Input Tax Credit

Input tax in relation to a registered person means CGST, SGST, UTGST, IGST charged on any supply of goods or services or both made to him which are used or intended to be used in the course or furtherance of his business and includes:

  1. IGST charged on import of goods
  2. Reverse charge of CGST, SGST, UTGST and IGST

But does not include tax charged under the composition levy. ITC is eligible only when it is credited to electronic credit ledger of taxable person.


Documentary requirements for claiming ITC

ITC can be availed (including an Input Service Distributor) on the basis of any of the following documents:

  1. Invoice issued by the supplier with prescribed details.
  2. Debit note issued by the supplier according to section 34
  3. A bill of entry
  4. Invoice issued under the reverse charge method according to section 31(3)
  5. Document issued by Input Service Distributor according to Invoice Rules or according to Input Tax Credit Rules.

ITC details has to be furnished in Form GSTR-2 to avail the credit.


Time limit to avail ITC

  1. A taxable person shall not be entitled to take ITC in respect of any supply of goods/services to him after the expiry of 1 year from the date of issue of tax invoice relating to such supply.
  2. A taxable person shall not be entitled to take ITC in respect of any invoice or debit note after the filing of the return under section 39 of CGST Act for the month of September following the end of financial year to which such invoice or debit note pertains.
  3. Or filing of the relevant annual return, whichever is earlier.
  4. If advance payment was made before receipt of goods and services, ITC cannot be taken as goods and services are not received. Supplier can only issue a receipt voucher at the time of advance receipt.


Requirements to avail ITC

  1. The registered taxable person is in possession of tax invoice or debit note or any other document prescribed from a registered supplier.
  2. He has received the goods/services. Credit will be available as soon as inputs or input services are received. It is not necessary to wait till these are utilized or sold.
  3. The tax charged in respect to such supply has been actually paid to the credit of the appropriate government either in cash or by utilization of credit.
  4. He has furnished the monthly return under section 39.
  5. Inputs or capital goods received in installments: where the goods against an invoice are received in lots or installments, the registered taxable person shall be entitled to the credit upon receipt of the last lot or installment.
  6. Delivery to transporter by supplier is sufficient to take ITC.
  7. ITC is available in respect of goods sent on job work and brought back for further use.
  8. Input Tax Credit in stock: in the following cases the registered person shall be entitled to ITC in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods (reduced by prescribed percentage points) on the day immediately preceding the date from which he becomes liable to pay tax:
    When person applies for registration within 30 days of becoming liable to pay tax.
    When person opts out of composition scheme.
    When exemption on goods or services is withdrawn.
  9. ITC will not be available for certain inputs procured like: petroleum products, liquor, petrol, diesel, motor spirit.
  10. Entire input tax credit is available, even if part of input goes in by-product or waste like sludge which is not taxable. Principle of proportionate apportionment is not applicable.
  11. GST does not require a bill to bill correlation between input and output. The entire ITC forms a common pool and that credit can be utilized for any eligible output.
  12. Utilization of ITC:
    ITC from CGST can be utilized first for setting of CGST payable and then IGST if any.
    ITC from SGST /UTGST can be utilized first for setting of SGST/UTGST payable and then IGST if any.
    ITC from IGST can be utilized first for setting of IGST payable and then CGST and SGST/UTGST in that order.


Supply of goods and services ineligible for ITC – Negative list

  1. Motor Vehicle and other conveyances are not eligible for ITC except in the following cases:
    Further supply of such vehicles.
    Transportation of passengers.
    Imparting training on driving, flying, navigating such vehicles.
    For transportation of goods (other than goods transport agencies).
  2. Foods and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such services are used for an outward taxable supply of the same category or as an element of taxable composite or mixed supply.
  3. Membership of a club, health and fitness center.
  4. Rent a cab, life insurance and health insurance except where:
    The government notifies the services which are obligatory for an employer to provide.
    Where such services are used for an outward taxable supply of the same category or as an element of taxable composite or mixed supply.
  5. Travel benefits extended to employees on vacation such as leave or home travel concession.
  6. Works contract services when supplied for construction of immovable property (other than plant and machinery) is not eligible except where it is an input service for further supply of works contract service.
  7. Goods or services received by a taxable person for construction of an immovable property (other than plant and machinery) on his own account including when they are used in course or furtherance of business.
  8. Goods or services on which tax has been paid under the composition scheme (section 10) are not eligible.
  9. Goods or services received by a non-resident taxable person are not eligible except on goods imported by him,
  10. Goods or services used for personal consumption are not eligible.
  11. Goods lost, stolen, destroyed, written off or disposed of by way of gift, free samples, are not eligible.
  12. GST paid after detection of fraud or suppression or goods removed in contravention of GST Act are not eligible.
  13. No ITC on restaurants: As per Notification No. 46/2017-Central Tax (Rate), dated 14th November 2017, standalone restaurants irrespective of air conditioning will charge only 5% GST but cannot enjoy any ITC on the inputs, including food parcels/takeaways.
    Restaurants in hotel premises having room tariff of less than Rs 7500 per unit per day will attract GST of 5% without ITC.

    Restaurants in hotel premises having room tariff of Rs 7500 and above per unit per day (even for a single room) will attract GST of 18% with full ITC.


Ineligibility of ITC on pipelines and telecommunication tower

ITC in respect of pipelines laid outside the factory and telecommunication towers fixed to earth by foundation or structural support  including foundation and structural support are not eligible as they are specifically excluded from the definition of ‘plant and machinery’ under the CGST Law.


Merger, amalgamation or sale of business

  1. 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 provision for transfer of liabilities, the ITC which remains unutilised in the electronic ledger can be transferred to the transferee.
  2. The transferor shall submit details of the transaction in form GST ITC-02 electronically along with a request to transfer the ITC.
  3. In case of demerger, the credit will be apportioned in the ratio of value of assets of the new units as specified in the demerger scheme.
  4. The transferor shall also submit a certificate from a practicing CA or Cost Accountant certifying the transaction.
  5. The transferee shall accept the details, electronically on the common portal, and on such acceptance, the credit will be available in his electronic ledger.
  6. The transferee shall record the details accordingly in his books of account.