INPUT TAX CREDIT

(ITC)
 Input Credit

O Input credit means at the time of paying tax on output, you can reduce the
tax you have already paid on inputs .

O If you are a manufacturer, supplier, agent, e-commerce operator, aggregator

or any of the persons, registered under GST, You are eligible to claim
INPUT CREDIT for tax paid by you on your PURCHASES( inputs).

For Example-
you are a manufacturer –
 tax payable on output (FINAL PRODUCT) is Rs 450
 tax paid on input (PURCHASES) is Rs 300
 You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs
150 in taxes.
 How to claim input credit under GST?

To claim input credit under GST –

O You must have a tax invoice(of purchase) or debit note issued by registered
dealer
Note: Where goods are received in lots/installments, credit will be available
against the tax invoice upon receipt of last lot or installment.

O Recipient should have received the goods/services

O The tax charged on your purchases has been deposited/paid to the

government by the supplier in cash or via claiming input credit

O Supplier has filed GST returns

O It is possible to have unclaimed input credit. Due to tax on purchases being higher
than tax on sale. In such a case, you are allowed to carry forward or claim a refund.
 If tax on inputs > tax on output –> carry forward input tax or claim refund
 If tax on output > tax on inputs –> pay balance

O No interest is paid on input tax balance by the government

O Input tax credit cannot be taken on purchase invoices which are more than one
year old. Period is calculated from the date of the tax invoice.

O Since GST is charged on both goods and services, input credit can be availed on
both goods and services (except those which are on the exempted/negative list).

O Input tax credit is allowed on capital goods.

O Input tax is not allowed for goods and services for personal use.

O No input tax credit shall be allowed after GST return has been filed for September
following the end of the financial year to which such invoice pertains or filing of
relevant annual return, whichever is earlier.
 Can you solve this?
Q1. Mr. X of Gujrat bought 200 units of piston rings from Mr. Y of Delhi @200
per unit.
Mr. X Sold the same after 20% value addition to Mr. Z of Maharashtra.
Show the calculation of Tax and ITC. Rate of GST -12%
Value of supply 40,000 Value of Supply 48000
(200 X 200) (40000 X 20%)
Add: 4800
IGST@12% Add: IGST @12% 5760

Total Amount 44800 Total Amount 53760

IGST

Tax on Output 5760

Less: Tax on Input 4800

Tax Payable to the govt. 960

 Can you solve this?
Q1. Mr. X of Delhi bought 200 units of piston rings from Mr. Y of Delhi @200
per unit.
Mr. X Sold the same after 20% value addition to Mr. Z of Maharashtra.
Show the calculation of Tax and ITC. Rate of GST -12%
Value of supply (200 40,000 Value of Supply 48,000
X 200) (40000 X 20%)
Add: CGST @6% 2400
SGST@6% 2400 Add: IGST@12% 5760

Total amount 44800 Total Amount 53760

Input Tax credit IGST

Tax on Output 5760
Less: Tax on Input
CGST 2400
SGST 2400
Tax Payable to the govt. 960
 Can you solve this?
Q1. Mr. X of Delhi bought 200 units of piston rings from Mr. Y of Punjab
@200 per unit.
Mr. X Sold the same after 20% value addition to Mr. Z of Delhi. Show the
calculation of Tax and ITC. Rate of GST -12%
Value of supply (200 40,000 Value of Supply 48,000
X 200) (40000 X 20%)
Add: IGST @12% 4,800
Add: CGST@6% 2880
SGST@6% 2880
Total amount 44800
Total Amount 53760

CGST SGST
Tax on output 2880 2880
Less: Tax on Input 2880 1920
Amount payable NIL 960
to the govt
 O Suppose there is a seller Mr A and he sells his goods to Mr B. Here Mr B i.e the
buyer will be eligible to claim the credit on purchases based on the invoices. Let’s
understand how:

Step 1: Mr A will upload the details of all tax invoices issued in GSTR 1.

Step 2. The details with respect to sales to Mr B will auto populate/ get reflected in GSTR
2A, the same data will be pulled when Mr B will file GSTR 2 (i.e details of inward supply).

Step 3: Mr B will then accept the details that the purchase has been made and reported by the
seller correctly and subsequently the tax on purchases will be credited to ‘Electronic Credit
Ledger’ of Mr B and he can adjust it against future output tax liability and get the refund.
 Input Tax Credit under GST – Conditions To Claim

O No ITC will be allowed if depreciation has been claimed on the tax component of a

capital good

O Time limit to claim ITC against an Invoice or Debit Note is earlier of below dates:
The due date of filing GST Return for September of next Financial year
OR
Date of filing the Annual Returns relevant for that Financial year
For instance,  XY Corp, a buyer has a Purchase Invoice was dated 8th July 2017( FY
2017-18), wants to claim GST paid on that purchase. As per the criteria laid down to
reckon the time limit:

O The Due date of filing GST return for September 2018( belonging to FY 2018-19) is
20th October 2018 and the Date of filing GST Annual Return for FY 2017-18 is 31st
December 2018, whichever is earlier will be the time period within which XY Corp has
to claim ITC. Therefore, the date is 20th October 2018 and XY Corp can claim this ITC
in any of the months between July 2017 to September 2018.
 Input Tax Credit under GST – Conditions To Claim

A registered person will be eligible to claim Input Tax Credit (ITC) on the fulfillment of the
following conditions:

O Possession of a tax invoice or debit note or document evidencing payment

O Receipt of goods and/or services

O Goods delivered by supplier to other person on the direction of a registered person against a
document of transfer of title of goods

O Furnishing of a return

O Where goods are received in lots or installments ITC will be allowed to be availed when the last
lot or installment is received

O Failure of the supplier towards supply of goods and/or services within 180 days from the date of
invoice, ITC already claimed by recipient will be added to output tax liability and interest to
paid on such tax involved. On payment to supplier, ITC will be again allowed to be claimed
 Input Tax Credit under GST – Conditions To Claim

O  Common credit of ITC used commonly for

 Effecting exempt and taxable supplies
 Business and non-business activity
 What is Common Credit?

