goods or services or both.
Conditions to be satisfied for taking ITC
There are some conditions prescribed under the GST Act for availing the input tax credit. Some of the essential conditions are as under:-
For this purpose, a supply may be either of the following:
The input tax credit is available to a person who is registered including the input service distributor, based on any of the following documents, namely
An invoice issued by the supplier in accordance with the provisions of section 31of the CGST Act 2017
A debit note issued by the supplier in accordance with the provisions of section 34 of the same act.
Invoice issued by the recipient along with the proof of payment (Received from an unregistered person and as per Reverse charged)
Invoice or credit note or any document issued by an input service distributor
Document must contain relevant information
The input tax credit shall be available to the registered person only if:-
All the applicable particulars are contained in the documents
Descriptions of goods and services
The total value of goods and services
Amount of tax charged
Place of supply in case of supply
GSTIN of receiver and supplier
Receipt of goods or services
A registered person cannot avail the ITC until he does not receive the goods. In case of “bill to ship to” model, where the goods are delivered to a third party on the direction of the registered person who purchased the goods from the supplier then it shall be deemed that the person receiving the goods is a registered person.
Tax charged is paid to the government
For availing the input tax credit, the registered person who charged the tax in respect of such supply has been paid to the government. The payment can be made either in cash or through utilizing the input tax credit.
Reversal of Input Tax Credit
The input tax credit can be reversed under certain circumstances which are mentioned below:
Failure to pay the supplier within 180 days from the invoice date.
The goods and services whether inputs or capital goods are used for personal purposes.
Goods and services utilized for producing or supplying the exempted goods or services.
Sale of capital goods or plant and machinery on which the input tax credit was claimed.
The credit notes are issued by the input service distributor.
The supplies are ineligible under section 17(5) of the Act.
A change from the registered regular dealer to composite dealer, where the input tax credit is reversed.
The amount that is reversed may be added to the output tax liability in the month in which it is reversed.
Interest is to be paid from the date the credit is availed till the date when the amount is reversed and paid.
There is no time limit applicable for reclaiming the reversed credit.
Free Consultation
Input Tax Credit & E-Way Bill
Complete guide on ITC rules, apportionment, utilisation & e-way bill compliance under CGST Act 2017.
Filing of Return
A registered person can only claim the credit or refund of ITC through the return, so he has to file the return as per section 39.
Time Limit for Availing ITC
According to Section 16 of the CGST Act, 2017, a registered person is entitled to take the input tax credit for any debit note or invoice for the supply of goods or services or both before:
- The due date for furnishing the return, u/s 39 of CGST Act, for the month of September following the end of the fiscal year, OR
- Furnishing of relevant annual return — whichever is earlier.
Apportionment of Credit
- In case of goods or services partly used for business and partly for non-business purposes, the credit shall be limited to the part of input tax attributable to business.
- ITC shall be restricted to goods or services used for taxable supplies where the same are used for effecting taxable supply as well as exempted supply.
- ITC may be availed on inward supply for making zero-rated supply.
Utilisation of Input Tax Credits
There are three types of taxes under GST — CGST, SGST, IGST. Credits can only be set off for specific purposes:
- First set off against IGST
- Then balance against CGST
- Then balance against SGST/UTGST
- First utilised against IGST
- Then balance against CGST
- First set off against IGST
- Then balance against SGST/UTGST
ITC Treatment – Input Goods & Services
When inputs or input services are partly used for business/non-business and partly for taxable/exempt supplies, apportionment is done in 4 steps:
- Total input tax related to inputs and input services in a tax period
- Less: Input tax on inputs/services intended exclusively for non-business purpose
- Less: Input tax on inputs/services intended exclusively for exempt supplies
- Less: Input tax that is ineligible (Blocked Credits)
- = ITC Credited to Electronic Credit Ledger
- Less: Input tax intended exclusively for taxable supplies including zero-rated
- = Common ITC available for apportionment (C2)
- D1 = Amount of ITC attributable to exempted supplies
- E = Aggregate value of exempt goods or services during the tax period
- F = Total turnover of the state of the registered person during the tax period
- C2 = Common credit available
- D2 = Amount of ITC attributable to non-business purpose
- C3 = Eligible input tax credit from the common credit
- 📌 Note: The amount equal to the aggregate of D1 and D2 shall be included in the registered person's output tax liability.
