Input Tax Credit

a) Input Tax Credit (ITC) is the backbone of the GST regime.

b) GST is nothing but a value added tax on goods & services combined.

c) It is these provisions of Input Tax Credit that make GST a value added tax i.e.,  collection of tax at all points after allowing credit for the inputs.

d) The procedures and restrictions laid down in these provisions are important to make sure that there is seamless flow of credit in the whole scheme of transition without any misuse.

e) Thus, the clarity of rules of availment and utilization will have significant impact on making GST a taxpayer-friendly tax.

f) One of the biggest advantages expected from the implementation of GST Act is that it would remove cascading effect by facilitating seamless flow of credit.

g) This would be given effect by providing for the availment of ITC to the purchasing dealer in respect of the GST paid by the supplying dealer and thus by removing the restrictions placed in the present Cenvat credit rules on availment of credit which lead to break in the credit chain and consequent cascading effect which
further leads to increase in cost of goods and services.

h) Thus linking of invoice to invoice would eliminate any ambit for revenue leakage.Chapter V of the model law deals with ITC mechanism provisions.

i) ITC has been defined as credit of IGST/CGST/SGST charged on any supply of goods and or services used or intended to be used in the course or furtherance of business and includes the tax payable under revserse charge .

j) Registered taxable person shall be eligible to avail ITC credited to the e-credit ledger subject to condition prescribed without restrictions of availment (such as 50% of capital goods).

Conditions for availing of ITC:

– Taxpaying documents such as tax invoice, debit note etc.,
– Goods / service should have been received/deemed to be received by the taxable person
– Tax charged on the invoice and should have been paid to the credit of government.
– Return should have been furnished by the tax payer.
– Credit for goods against an invoice received in lots / installments can be availed only on last lot in
– The timelines for entitlement of credit against a particular invoice shall lapse on the expiry of one
year from date of issue of invoice.

Ways / Manner for availing/payment of ITCby a registered person:
– Tax credit entitlement on stock held and contained in semi-finished and finished goods
o On the day immediately preceding the date of registration in case person obtaining voluntarily registration
o On the day immediately preceding the date from which the person becomes liable to pay tax,  in case person applied for registration within 30 days from the date of liability to pay tax or in case person ceases to pay composition tax and becomes liable to pay tax. under normal provision.

Proportionate credit in case of goods/services used partially for business use and partially for non-business
– Proportionate credit in case goods/services are used partly for effecting taxable supplies and
zero rated supplies and partly for effecting nontaxable supplies and exempt supplies

Transfer of unutilized credit allowed in case of change in constitution of person due to sale,merger,  amalgamation or transfer of business with provision for transfer of liabilities.
– Switch over from regular scheme to composite scheme by debiting cash ledger of amount equivalent to ITC on stock.

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