Goods and Services Tax (GST) is a value-added tax levied on the supply of goods and services in India. It is an indirect tax that replaced multiple indirect taxes such as excise duty, VAT, service tax, etc. GST is levied at every stage of the supply chain, from the manufacturer to the end consumer, and businesses can claim Input Tax Credit (ITC) for the tax paid at each stage. This article explains the provisions of eligibility for claiming GST Input Tax Credit under GST Laws.
What is GST Input tax credit (ITC)
Input Tax Credit (ITC) is one of the most significant features of GST that allows businesses to claim credit for the tax paid on inputs used in the course of business. ITC is available on goods and services purchased for business purposes, and it can be used to offset the GST liability on the output supply.
For example, let’s say a manufacturer purchases raw materials worth Rs. 1,00,000, on which GST is levied at 18%. The manufacturer can claim ITC of Rs. 18,000, which is the tax paid on the raw materials. If the manufacturer sells finished goods worth Rs. 1,50,000, on which GST is levied at 18%, the GST liability would be Rs. 27,000. However, the manufacturer can offset the GST liability by using the ITC of Rs. 18,000, and only pay Rs. 9,000 in GST.
ITC can only be claimed if the input goods or services are used for business purposes. If they are used for personal purposes or are exempt from GST, ITC cannot be claimed. Additionally, businesses must have proper documentation to claim ITC, such as tax invoices, debit notes, and credit notes.
ITC is not only beneficial for businesses, but it also helps in preventing cascading effect of taxes, also known as the tax-on-tax effect. Before GST, businesses were not allowed to claim credit for taxes paid on inputs, leading to a higher tax burden on the end consumer. However, with the introduction of ITC under GST, the tax burden has reduced significantly, benefiting both businesses and consumers.
To claim ITC, businesses has to satisfy the conditions and eligibility for claiming GST Input Tax Credit under laid down under section 16 of the CGST Act 2017. Before claiming Input tax credit, it is necessary to study and satisfy the eligibility, conditions and restrictions so as to avoid claiming ineligible input tax credit, and any discrepancies or errors can lead to penalties and legal repercussions.
In conclusion, ITC is a critical feature of GST that allows businesses to claim credit for the tax paid on inputs used in the course of business. It not only reduces the tax burden on businesses but also prevents the cascading effect of taxes, benefiting consumers as well. Businesses must maintain proper documentation and file GST returns accurately to claim ITC and avoid any legal repercussions.
Eligibility for claiming GST Input Tax Credit (ITC)
The eligibility for claiming GST Input Tax Credit (ITC) is prescribed under section 16 of the CGST Act which is an important aspect for businesses to understand, as it determines their ability to claim credit for the tax paid on inputs used in the course of business. The following are the key eligibility criteria for claiming GST ITC:
- Proper documentation: To claim ITC, businesses must have possession of a tax invoice or debit note or such other tax paying documents etc., for the inputs on which tax is paid.
- Timely filing of GST returns & Payment of Tax: The supplier of goods or services must file their GST returns (GSTR-1 and GSTR-3B) accurately and on time so as to pass on the benefits to the buyers on time. Any discrepancies or errors can lead to penalties and legal repercussions.
- Received the goods or services: The business must have received the goods or services on which ITC is claimed. If the goods or services are not received, ITC cannot be claimed. In case of Bill to Ship to supply, even though goods is not received to the buyers and same is delivered to a third person on the direction of the buyer, It shall be deemed that the buyer has received the goods.
- Registered under GST: Only businesses that are registered under GST are eligible to claim ITC. Unregistered businesses cannot claim ITC for the tax paid on inputs.
- Taxable supplies: ITC can only be claimed for inputs used in the course of making taxable supplies. If the input is used for making exempt supplies, ITC cannot be claimed.
- Compliance with GST rules: The business must comply with the GST rules and regulations, including invoice matching, payment of taxes, and filing of returns.
- Inputs used for business purposes: ITC can only be claimed for inputs that are used for business purposes. Inputs used for personal use or for non-business purposes are not eligible for ITC.
It is important for businesses to understand the eligibility criteria for claiming ITC under GST to avoid any legal repercussions and to maximize their tax benefits. Maintaining proper documentation, complying with GST rules, and filing accurate returns are crucial for claiming ITC. Businesses must also ensure that the inputs are used for making taxable supplies and are not used for exempt supplies or personal use.
- Shiwali Shukla is a member of ICAI since 2018 & She has excelled in Chartered Accountancy & follows an innovative & talented approach towards work, She is also an Ex- Employee of Ernst & Young. She is having the Expertise in the filed of Direct Taxation, Indirect Taxation, Company Law matters & Finance. She is also having more than 3 years of Experience in the same field. & more than 3 years if Experience in the field of Direct as well as Indirect Taxation..