Situations Where ITC Cannot Be Claimed
- Motor Vehicle and other conveyance purchased — except when used for supplying such vehicles, imparting training on driving or transportation of passengers/goods, or navigating/flying such vehicles.
- Rent-a-cab, Life and health insurance — except where such services are obligatory for an employer to provide to its employees.
- Food & Beverages, outdoor catering, health service, beauty treatment and cosmetic & plastic surgery — except when used as part of taxable supply of composite or mixed nature.
- Works contract services for construction of immovable property — except when it is an input service.
- Travel benefit provided to employees as home travel concession or leave.
- Construction of immovable property on own account (including reconstruction, renovation, additions or repairs) — even when used for furtherance of business.
- Goods/services received for personal consumption.
- Membership in a Health and Fitness Centre and club.
- ITC not available for goods/services received by a non-resident taxable person.
- Goods stolen, destroyed, written off, distributed as gift or free samples.
- Dealer under composition scheme — both the dealer and the receiver of goods from the dealer are not eligible to claim ITC.
E-Way Bill Duration (For Generation)
| Type of Conveyance | Distance | E-Way Bill |
|---|---|---|
| Other than Over Dimensional Cargo | Less than 100 km | 1 Day |
| For every additional 100 km and thereof | Additional 1 Day | |
| For Over Dimensional Cargo | Up to 20 km | 1 Day |
| For every additional 20 km and thereof | Additional 1 Day |
Who Should Generate an E-Way Bill?
- Registered Person – E-Way Bill must be generated when there is movement of goods of more than ₹50,000 in value to or from a registered person. A registered person or transporter may choose to generate an E-Way Bill even if value is less than ₹50,000.
- Unregistered Persons – Unregistered persons are also required to generate E-Way Bill. However, where a supply is made by an unregistered person to a registered person, the receiver will have to ensure all compliances are met as if they were the supplier.
- Transporter – Transporters carrying goods by road, air, rail, etc. also need to generate E-Way Bill if the supplier has not generated one.
- Individually (single Document*) is ≤ ₹50,000 BUT
- In Aggregate (all documents together) exceeds ₹50,000
Unregistered Transporters will be issued Transporter ID on enrolling on the e-way bill portal, after which E-Way Bills can be generated.
Who, When & Form – E-Way Bill Responsibility
| Who | When | Part | Form |
|---|---|---|---|
| Every Registered person under GST | Before movement of goods | Fill Part A | Form GST EWB-01 |
| Registered person is consignor or consignee (mode of transport may be owned or hired) OR is recipient of goods | Before movement of goods | Fill Part B | Form GST EWB-01 |
| Registered person is consignor or consignee and goods are handed over to transporter | Before movement of goods | Fill Part B | The registered person shall furnish the information relating to the transporter in Part B of FORM GST EWB-01 |
| Transporter of goods | Before movement of goods | Generate E-Way Bill on basis of information shared by the registered person in Part A of FORM GST EWB-01 | |
| An unregistered person under GST and recipient is registered | Compliance to be done by Recipient as if he is the Supplier |
1. If goods are transported for ≤50 km within the same State/UT from consignor's place to transporter's place for further transportation, the supplier or transporter may not furnish conveyance details in Part B of FORM GST EWB-01. 2. If supply is made by air, ship, or railways, the information in Part A of FORM GST EWB-01 has to be filled by the consignor or recipient. |
|
Cases When E-Way Bill is Not Required
In the following cases it is not necessary to generate an E-Way Bill:
- The mode of transport is a non-motor vehicle
- Goods transported from Customs port, airport, air cargo complex, or land customs station to Inland Container Depot (ICD) or Container Freight Station (CFS) for clearance by Customs.
