INCOME TAX NOTES

Meaning of input tax credit under GST Act, Rule, with example


Section Index:

Section 2. Definition

  • Section 16. Eligibility and conditions for taking input tax credit.
  • Section 17. Apportionment of credit and blocked credits.
  • Section 18. Availability of credit in special circumstances.
  • Section 19. Taking input tax credit in respect of inputs and capital goods sent for job work.
  • Section 20. Manner of distribution of credit by Input Service Distributor.
  • Section 21. Manner of recovery of credit distributed in excess.

  • Section 16


    16. Eligibility and conditions for taking input tax credit.

    (1) Registered person eligible to ITC:

    Every registered person shall, subject to such conditions and restrictions as may be prescribed and in the manner specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

    Every Registered Person 
    Payment of tax u/s 49 - 
    Eligible to ITC of tax paid at the time of supply input (purchase)
    for furtherance of Business
    Amount T/f to electronic cash ledger




    (2) Condition for Taking ITC:
     Notwithstanding anything con tained in this section, no registered person shall be entitled to the credit of any input tax in respect of any supply of goods or services or both to him unless,––
       a. he is 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;
    document TAX INVOICE or debit note or Reverse charge payment

       b. he has received the goods or services or both
    Advance paid basis ITC not eligible 
    other party shall have to received the goods or Service

       Explanation.- (What is deliver of goods?) For the purposes of this clause, it shall be deemed that the registered person has received the goods 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;


       c. subject to the provisions of section 41, 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; and

       d. he has furnished the return under section 39: (GSTR filled )

    Provided that where the goods against an invoice are received in lots or instalments, the registered person shall be entitled to take credit upon receipt of the last lot or instalment:
    If payment installment basic credit also installment basis

    Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner as may be prescribed:
    other then Reverse charge : If recepient not pay tax then supplier pay tax within 180 from the date of invoice issue, equal to ITC availed

    Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the amount towards the value of supply of goods or services or both along with tax payable thereon.
    Input tax credit = Input tax payment

    (3) Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed.
    ITC not allowed - If depreciation under income tax Act.

    (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or debit note for supply of goods or services or both after the due date of furnishing of the return under section 39 for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is earlier.
    No ITC after due date of filling of return U/S 39
    detail due date of filling return:
    Earlier of 
    September month return
    or
    Annual return.



    Rule 36 - Document requirement and Condition for claiming input tax credit.
    tax invoice, debit note, Self invoice (RCM), Bill of entry (Import), ISD invoice or Credit note

    Rule 37 - Reversal of Input Tax credit in case of non payment of Consideration.
    If Reversal of ITC if non payment not made within 180 days 
    two steps require :
    1. Reversal of ITC
    2. 18 % Interest payable from date of ITC claimed to date of reversal ITC

    Rule 36. Documentary requirements and conditions for claiming input tax credit.-

    (1)The input tax credit shall be availed by a registered person, including the Input Service Distributor, on the basis of any of the following documents, namely,-

    (a) an invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31;
    (b) an invoice issued in accordance with the provisions of clause (f) of sub-section (3) of section 31, subject to the payment of tax;
    (c) a debit note issued by a supplier in accordance with the provisions of section 34;
    (d) 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;
    (e) an Input Service Distributor invoice or Input Service Distributor credit note or any document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule 54.

    (2) Input tax credit shall be availed by a registered person only if all the applicable particulars as specified in the provisions of Chapter VI are contained in the said document, and the relevant information, as contained in the said document, is furnished in FORMGSTR-2 by such person:
    [Provided that if the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-State supply, input tax credit may be availed by such registered person.]24

    (3) No input tax credit shall be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.


    Rule 37. Reversal of input tax credit in the case of non-payment of consideration.-

    (1)A registered person, who has availed of input tax credit on any inward supply of goods or services or both, but fails to pay to the supplier thereof, the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub- section(2) of section 16, shall furnish the details of such supply, the amount of value not paid and the amount of input tax credit availed of proportionate to such amount not paid to the supplier in FORM GSTR-2 for the month immediately following the period of one hundred and eighty days from the date of the issue of the invoice:
    Provided that the value of supplies made without consideration as specified in Schedule I of the said Act shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16:

    24 Inserted vide notification No. 39/2018-CT, dated 04.09.2018.

    [Provided further that the value of supplies on account of any amount added in accordance with the provisions of clause (b) of sub-section (2) of section 15 shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.]25

    (2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax liability of the registered person for the month in which the details are furnished.

    (3) The registered person shall be liable to pay interest at the rate notified under sub-section
    (1) of section 50 for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.

    (4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for re- availing of any credit, in accordance with the provisions of the Act or the provisions of this Chapter, that had been reversed earlier.





    Section 17.

    17. Apportionment of credit and blocked credits.

    (1) Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

    (2) Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.

