Who is eligible to avail the Input tax credits (ITC)
Every registered person is entitled to take the credit of input tax charged on any inward supply of goods or services or both. However, such goods or services or both have to be used or intended to be used in the course or furtherance of his business. It means that if such goods or services are not used in the course or furtherance of his business, he/she is not eligible to take the credit. These credits would be credited to his electronic credit ledger maintained by GSTIN Portal. Person who is un-registered at the time of procurement of goods or services or both, are not eligible for ITC [Section 16], subject to eligibility as provided u/s 18(1) & (2) which is discussed in the ensuing para’s.
Application of registration under Turnover Criteria:
Un-registered person can apply for registration within 30 days from the date on which he is liable for registration, as his turnover exceeds the prescribed turnover limit prescribed under S. 22 of the Act. At present turnover limit of INR 20 Lakhs is prescribed for supply of services and INR 40 Lakhs is prescribed for supply of goods. Such person can avail the credits of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act - S. 18(1)(a).
Application of registration under Voluntary Criteria:
Un-registered person can apply for registration under Voluntary registration as prescribed under S. 25 of the Act. Such person can avail the credits of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act – S. 18(1)(b).
Such un-registered persons shall not be entitled to take the ITC after the expiry of one year from the date of issue of tax invoice relating to such supply.
To claim such available ITC, they shall follow the procedure as under:
They shall within a period of 30 (thirty) days from the date of becoming eligible to avail the input tax credit, or within such further period as may be extended by the Commissioner by a notification in this behalf, shall make a declaration, electronically, on the common portal in FORM GST ITC-01 to the effect that he is eligible to avail the input tax credit as aforesaid;
Details furnished in the declaration shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of central tax, State tax, Union territory tax and integrated tax exceeds two lakh rupees;
Declaration shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods–
on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of the Act, in the case of a claim under clause (a) of sub-section (1) of section 18;
on the day immediately preceding the date of the grant of registration, in the case of a claim under clause (b) of sub-section (1) of section 18;
Documents on the basis of which ITC credit can be availed: [Rule 36]
an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;
an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax;
a debit note issued by a supplier in accordance with the provisions of section 34;
a bill of entry or any similar document prescribed under the Customs Act, 1962 or rules made thereunder for the assessment of integrated tax on imports;
All these documents must contain details as specified in chapter VI (Rule 46 to 55) i.e. details of be mentioned in the tax invoice, bill of supply, credit and debit note, receipt voucher, refund voucher, payment voucher etc. and the relevant information, as contained in the documents, is furnished in Form GSTR – 2. In fact GSTR-2 form was never implemented as it was prescribed u/r 60 which is wholly substituted wef 1 Jan 2021. It is further clarified that if the above documents does not contain all the specified particulars but it must contain atleast the details viz. (a) details of the amount of tax charged; (b) description of goods or services; (c) total value of supply of goods or services or both; (d) GSTIN of the supplier and recipient; (e) place of supply in case of inter-State supply, then input tax credit may be availed by such registered person. [Rule 36(2)].
The registered person is entitled to take the credit only if – S. 16(2):
he is in in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents as may be prescribed;
1details of tax invoice or debit note referred in clause (a) above has been furnished by the supplier in the statement of outward supplies and such details have been communicated to the recipient of such invoice or debit note in the manner prescribed under section 37;
he has received the goods or services or both. However, it has been clarified by inserting explanation that it shall be deemed that the registered person has received the goods or services or both —
where the goods are delivered by the supplier to a recipient or any other person on the direction of such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by way of transfer of documents of title to goods or otherwise;
where the services are provided by the supplier to any person on the direction of and on account of such registered person.
Moreover, it has been further provided that where the goods against an invoice are received in lots or instalments, credit shall be availed on receipt of the last lot or instalment.2the details of input tax credit in respect of the said supply communicated to such registered person under section 38, which has been inserted by the Finance Act, 2022 and deals with manner of communication of details of inward supplies and input tax credits i.e. GSTR-2B, has not been restricted;
the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply. Tax payers can avail such input tax credits, as self-assessed, in his return in accordance with the provisions contained in S. 41;
he has furnished the return under section 39 i.e. GSTR-3B;
he has to make the payment to his supplier, value of supply along with tax payable thereon within a period of 180 days from the date of issue of invoice by the supplier. If he fails to make payment, an amount equal to the input tax credit availed, shall be reversed. Such reversal of ITC have to be by way of adding such reversal liability into his output tax liability along with interest, if any for the month in which such details are furnished. If there is any delay in reversing the credit, recipient is liable to pay interest @ 18% starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability. However, recipient is entitled to avail credit of such reversed ITC, on payment of value of supply along with tax payable thereon. Moreover, there is no time limit prescribed for re-availing such credit on payment to supplier. [Rule 37 of CGST Rules, 2017]
In respect of following transactions, it is deemed that payment has been made to the supplier within 180 days –
value of supplies made without consideration as specified in Schedule I of the CGST Act,
value of supplies, on account of any amount added in accordance with S. 15 (2) (b) of CGST Act.