O Businesses often use the same assets and inputs for both business & personal
use.

For example,

O Ms. Anita owns a grocery shop. She rents a 2-storey building and uses the ground floor
for her shop and 1st floor of the same building as residence. The input credit of GST paid
on rent will be allowed only to the extent it pertains to her business.
O Ms. Anita also has an attached land where she grows vegetables and sells them in her
shop.
O The same property or common property is used for 3 separate reasons- taxable sales,
exempted sales (vegetable) and personal expenses (residence).
O While Ms Anita is eligible to claim input credit for GST paid by her on her business
expenses, some of the expenses are used for both business and non business purposes.
The GST in rent (GST is applicable since it is let out for commercial purposes) is the
common credit.
 Why is common credit important?
O ITC is only available for business purposes. Many traders
use the same inputs for both business & personal. A
taxpayer is not allowed to claim any input credit for GST
paid on personal expenses.

O Again, goods exempted under GST already enjoy 0% GST.

ITC cannot be claimed for inputs used in such exempted
goods as it will lead to negative taxation.  So, ITC on inputs
for exempted goods will also have to be removed.
Step 1: Finding out total eligible ITC
Available credit (C1)= Total ITC – [ITC for personal supplies + ITC
for exempted supplies + Non-eligible ITC]
= T- (T1 +T2 +T3 )

This step calculates the available credit, i.e., the total eligible credit.

This is derived by removing ITC on all personal inputs, all exempted

inputs, non-eligible ITC.
Step 2: Finding out ITC pertaining to personal supplies & exempt
supplies:

Common Credit C2 = Input Tax credited to Electronic Credit Ledger

(C1) – Input Tax for taxable supplies (T4 )
 Partly Exempted
O The portion of ITC pertaining to exempted supplies is calculated
by the following formula:
 
 Partly Personal      
There are many common expenses such as rent, electricity, water bill which are
used for both business & personal purposes. This formula will help to segregate
the amount of credit that pertains to personal purposes.

D2 = 5% of Common Credit

O Calculating Common Credit

Details for the month of May 2018 as follows:

O Total Input Tax available in the tax period – 1,00,000 (T)

O Value of taxable items sold in her shop – 5,00,000
O Value of vegetables sold (Agricultural activity) – 2,00,000
O Input Tax for inputs (transporting charges) for taxable items –
10,000 (T4)
O Input Tax for inputs exclusively for agricultural activity
(purchasing seeds, soil, labour charges) – 20,000 (T2)
O Input Tax for inputs exclusively for personal purpose (eating out)
– 5,000 (T1)
O Input Tax for inputs and services on which availing credit is not
eligible (travelling by Ola to wholesalers)- 10,000 (T3)
Total Available Credit= 1,00,000-(5,000-20,000-10,000)= 65,000

Common credit (C2)= 65,000-10,000= 55,000

D1= (2,00,000/5,00,000)55,000= 22,000

D2= 5% of 55,000= 2,750

 Items on which credit is not allowed
O Motor vehicles and conveyances except the below cases
 Such motor vehicles and conveyances are further supplied i.e. sold
 Transport of passengers
 used for imparting training on driving, flying, navigating such vehicle or conveyances
 Transportation of goods

O food and beverages, outdoor catering, beauty treatment,

health services, cosmetic and plastic surgery
But if the goods and/or services are taken to deliver the same category of services or as a
part of a composite supply, credit will be available

Example: Mr. Dev purchases cosmetic creams to supply it to a customer, then credit of
ITC paid on purchases will be allowed
 Items on which credit is not allowed
O Sale of membership in a club, health, fitness center.

O rent-a-cab, health insurance and life insurance except the following:

 Government makes it obligatory for employers to provide it to its employees
 goods and/or services are taken to deliver the same category of services or as a
part of a composite supply, credit will be available

Example: Mr. Dev takes the service of rent-a-cab to supply to Mr. Manoj, a customer,
then the credit of ITC paid on purchases will be allowed.

O travel benefits extended to employees on vacation such as leave or home travel

concession.

O Works contract service for construction of an immovable property (except plant &
machinery or for providing a further supply of works contract service)
 Items on which credit is not allowed
O Goods and/or services for the construction of an immovable property whether to be
used for personal or business use.

O Goods and/or services where tax have been paid under composition scheme

O Goods and/or services used for personal use

O Goods or services or both received by a non-resident taxable person except for any
of the goods imported by him.

O Goods lost, stolen, destroyed, written off or disposed of by way of gift or free
samples

O ITC will not be available in the case of any tax paid due to non-payment or short tax
payment, excessive refund or ITC utilized or availed by the reason of fraud or willful
misstatements or suppression of facts or confiscation and seizure of goods.