Input Tax Credit under GST

One of the basic features of GST is seamless flow of Input tax credit. Input tax credit avoids cascading effect of taxes.
Before the introduction of GST, there was many taxes both at Central and State level such as excise duty, CST, VAT, Purchase Tax, service tax etc. which had the effect of cascading of tax i.e. tax on tax.
With the introduction of GST, all or major taxes both at State and Central level have been subsumed under GST and thus the tax on tax effect has been neutralized and now the input tax credit has became an important feature under GST.

There are three major taxes under GST which are :

1. CGST (Central Goods and Services Tax)
2. SGST (State Goods and Services Tax)
3. IGST (Integrated Goods and Services Tax)

​The standard method of utilization of above tax is as under :

​1. IGST can be used for the payment of :
(a) First IGST
(b) Then CGST
(c) Then SGST
​2. CGST can be used for the payment of :
(a) First CGST
(b) Then IGST
​3. SGST can be used for the payment of :
(a) First SGST
(b) Then IGST
​Thus the CGST and SGST can not be used for payment of each other.
​For availing Input tax credit, the registered person needs to have some documents on the basis of which the credit can be availed.

Some of the documents required for availing Input Tax credit are :

​1. Invoice or Revised Invoice provided by the Supplier in respect of goods or services
​2. A debit note issued by the Supplier
​3. In case of imports, the bill of entry as per the Custom Act
​4. In case of Input Service Distributor, the document issued in respect thereof ;

​Also there are some conditions for availing input tax credit as under :

​1. The Registered person should be in possession of tax invoice on the basis of which input has been claimed
​2. The goods or services as mentioned in the tax invoice should be actually received by the taxpayer.
​3. The GST mentioned in the invoice of the supplier should have been actually paid by him
​4. The necessary Return must be filed by the supplier in respect of issued invoice
​5. The payment in respect of the invoice should be made to the supplier within 180 days of the issue of invoice.
In case of failure to make the payment, the GST input already availed should be added to the output tax liability by the taxpayer and interest etc. should also be paid. However, once the payment has been made, he is again eligible to take the credit of input in the month in which the payment has been made.
​6. Also the ITC can be claimed up to the month of Sept. following the end of the F.Yr. in which the invoice has been issued or the due date of filing of Annual Return whichever is earlier.
For Example, if the invoice has been issued on 20th March,2020, the ITC of the same can be taken till 30th Sept. 2020 or the due date of filing of Annual Return which is 28th Feb. 2021(extended date) whichever is earlier. Since in this case 30th Sept. is earlier, the ITC can be claimed till 30th Sept. 2020 only.

​ITC not available in some cases [Section 17(5) of the CGST Act,2017]

​1. In respect of Motor Vehicles except in some circumstances - to be discussed later.
​2. Goods or services provided in relation to :
(a) Foods and beverages, outdoor catering, beauty treatment, cosmetic and plastic surgery etc.
(b) membership of club, health and fitness centre
(c) Life insurance and health insurance
(d) Rent a cab services
(e) travel benefits extended to the employees on leave on home travel concession
​3. Works contract services when supplied for construction of immovable property (other than for plant and machinery)
However the input will be allowed if it is an input service for further supply of works contract
​4. Goods or services received for construction of Immovable Property by a registered person (even if it is for his business purpose)
​5. Goods or services which have been used for personal consumption or private use.
​6. Goods which are lost, destroyed, written off, gifted or free samples provided.