- any tax that has been paid by the supplier in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts; [Rule 36(3)]
- 3ITC can be availed only to the extent of invoices or debit notes furnished by the suppliers while filing their return in Form GSTR-1 or using the invoice furnishing facility (IFF) and reflected in GSTR-2A of the recipient and the details of such invoices or debit notes have been communicated to the registered person in Form GSTR-2B under Rule 607) [Rule 36(4)]
Due to COVID 19, relaxation provided that taxpayers can take the ITC while filing return i.e. GSTR - 3B for the months of February 2020 to August 2020, as per the books of account rather than amount reflected in his GSTR-2A + 10%. However, while filing return for the month of September, 2020, ITC eligible as per the existing rule i.e. ITC as per GSTR - 2A + 10%, and ITC claimed (February 2020 to August 2020) has to be matched in consolidated manner with GSTR-2A before filing return for the month of September, 2020 and if there is any short fall same have to be reversed in the return of September, 2020.
Circular No. 142/12/2020 – GST, dated 09-10-2020 is also issued clarifying the manner in which input tax credits for the months of February, 2020 to August, 2020 is to be taken. It is reiterated that the clarifications issued earlier vide Circular No. 123/42/2019 – GST dated 11-11-2019 shall still remain applicable, except for the cumulative application as prescribed in proviso to sub-rule (4) of rule 36 of the CGST Rules.
The manner of cumulative reconciliation for the said months in terms of proviso to sub-rule (4) of rule 36 of the CGST Rules is explained by way of illustration, in a tabulated form, below:
Tax period | Eligible ITC as per the provisions of Chapter V of the CGST Act and the rules made thereunder, except rule 36(4) | ITC availed by the taxpayer (recipient) in GSTR-3B oFthe respective months | Invoices on which ITC is eligible and uploaded by the suppliers till due date of FORM GSTR-1 for the tax period of September, 2020 | Effect of cumulative application of rule 36(4) on availability of ITC |
Feb, 2020 | 300 | 300 | 270 | Maximum eligible ITC in terms of rule 36 (4) is 2450 + [10% of 2450] =2695. Taxpayer had availed ITC of 2750. Therefore, ITC of 55 [2750-2695] would be required to be reversed as mentioned in para 3.4. above |
March, 2020 | 400 | 400 | 380 | |
April, 2020 | 500 | 500 | 450 | |
May, 2020 | 350 | 350 | 320 | |
June, 2020 | 450 | 450 | 400 | |
July, 2020 | 550 | 550 | 480 | |
August, 2020 | 200 | 200 | 150 | |
TOTAL | 2750 | 2750 | 2450 | |
ITC Reversal required to the extent of 55 | ||||
September, 2020 | 500 | 385 | 350 | 10% Rule shall apply independently for September, 2020 |
In the FORM GSTR-3B for the month of September, 2020, the tax payer shall avail ITC of 385 under Table 4(A) and would reverse ITC of 55 under Table 4(B)(2) | ||||
Moreover, due to lock down 2.0, relaxation has been extended and above conditions will also apply cumulatively for the period April 2021 and May 2021 and the return in Form GSTR-3B for the tax period May 2021 shall be furnished with cumulative adjustment of input tax credit for the said month in accordance with the above conditions.
(i) he 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 430th day of November following the end of financial year to which such invoice or 5[***] debit note pertains or furnishing of the relevant annual return, whichever is earlier.
6However, relaxation has been provided to avail the credits, in respect of invoices or debit notes pertaining to FY 2017 – 2018, and not reported in return till September 2018. Time limit had been extended and recipient can avail the credits by reporting in return i.e. GSTR – 3B for the period till March 2019.
Input Tax Credits when goods are sent for job work – [S. 19 & Rule 45]
Principal shall be eligible to claim input tax credit of inputs, semi-finished goods or capital goods sent to the job worker for job work. Job work has been defined and it means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly; [S. 2(68)]. Principal means a person referred to in S. 143 of CGST Act and it means a registered person which may under intimation and subject to such conditions as may be prescribed, send any inputs or capital goods, without payment of tax, to a job worker for job work and from there subsequently send to another job worker and likewise, and shall, (a) bring back inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out, to any of his place of business, without payment of tax; (b) supply such inputs, after completion of job work or otherwise, or capital goods, other than moulds and dies, jigs and fixtures, or tools, within one year and three years, respectively, of their being sent out from the place of business of a job worker on payment of tax within India, or with or without payment of tax for export, as the case may be.
Principal shall be entitled to take credit of input tax on inputs and capital goods, even if the inputs and / or capital goods are directly sent to a job worker for job work without being first brought to his place of business irrespective of the facts that he has received the goods or services as provided under S. 16(2).
Where the inputs and / or capital goods sent for job work are not received back by the principal after completion of job work or otherwise or are not supplied from the place of business of the job worker within one year of being sent out, or not received back capital goods within a period of 3 years of being sent, shall be deemed that such inputs and / or capital goods had been supplied by the principal to the job worker on the day when the said inputs or capital goods were sent out. It further provides that if the inputs and / or capital goods are sent directly to a job worker, the period of one year shall be counted from the date of receipt of inputs by the job worker.