- Goods transported under Customs supervision or under customs seal.
- Goods transported under Customs Bond from ICD to Customs port or from one custom station to another.
- Transit cargo transported to or from Nepal or Bhutan.
- Movement of goods caused by defence formation under Ministry of Defence as a consignor or consignee.
- Empty Cargo containers are being transported.
- Consignor transporting goods to/from place of business and a weighbridge for weighment at a distance of 20 kms, accompanied by a Delivery challan.
- Goods being transported by rail where the Consignor is the Central Government, State Governments or a local authority.
- Goods specified as exempt from E-Way Bill requirements in the respective State/Union Territory GST Rules.
- Transport of certain specified goods — includes the list of exempt supply of goods, Annexure to Rule 138(14), goods treated as no supply as per Schedule III, certain schedules to Central Tax Rate notifications.
State-wise E-Way Bill Rules and Limits
Inter-State movement of goods has seen a rise in numbers of generation of E-Way Bills ever since its implementation began from 1st April 2018. State-wise implementation of the E-Way Bill system has seen a good response with all the States and Union Territories joining the league.
However, reliefs have been provided to people of few States by way of exempting them from E-Way Bill generation in case of monetary limits falling below threshold amount or certain specified items. For instance, Tamil Nadu has exempted people of its State from generation of E-Way Bill if the monetary limit of the items falls below ₹1 Lakh. Check the respective commercial tax websites for each State/UT for detailed state-wise limits.
Validity of E-Way Bill
An E-Way Bill is valid for periods as listed below, calculated from the date and time of generation:
| Type of Conveyance | Distance | Validity of EWB |
|---|---|---|
| Other than Over Dimensional Cargo | Less than 200 km | 1 Day |
| For every additional 200 km or part thereof | Additional 1 Day | |
| For Over Dimensional Cargo | Less than 20 km | 1 Day |
| For every additional 20 km or part thereof | Additional 1 Day |
Documents / Details Required to Generate E-Way Bill
- Invoice / Bill of Supply / Challan related to the consignment of goods
- Transport by Road – Transporter ID or Vehicle number
- Transport by Rail, Air, or Ship – Transporter ID, Transport document number, and date on the document
Goods for Which E-Way Bill is Exempted
When the below-mentioned goods are being transported, E-Way Bill is not required:
- Liquefied petroleum gas for supply to household and non-domestic exempted category (NDEC) customers
- Kerosene oil sold under PDS
- Postal baggage transported by Department of Posts
- Natural or cultured pearls and precious or semi-precious stones; precious metals and metals clad with precious metal (Chapter 71)
- Jewellery, goldsmiths and silversmiths wares and other articles (Chapter 71)
- Currency
- Used personal and household effects
- Coral, unworked (0508) and worked coral (9601)
E-Way Bill is also not required when transporting the following goods:
- Alcoholic liquor for human consumption
- Petroleum crude
- High-speed diesel
- Motor spirit (commonly known as petrol)
- Natural gas
- Aviation turbine fuel
E-Way Bill Not Required When Goods Are Transported —
- Under customs bond from an ICD or CFS to a customs port, airport, air cargo complex, and land customs station, or from one customs station/port to another.
- Under customs supervision or customs seal.
- Where goods are transit cargo from or to Nepal or Bhutan.
- Where goods are exempt from tax under various notifications.
- When Central Government, State Government, or a local authority acting as consignor transports goods by rail.
- When goods movement is caused by defence formation under Ministry of Defence as consignor or consignee.
- Transport of empty cargo containers.
- Goods being transported for weighing purposes and distance is not more than 20 kms from the consignor's place to the weighbridge or vice versa — must be accompanied by a delivery challan.
- Goods specified in the schedule appended to notification no. 2/2017-Central Tax (Rate) dated 28.06.2017, other than de-oiled cake.
