While we are talking about GST across the country, we are talking about input tax credit in the same vein. One of the advantages of implementing GST across the country is the continuous credit system along the supply chain (from manufacturing to the final consumer) and between states, which never before.
Under the GST Act, every taxable person is entitled to claim ITC on all inputs used or intended to be used in the course of business or for the pursuit of business. This applies to both goods and services, as well as financial instruments (although there are some others here).
What are the conditions to claim input tax credit under GST
· The dealer must have either a valid Tax Invoice, or a valid Debit/Credit Note, or supplementary invoice issued by the supplier
· Must have received the goods/services for which the invoice was generated.
· Must have filed returns (GSTR-3)
· Must ensure that the tax charged has been paid to the government by the supplier. This can be difficult to track manually, so a GST Accounting software can be of great help here.
· Must have completed invoice matching and would have arrived at the final ITC post reversals. If there is even a slight mismatch in the numbers due to one wrong entry in the GST portal, the entire ITC amount is ineligible to be claimed. Hence, getting this right is an absolute necessity.
When does one become eligible to avail input tax credit under GST
The following are the situations, in which a taxable person becomes eligible to avail ITC under GST –
If one applies for registration, on becoming liable to register in the GST regime
When one applies for GST registration under GST only when becoming liable to register, one can avail ITC on inputs and inputs contained in semi-finished or finished goods in stock, on the day before the date on which one becomes liable to pay tax. However, this can happen only if one applies for registration within 30 days from the date on which one becomes liable to register and has been granted registration.
If one voluntarily applies for registration
When one voluntarily applies for GST even when not liable to do so by law, one can avail ITC on inputs and inputs contained in semi-finished or finished goods in stock on the day before one is granted registration.
Shifting from composition scheme to regular dealership
The composition scheme is only valid till the turnover is less than Rs. 50 lakhs. Beyond that threshold, a business must move to the regular scheme. When this happens, one can avail ITC on inputs, inputs contained in semi-finished or finished goods in stock, and capital goods on the day before the date on which one becomes liable to pay tax. The credit on capital goods will be reduced by percentage points, which will be notified.
Exempted goods or services become taxable
When goods or services declared as exempt from GST are made taxable, one can avail ITC on the following on the day before the supply becomes taxable:
· Inputs in stock and inputs contained in semi-finished or finished goods in stock, which are relatable to the exempt supply.
· Capital goods exclusively used for the exempt supply. The credit on capital goods will be reduced by percentage points, which will be notified.
Sale/merger/demerger/amalgamation/lease/transfer of the business occurs
In any of these cases, if there is a specific provision for transfer of liabilities, one can transfer the unutilized ITC to the sold, merged, demerged, amalgamated, leased, or transferred business.
Goods and/or services are used partly for business and partly for other purposes
When goods and/or services are used partly for business and partly for other than business purposes, one can avail ITC – but only on the portion used for the purpose of business.
Goods and/or services are used partly for taxable supplies and partly for exempt supplies
When goods and/or services are used partly for taxable supplies and partly for exempt supplies, one can avail ITC only on the portion used for making taxable supplies and zero rated supplies. ITC is not allowed on the portion used for making exempt supplies, and supplies where the receiver pays tax on reverse charge basis.
When goods are received in lots or installments
When goods are received in lots or installments, one can avail ITC – but only upon receipt of the last lot or installment.
Purchase of pipelines and telecommunication towers
ITC on pipelines and telecommunication towers purchased can be availed in installmentsṣ – 1/3rd of the total input tax paid can be availed in the financial year of purchase, 2/3rd of the total input tax paid (including credit availed in the previous year) can be availed in the succeeding year, and the balance ITC on any subsequent financial year.