Moreover, whenever moulds and dies, jigs and fixtures, or tools sent to a job worker for job work, it is not required to come back to the principal within a period of one year / three year. If these inputs or capital goods are not returned within the time limit prescribed, it shall be deemed that such inputs or capital goods had been supplied by the principal to the job worker on the day when the said inputs or capital goods were sent out and the said supply shall be declared in FORM GSTR-1 and the principal shall be liable to pay the tax along with applicable interest.
Conditions and restrictions in respect of inputs and capital goods sent to the job worker [R. 45]
Principal shall sent the inputs, semi-finished goods or capital goods to the job worker under the cover of challan and challan should contain details as mentioned in Rule 55;
7When the goods are sent directly by job worker to another job worker, challan may be issued either by the principal or job worker sending the goods to another job worker;
Challan issued by the principal have to be endorsed by the job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal;
Challan endorsed by the job worker may be further endorsed by another job worker, indicating therein the quantity and description of goods where the goods are sent by one job worker to another or are returned to the principal;
Principal have to submit details of goods dispatched to a job worker or received from a job worker in Form GST ITC – 04. These details have to be submitted on quarterly basis and to be submitted on or before 25th day of the month succeeding the said quarter. Commissioner has power to give extension of time limit to submit GST ITC – 04 which has been utilized time & again and given the extensions
Apportionment of Credits: [S. 17 and Rule 42 & 43]
Input Tax Credits (ITC) is eligible, if it is used or intended to be used in the course or furtherance of business. If such ITC is used partly for non-business purpose, the amount of credit shall be restricted to so much of the input tax as is attributable to the purpose of his business. Similarly, if ITC is used partly for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, then credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero rated supplies.
Value of exempt supplies will include -
- Supplies on which the recipient is liable to pay tax under RCM;
- Transaction in Securities. Meaning of Securities to be construed from S. 2 (h) of the Securities Contracts (Regulation) Act, 1956. It will be valued at 1% of the sales value of such security [Explanation 2(b) of chapter V of CGST Rules];
- Sale of Land and Building. It will be valued at same value which is adopted for the purpose of levy of stamp duty. It will not cover under-construction property as provided under Schedule II at Paragraph 5 (b);
- Value of activities or transactions specified in Schedule III except Sale of Land and Building;
- Supplies which attracts Nil rate of tax;
- Supplies which are wholly exempt from tax u/s. 11 of CGST Act or u/s. 6 of IGST Act; and
- Supplies on which no tax is leviable i.e. non-taxable supplies.
Value of exempt supplies will include -
the value of services by way of accepting deposits, extending loans or advances in so far as the consideration is represented by way of interest or discount, except in case of a 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;
the value of supply of services by way of transportation of goods by a vessel from the customs station of clearance in India to a place outside India; and
value of activities or transactions specified in Schedule III, except those specified in paragraph 5 of the said Schedule.
Determination of reversal amount on inputs or input services which were used partly for business purposes and partly for taxable supplies including zero rated supplies other than construction of complex services provided by builders & developers. [Rule 42]
Sr. No. | Particulars | Amount | Amount | |
1. | Total of Input Tax in a tax period (Input + Input Services) | T | 100,000 | |
2. | Total of Input Tax used exclusively for non-business purposes | T1 | 30,000 | |
3. | Total of Input Tax used exclusively for effecting exempt supplies | T2 | 10,000 | |
4. | Total of Input Tax in respect of which credit not available pursuant to S. 17(5) | T3 | 5,000 | 45,000 |
5. | Total of Input Tax credit to Electronic Credit Ledger [C1 = T – (T1 + T2 + T3)] | C1 | 55,000 | |
6 | Amount of ITC attributable to inputs and input services intended to be used exclusively for effecting taxable supplies including zero rated supplies. | T4 | 40,000 | |
7. | Common Credit | C2 | 15,000 | |
8. | ITC attributable towards exempt supplies [D1 = (E / F) x C2] | D1 | 1,500 | |
9. | Aggregate Value of Exempt Supplies during tax period | E | 1,00,000 | |
10. | Total Turnover in the State during the tax period | F | 10,00,000 | |
11. | Amount of credit attributable to non-business purpose if common inputs and input services are used partly for business and partly for non-business purpose - [@5% of C2 as provided u/r 42(1)(j)] | D2 | 750 | |
12. | Common Credit attributable to the purpose of business and for effecting taxable supplies including zero rated supplies. [C3 = C2 – (D1 + D2)] | C3 | 12,750 |
The amount C3, D1 and D2 shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax and declared in FORM GSTR-3B for each tax period or through FORM GST DRC-03. Moreover, the amount equal to aggregate of D1 and D2 shall be reversed by the registered person in FORM GSTR-3B in each tax period or later through FORM GST DRC-03.
The amount so determined as above i.e. C3, D1 and D2 shall be calculated finally for the financial year before the due date for furnishing of the return for the month of September following the end of the financial year to which such credit relates.