    (3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

    (4) 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 sub-section (2), or avail of, every month, an amount equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in that month and the rest shall lapse:
    Provided that the option once exercised shall not be withdrawn during the remaining part of the financial year:
    Provided further that the restriction of fifty per cent. shall not apply to the tax paid on supplies made by one registered person to another registered person having the same Permanent Account Number

    (5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of section 18, input tax credit shall not be available in respect of the following, namely:—
    Image result for car
    ITC not available

    Related image
    ITC available

    ITC not available:

    a. motor vehicles and other conveyances except when they are used––
        (i) for making the following taxable supplies, namely:—
         (A) further supply of such vehicles or conveyances ; or
         (B) transportation of passengers; or
         (C) imparting training on driving, flying, navigating such vehicles or conveyances;
       (ii) for transportation of goods;

    Further Supply
    Transport of Pessanger
    Imparting Traning
    Transport of Goods
    other
    Bus
    ITC
    ITC
    ITC
    ITC NA
    ITC NA
    Truck
    ITC
    ITC NA
    ITC
    ITC
    ITC NA
    Motor Car
    ITC
    ITC
    ITC
    ITC
    ITC NA
    Other Conveyances
    ITC
    ITC
    ITC
    ITC NA
    ITC NA
    ITC = ITC Available,
     ITC NA = ITC not Available

    b. the following supply of goods or services or both —
       (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
    except where an inward supply of goods or services or both of a particular category 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;
       (ii) membership of a club, health and fitness center;
       (iii) rent-a-cab, life insurance and health insurance except where––
          (A) the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; or
          (B) such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a taxable composite or mixed supply; and
       (iv) travel benefits extended to employees on vacation such as leave or home travel concession;

    SC= Supply in Same Categories
          a. food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery -  IF SC- ITC, other then SC- ITC NA
          bmembership of a club, health and fitness center  -  IF SC- ITC NA , other then SC- ITC NA
          c. rent-a-cab, life insurance and health insurance -  IF SC- ITC, other then SC- ITC NA exceptioned as notified by govt.
          d. travel benefits extended to employees on vacation such as leave or home travel concession.  -  IF SC- ITC NA, other then SC- ITC NA
    Image result for employee vacation
    Employee vocation no ITC


    Construction of Immovable Property through works contract or his own account:

    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;
    Work contract of Immovable property - NO ITC
    Work contract to forther work contract ITC available

    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.

    e. Explanation.–– For the purposes of clauses (c) and (d), the expression “construction” includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immovable property;

    f. goods or services or both on which tax has been paid under section 10;

    g. goods or services or both received by a non-resident taxable person except on goods  imported by him;

    h. goods or services or both used for personal consumption;

    i. goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
    any tax paid in accordance with the provisions of sections 74, 129 and 130.

    (6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may be attributed.

    Explanation.–– For the purposes of this Chapter and 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—
    (i) land, building or any other civil structures;
    (ii) telecommunication towers; and
    (iii) pipelines laid outside the factory premises.

     

    Section 18. 


    18. Availability of credit in special circumstances.
    (1) Subject to such conditions and restrictions as may be prescribed—
    a person who has applied for registration under this Act within thirty days from the date on which he becomes liable to registration and has been granted such registration 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 on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act;
    a person who takes registration under sub-section (3) of section 25 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 on the day immediately preceding the date of grant of registration;
    where any registered person ceases to pay tax under section 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:
    Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed;
    where an exempt supply of goods or services or both by a registered person becomes a taxable supply, such 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:
    Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.
    (2) A registered person shall not be entitled to take input tax credit under sub-section (1) in respect of any supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such supply.
    (3) 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 unutilised in his electronic credit ledger to such sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
    (4) Where any registered person who has availed of input tax credit opts to pay tax under section 10 or, where the goods or services or both supplied by him become wholly exempt, he 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, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption:
    Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse.
    (5) The amount of credit under sub-section (1) and the amount payable under sub-section (4) shall be calculated in such manner as may be prescribed.
    (6) In case of supply of capital goods or plant and machinery, on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital goods or plant and machinery determined under section 15, whichever is higher:

    Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15.

    Section 19.


    19. Taking input tax credit in respect of inputs and capital goods sent for job work.
    (1) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on inputs sent to a job worker for job work.
    (2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker for job work without being first brought to his place of business.
    (3) Where the inputs 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 in accordance with clause (a) or clause (b) of sub-section (1) of section 143 within one year of being sent out, it shall be deemed that such inputs had been supplied by the principal to the job worker on the day when the said inputs were sent out:
    Provided that where the inputs 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
    (4) The principal shall, subject to such conditions and restrictions as may be prescribed, be allowed input tax credit on capital goods sent to a job worker for job work.
    (5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly sent to a job worker for job work without being first brought to his place of business.
    (6) Where the capital goods sent for job work are not received back by the principal within a period of three years of being sent out, it shall be deemed that such capital goods had been supplied by the principal to the job worker on the day when the said capital goods were sent out:
    Provided that where the capital goods are sent directly to a job worker, the period of three years shall be counted from the date of receipt of capital goods by the job worker.
    (7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies, jigs and fixtures, or tools sent out to a job worker for job work.

    Explanation.–– For the purpose of this section, “principal” means the person referred to in section 143.

    Section 20. 


    20. Manner of distribution of credit by Input Service Distributor.
    (1) The Input Service Distributor shall distribute the credit of central tax as central tax or integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing the amount of input tax credit being distributed in such manner as may be prescribed
    (2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:––
    the credit can be distributed to the recipients of credit against a document containing such details as may be prescribed;
    the amount of the credit distributed shall not exceed the amount of credit available for distribution;
    the credit of tax paid on input services attributable to a recipient of credit shall be distributed only to that recipient;
    the 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;
    the credit 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.
    Explanation.–– For the purposes of this section,––
    the “relevant period” shall be––
    (i) 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 financial year; or
    (ii) 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;
    the expression “recipient of credit” means the supplier of goods or services or both having the same Permanent Account Number as that of the Input Service Distributor;

    the term ‘‘turnover’’, in relation to any registered person engaged in the supply of taxable goods as well as goods not taxable under this Act, means the value of turnover, reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.
    "

    Section 21. 

    21. Manner of recovery of credit distributed in excess.
    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, and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of amount to be recovered.