Final Reversal
Final amount of C3, D1 & D2 at end of Financial Year | Final amount of C3, D1 & D2 at end of Tax Period | Reverse / (Claim Credit) | Time of Reversal / Time of taking credit | Interest |
5,000 | 2,250 | 2,750 | On or before the month of September following the end of FY | 18% from 1st day of April of the succeeding FY till the date of payment. |
1,000 | 2,250 | (1,250) | In the return for month not later than the month of September following the end of FY to which credit relates. | — |
Determination of reversal amount on inputs or input services which were used partly for business purposes and partly for taxable supplies including zero rated supplies in relation to construction services provided by builders & developers
S. N. | Particulars | Amount | Amount | |
1. | Total of Input Tax in a tax period (Input + Input Services) | T | 100,000 | |
2. | Total of Input Tax used exclusively for non-business purposes | T1 | 30,000 | |
3. | Total of Input Tax used exclusively for effecting exempt supplies | T2 | 10,000 | |
4. | Total of Input Tax in respect of which credit not available pursuant to S. 17(5) | T3 | 5,000 | 45,000 |
5. | Total of Input Tax credit to Electronic Credit Ledger [C1 = T – (T1 + T2 + T3)] | C1 | 55,000 | |
6 | Amount of ITC attributable to inputs and input services intended to be used exclusively for effecting taxable supplies including zero rated supplies. | T4 | 40,000 | |
7. | Common Credit | C2 | 15,000 | |
8. | ITC attributable towards exempt supplies [D1 = (E / F) x C2] | D1 | 3,000 | |
9. | Aggregate carpet area of the apartments, construction of which is exempt from tax plus aggregate carpet area of the apartments, construction of which is not exempt from tax, but are identified by the promoter to be sold after issue of completion certificate or first occupation, whichever is earlier. | E | 10,000 SFT | |
10. | Aggregate carpet area of the apartments in the project | F | 50,000 SFT | |
11. | Amount of credit attributable to non-business purpose if common inputs and input services are used partly for business and partly for non-business purpose - [@ 5% of C2 as provided u/r 42(1)(j)] | D2 | 750 | |
12. | Common Credit attributable to the purpose of business and for effecting taxable supplies including zero rated supplies. [C3 = C2 – (D1 + D2)] | C3 | 11,250 |
Note:
Determination of reversal have to be done for each project separately.
In the tax period in which the issuance of completion certificate or first occupation of the project takes place, value of E shall also include aggregate carpet area of the apartments, which have not been booked till the date of issuance of completion certificate or first occupation of the project, whichever is earlier.
Carpet area of apartments, tax on construction of which is paid or payable at the rates specified for items (i), (ia), (ib), (ic) or (id), against serial number 3 of the Table in the notification No. 11/2017-CTR, dated 28-06-2017.
Registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of E/F shall be calculated by taking values of E and F of the last tax period for which the details of such turnover are available, previous to the month during which the said value of E/F is to be calculated.
Aggregate value of exempt supplies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 and entry 92A of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule.
Where any input or input service are used for more than one project, input tax credit with respect to such input or input service shall be assigned to each project on a reasonable basis and credit reversal pertaining to each project shall be carried out as per sub-rule (3).
The amount C3, D1 and D2 shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax and declared in FORM GSTR-3B for each tax period or through FORM GST DRC-03. Moreover, the amount equal to aggregate of D1 and D2 shall be reversed by the registered person in FORM GSTR-3B in each tax period or later through FORM GST DRC-03.
Final Reversal
Amount of reversal determined as per above shall be calculated finally, for each ongoing project or project which commences on or after 1st April, 2019, which did not undergo or did not require transition of input tax credit consequent to change of rates of tax on 1st April, 2019 in accordance with N. No. 11/2017 – CTR, dated the 28th June, 2017, as amended for the entire period from the commencement of the project or 1stJuly, 2017, whichever is later, to the completion or first occupation of the project, whichever is earlier, before the due date for furnishing of the return for the month of September following the end of financial year in which the completion certificate is issued or first occupation takes place of the project, in the manner prescribed in the said sub-rule, with the modification that value of E/F shall be calculated taking value of E and F as under:
E= aggregate carpet area of the apartments, construction of which is exempt from tax plus aggregate carpet area of the apartments, construction of which is not exempt from tax, but which have not been booked till the date of issuance of completion certificate or first occupation of the project, whichever is earlier:
F= aggregate carpet area of the apartments in the project;
Final amount of C3, D1 & D2 at end of the Project | Final amount of C3, D1 & D2 at end of Tax Period | Reverse / (Claim Credit) | Time of Reversal / Time of taking credit | Interest |
5,000 | 3,750 | 1,250 | On or before the month of September following the end of FY in which the completion certificate is issued or first occupation of the project takes place. | 18% from 1st day of April of the succeeding FY till the date of payment. |
1,000 | 3,750 | (2,750) | In the return for month not later than the month of September following the end of FY in which the completion certificate is issued or first occupation takes place of the project. | - |
Determination of reversal amount on capital goods which were used partly for business purposes and partly for taxable supplies including zero rated supplies. [Rule 43]
| S. N. | Particulars | Amount | Amount | |
| 1 | The amount of input tax in respect of capital goods used or intended to be used exclusively for non-business purposes or used or intended to be used exclusively for effecting exempt supplies shall be indicated in FORM GSTR-2 and FORM GSTR-3B and shall not be credited to his electronic credit ledger. | |||
| 2 | The amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero-rated supplies shall be indicated in FORM GSTR-2 and FORM GSTR-3B and shall be credited to the electronic credit ledger. | |||
| 3 | The amount of input tax in respect of capital goods not covered under clauses (1) and (2), being the amount of tax as reflected on the invoice, shall credit directly to the electronic credit ledger and the validity of the useful life of such goods shall extend up to five years from the date of the invoice for such goods. [Common Credit] | A | 10,000 | |
| 4 | Useful Life [assumed as of 5 yrs u/r 43(1)(e)] | 60 months | ||
| 5 | Useful Life remains during the tax period | Tc | 59 months | |
| 6 | Common Credit attributable to a tax period on common capital goods during their useful life [Tm = Tc / 60] | Tm | 0.9833 | |
| 7 | Common credit attributable towards exempted supplies – [Te = (E / F) x Tr] | 9,833 | ||
| 8 | Aggregate value of exempt supplies, made, during the tax period. | E | 1,00,000 | |
| 9 | Total turnover in the State of the registered person during the tax period | F | 10,00,000 |
Note:
Where any capital goods earlier used for intended to be used exclusively for non-business purpose or for effective exempt supplies [covered under clause (1) above] is subsequently used or intended to be used for non-business and business purpose or for effecting exempt as well as taxable supplies [covered under clause (3) above], input tax in respect of such capital goods denoted as A shall be credited to the electronic credit ledger subject to the condition that the ineligible credit attributable to the period during which such capital goods were covered by clause (1),denoted as Tie, shall be calculated at the rate of 5% points for every quarter or part thereof and added to the output tax liability of the tax period in which such credit is claimed;
An item of capital goods declared under clause (1) above, on its receipt shall not attract the provisions of sub-section (4) of section 18, if it is subsequently covered under this clause (3);
Where any capital goods earlier used or intended to be used exclusively for effecting supplies other than exempt supplies [covered under clause (2) above] are subsequently used or intended to be used for non-business and business purpose or for effecting exempt as well as taxable supplies [covered under clause (3) above], the input tax credit claimed in respect of such capital good(s) shall be added to arrive at the aggregate value Tc.
Useful life of any capital goods shall be considered as five years from the date of invoice and the said formula shall be applicable during the useful life of the said capital goods;
Where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of E/F shall be calculated by taking values of E and F of the last tax period for which the details of such turnover are available, previous to the month during which the said value of E/F is to be calculated.
Aggregate value of exempt supplies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 [and entry 92A]73of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule;
The amount Te along with the applicable interest shall, during every tax period of the useful life of the concerned capital goods, be added to the output tax liability of the person making such claim of credit;
The amount Te shall be computed separately for input tax credit of central tax, State tax, Union territory tax and integrated tax and declared in FORM GSTR-3B.
Input Tax Credits for Banking or a Financial Institutions: [S. 17(4) & Rule 38]
A 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 shall have the option to either comply with the provisions of apportionment [S. 17 (2)], or avail of, every month, an amount equal to 50% of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse. Moreover, 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 Permanent Account Number i.e. supplies between Branches.
It is to be kept in mind that the option once exercised shall not be withdrawn during the remaining part of the financial year.
Banking company or financial institution have to follow following procedure to avail the ITC
Tax payer shall not avail the credit of –
the tax paid on inputs and input services that are used for non-business purposes; and
the credit attributable to the supplies specified in sub-section (5) of section 17, in FORM GSTR-2;
Tax payer shall avail input tax credit from their branches as provided under second proviso to S. 17 (4) and not covered under clause (a) above;
Balance 50% of the credit admissible shall be furnished in Form GSTR – 2;
Ineligible / Blocked Input Tax Credits: [S. 17(5)]
GST law provides that recipient of supplies would not be eligible to take the credit in respect of following transactions –
a. motor vehicles for transportation of persons having approved seating capacity of not more than 13 (thirteen) persons (including the driver), except when they are used for making the following taxable supplies, namely:—
further supply of such motor vehicles (Example – Motor Vehicle Dealer); or
transportation of passengers ; or
imparting training on driving such motor vehicles (Example – Motor Vehicle Training Institute;
(aa).Vessels and aircraft except when they are used—
for making the following taxable supplies, namely:—
further supply of such vessels or aircraft; or
transportation of passengers; or
imparting training on navigating such vessels; or
imparting training on flying such aircraft;
for transportation of goods;
(ab) services of general insurance, servicing, repair and maintenance in so far as they relate to motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa):
Provided that the input tax credit in respect of such services shall be available—
where the motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) are used for the purposes specified therein;
where received by a taxable person engaged—
in the manufacture of such motor vehicles, vessels or aircraft; or
in the supply of general insurance services in respect of such motor vehicles, vessels or aircraft insured by him;
b. the following supply of goods or services or both—
food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles, vessels or aircraft referred to in clause (a) or clause (aa) except when used for the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or services or both shall be available where an inward supply of such goods or services or both is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply;
membership of a club, health and fitness centre; and
travel benefits extended to employees on vacation such as leave or home travel concession: Provided that the input tax credit in respect of such goods or services or both shall be available, where it is obligatory for an employer to provide the same to its employees under any law for the time being in force.
c. works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service;
d. goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business.
For the purposes of above clause (c) & (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
For the purposes of ITC (Chapter V) and Registration (Chapter VI), the expression “plant and machinery” means apparatus, equipment, and 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—
- land, building or any other civil structures;
- telecommunication towers; and
- pipelines laid outside the factory premises.
e. goods or services or both on which tax has been paid as Composition under section 10;
f. goods or services or both received by a non-resident taxable person except on goods imported by him;
g. goods or services or both used for personal consumption;
h. goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
i. any tax paid in accordance with the provisions of sections 74, 129 and 130.
Availability of ITC under certain special circumstances: [S. 18 & Rule 40]
Person who obtains registration under turnover criteria
Where any person who was carrying on business applies for registration after crossing the threshold limit of turnover, within 30 days from the date on which he becomes liable to registration and has been granted registration, such person shall be eligible to take the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act. Input tax credits in respect of input services and capital goods is not available for such persons. However, such persons needs to make a declaration in Form GST ITC 01.
Person who obtains registration voluntarily
Where any person who was carrying on business and applies for registration voluntarily [S. 25 (30], such persons can claim the input tax credit of inputs, semi-finished goods, or finished goods held in stock on the day immediately preceding the date of grant of registration. Input tax credits in respect of input services and capital goods is not available for such persons. However, such persons needs to make a declaration in Form GST ITC 01.
Person ceases to pay tax under composition (u/s. 10) and liable to discharge tax u/s. 9
Where any registered person ceases to pay tax u/s. 10, he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9.
The input tax credit on capital goods, in respect of above registered persons, shall be claimed after reducing the tax paid on such capital goods by 5% (five) percentage points per quarter of a year or part thereof from the date of the invoice or such other documents on which the capital goods were received by the taxable person.
Person who supplies exempt supply and subsequently such supplies becomes taxable
Where any registered person supplies exempt supply of goods or services or both and subsequently such supplies becomes a taxable supply, then under such situation, registered person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable.
The input tax credit on capital goods, in respect of above registered persons, shall be claimed after reducing the tax paid on such capital goods by 5% (five) percentage points per quarter of a year or part thereof from the date of the invoice or such other documents on which the capital goods were received by the taxable person.
Such persons shall not be entitled to take the ITC after the expiry of one year from the date of issue of tax invoice relating to such supply and they have to follow following procedure:
They shall within a period of 30 (thirty) days from the date of becoming eligible to avail the input tax credit, or within such further period as may be extended by the Commissioner by a notification in this behalf, shall make a declaration, electronically, on the common portal in FORM GST ITC-01 to the effect that he is eligible to avail the input tax credit as aforesaid;
Details furnished in the declaration shall be duly certified by a practicing chartered accountant or a cost accountant if the aggregate value of the claim on account of central tax, State tax, Union territory tax and integrated tax exceeds two lakh rupees;
Declaration shall clearly specify the details relating to the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the case may be, capital goods–
on the day immediately preceding the date from which he becomes liable to pay tax under section 9, in the case of a claim under clause (c) of sub-section (1) of section 18;
on the day immediately preceding the date from which the supplies made by the registered person becomes taxable, in the case of a claim under clause (d) of sub-section (1) of section 18;
the input tax credit claimed in accordance with above shall be verified with the corresponding details furnished by the corresponding supplier in FORM GSTR-1 or as the case may be, in FORM GSTR- 4, on the common portal.
Change in Constitution
Where there is a change in the constitution of a registered person on account of sale, merger, demerger, amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered person shall be allowed to transfer the input tax credit which remains un-utilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business.
Registered person shall furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee. In case of demerger, the input tax credit shall be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
The transferor shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities. The transferee shall, on the common portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger.
It is clarified that transfer or change in the ownership of business will include transfer or change in the ownership of business due to death of the sole proprietor. Detailed procedure for registration, cancellation, transfer of ITC & liability and manner of transfer of ITC has been provided in Circular No. 96/15/2019 – GST, dated 28-03-2019.
Taxable person opts to discharge tax liability under composition or supplies made by him subsequently becomes wholly exempt supplies
Where any registered person who has availed of input tax credit opts to pay tax under composition (S. 10) or, where the goods or services or both supplied by him become wholly exempt, recipient of credit, shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption.
The amount to be payable have to be determined for inputs and capital goods as under [Rule 44] –
for inputs held in stock and inputs contained in semi-finished and finished goods held in stock, the input tax credit shall be calculated proportionately on the basis of the corresponding invoices on which credit had been availed by the registered taxable person on such inputs;
for capital goods held in stock, the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years.
Illustration:
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= CInput tax credit attributable to remaining useful life= C multiplied by 5/60
Note:
The amount determined as above shall be calculated separately for ITC of Central Tax, State Tax, UTT and Integrated Tax;
Where the tax invoices related to the inputs held in stock are not available, the registered person shall estimate the amount based on the prevailing market price of the goods;
The amount determined as above shall form part of the output tax liability of the registered person and the details of the amount shall be furnished in FORM GST ITC-03 and these details have to be certified by a practicing chartered accountant or cost accountant;
After the payment of such amount which was determined as above, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.
When capital goods or plant of machinery is sold:
When any capital goods or plant and machinery is supplied (sold), on which input tax credit has been taken, the registered person shall pay (reverse) an amount –
equal to the input tax credit taken on the said capital goods or plant and machinery; as reduced by such percentage points, provided as under, or;
the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher.
Amount of reversal have to be determined on the bases of input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as five years. However, there would be no reversal, if on these bases, if supply is of refractory bricks, moulds and dies, jigs and furniture supplied as scrap. In such a situation, person have to pay tax on the bases of transaction value.
Illustration (1):
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= C
Input tax credit attributable to remaining useful life= C multiplied by 5/60
Illustration (2):
Particulars | Amount | Amount |
Purchase of Machinery on 01-04-2019 | 10,00,000 | |
Input Tax Credit availed in the month of April 2019 | 1,80,000 | |
Sale of Machinery on 01-10-2020 | 6,00,000 | |
GST on sale of Machinery @ 18% | 1,08,000 | |
Use of Machinery – 18 months | ||
Useful life of the asset – Machinery – 60 months | ||
Useful remaining life of the Machinery | 60 m – 18 m | 42 m |
Input tax credit taken on such goods | C | 180,000 |
Input tax credit attributable to remaining useful life | C * 42 / 60 | 126,000 |
Amount to be reversed
input tax credit taken on the said capital goods or plant and machinery; as reduced by such percentage points (i.e. ITC for used period) = INR 1,26,000 [180,000 – 54000 ]
the tax on the transaction value of such capital goods or plant and machinery determined under section 15 = INR 108,000
r of above (a or b) would be payable by the registered person i.e. INR 1,26,000
Input Service Distributor (ISD)
Input Service Distributor means an office of the supplier of goods or services or both which receives tax invoices issued under section 31 towards the receipt of input services and issues a prescribed document for the purposes of distributing the credit of central tax, State tax, integrated tax or Union territory tax paid on the said services to a supplier of taxable goods or services or both having the same Permanent Account Number as that of the said office. [S. 2 (61)]
A supplier may have number of establishments located in different States, however, as regards input services, a supplier may insist for obtaining invoices in the name of its one central location, irrespective of which establishment has actually received the services. The purpose could be centralized accounting or centralized payment system. Ex: ABC Ltd may have head office in Mumbai and establishments in Delhi, Chennai and Kolkata. Although certain services are received at Delhi, an invoice may be issued in the name and address of Mumbai Head Office. Let’s say a supplier D in Delhi makes an intra-State supply (CGST+SGST) and supplier G of Gujarat makes an inter-state supply (IGST) to Delhi establishment, however, invoices are raised in the name of corporate office at Mumbai. Therefore, in such case, although the services are received by various establishments (ex: Delhi), it would not be possible for such establishments (Delhi) to claim the credit, as the invoice will be issued in the name of central office of such person (i.e. Maharashtra). The head office also cannot avail the credit as they are not actual recipient of such inward services.
Under the scheme of ISD, such ISD can avail the credit on the basis of invoices issued to it. Further, it also permits, other establishments (having same PAN) of the said supplier, to avail the credit, on the basis of an Input Service Distributor Invoice. Thus, in the above example, ABC’s head office at Maharashtra if obtains registration as ISD, it will be allowed to take credit on the basis of invoices issued by D & G and immediately distribute such credit to Delhi establishment, by issuing ISD invoice to Delhi. Delhi can thereafter be able to claim credit on the basis of ISD invoices issued by head office (Maharashtra).
A supplier may have number of establishments located in different States, however, as regards input services, a supplier may insist for obtaining invoices in the name of its one central location, irrespective of which establishment has actually received the services. The purpose could be centralized accounting or centralized payment system. Ex: ABC Ltd may have head office in Mumbai and establishments in Delhi, Chennai and Kolkata. Although certain services are received at Delhi, an invoice may be issued in the name and address of Mumbai Head Office. Let’s say a supplier D in Delhi makes an intra-State supply (CGST+SGST) and supplier G of Gujarat makes an inter-state supply (IGST) to Delhi establishment, however, invoices are raised in the name of corporate office at Mumbai. Therefore, in such case, although the services are received by various establishments (ex: Delhi), it would not be possible for such establishments (Delhi) to claim the credit, as the invoice will be issued in the name of central office of such person (i.e. Maharashtra). The head office also cannot avail the credit as they are not actual recipient of such inward services.
Under the scheme of ISD, such ISD can avail the credit on the basis of invoices issued to it. Further, it also permits, other establishments (having same PAN) of the said supplier, to avail the credit, on the basis of an Input Service Distributor Invoice. Thus, in the above example, ABC’s head office at Maharashtra if obtains registration as ISD, it will be allowed to take credit on the basis of invoices issued by D & G and immediately distribute such credit to Delhi establishment, by issuing ISD invoice to Delhi. Delhi can thereafter be able to claim credit on the basis of ISD invoices issued by head office (Maharashtra).
The Manner of Distribution of credit through ISD mechanism [S. 20 and Rule 39]
- D shall distribute the credit available for distribution in the same month and details of such distribution shall be furnished in Form GSTR-6;
- t shall be distributed against a document issued in terms of Rule 54 of the GST Rules;
- t of credit shall not exceed the amount available for distribution;
- ISD shall first identify the credit which is not allowed in terms of section 17(5) or otherwise and distribute the ineligible credit and eligible credit separately;
- e credit of tax paid on input services attributable to a specific recipient of credit shall be distributed only to that recipient only. Thus, in the above example, since D and G have provided services to Delhi establishments, the credit in respect of services received from them shall be distributed to Delhi unit only and not to any other establishment.
- credit of tax paid on input services attributable to more than one recipient of credit shall be distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and which are operational in the current year, during the said relevant period.
- t of tax paid on input services attributable to all recipients of credit shall be distributed amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients and which are operational in the current year, during the said relevant period.
- e purpose of computing “turnover”, the turnover of goods not taxable under this Act shall also be included. However, while computing such turnover for this section, the amount of any duty or tax levied under entry 84 and 92A (wef 1 Feb 2019) of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule, shall be excluded.
- term ‘relevant period’ is defined as under:
- credit that qualifies for distribution is to be computed as under –
C1 = (t1 / T) x C
C = amount of total credit to be distributed.
t1 = turnover of recipient R1 during relevant period.
T = the aggregate of the turnover, during the relevant period, of all recipients to whom the input service is attributable. C1= the input tax credit that is required to be distributed to recipient R1 (whether registered or not)
The above formula should be applied for every type of tax viz. Central Tax, State Tax, Union Territory Tax and Integrated Tax.
ISD shall be required to distribute the credit as under:
Situation | Relevant Period |
If the recipients of credit have turnover in their States or Union territories in the financial year preceding the year during which credit is to be distributed. | The said preceding financial year. |
If some or all recipients of the credit do not have any turnover in their States or Union territories 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. |
Credit available with ISD | Recipient unit is located in same State as that of ISD | Recipient of unit is located in different State than of ISD |
Central Tax | CGST | IGST |
State Tax | SGST | IGST |
UT Tax | UTGST | IGST |
Integrated Tax | IGST | IGST |
Credit Notes / Debit Notes to be issued by ISD
Any input tax credit required to be reduced on account of issuance of a credit note to the Input Service Distributor by the supplier shall be apportioned to each recipient in the same ratio in which the input tax credit contained in the original invoice was distributed. ISD shall also be required to issue an “ISD credit note” to other establishments, in the same month in which the credit note issued to ISD by any supplier is included in GSTR-6 return of the ISD. Where the amount so apportioned is in the negative by virtue of the amount of credit under distribution being less than the amount to be adjusted, such amount is added to the output tax liability of the recipient. Where the amount of input tax credit distributed by an ISD is reduced later on for any other reason for any of the recipients, the same process shall be followed. If any credit is distributed to a wrong establishment, it can be rectified by issuing ISD credit note to the recipient to which it was wrongly issued and issuing an ISD invoice for the said amount to the recipient which is correctly entitled for such credit. Both the documents should be reflected in GSTR-6 of the ISD in the same month.
Any additional amount of input tax credit on account of issuance of a debit note to an ISD by the supplier shall also be distributed to the recipients in the month in which the debit note issued to ISD-office is included in the return in FORM GSTR-6. In this case, unlike in the case of credit notes, it is not necessary to distribute the credit to other establishments in the same portion to which credit pertaining to original invoice was distributed.
Section 21 provides that, where the Input Service Distributor distributes the credit in contravention of the provisions contained in section 20 resulting in excess distribution of credit to one or more recipients of credit, the excess credit so distributed shall be recovered from such recipients along with interest. (Refer Circular # 71/45/2018-GST dt 26 Oct 2018)
Filing of Return by ISD [Rule 65]
Every ISD shall, on the basis of details contained in FORM GSTR-6A, and where required, after adding, correcting or deleting the details, furnish electronically the return in FORM GSTR-6, containing the details of tax invoices on which credit has been received and those issued under section 20. The details of invoices furnished by an ISD in his return in FORM GSTR-6 shall be made available to the recipient of credit in Part B of FORM GSTR 2A electronically through the common portal and the said recipient may include the same in FORM GSTR-2.
- Inserted (w.e.f. 1st January, 2022 vide Notification No. 39/2021-C.T. dated 21st December, 2021) by s. 109 of The Finance Act, 2021 (No. 13 of 2021).
- Inserted (w.e.f. a date yet to be notified) by s. 100 of The Finance Act 2022 (No. 6 of 2022).
- Substituted (w.e.f. 01.01.2022) vide Notification No. 40/2021 - CT dated 29.12.2021
- Substituted (w.e.f. a date yet to be notified) by S. 100 of The Finance Act 2022 (No. 6 of 2022) for ‘’due date of furnishing of the return under section 39 for the
month of September” - Omitted “invoice relating to such”(w.e.f. 1st January, 2021 vide Notification No. 92/2020-C.T., dated 22nd December, 2020) by S. 120 of The Finance Act, 2020
(No. 12 of 2020) - Inserted vide Order No. 02/2018 -Central Tax dated 31st December, 2018.
- Inserted vide Notification No. 14/2018-CTdated 23.03.2018.
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