GST benefit | How to claim Input Tax Credit: eligibility, conditions, exclusions — all you need to know

Published: December 17, 2018 2:51 PM

Input tax credit (ITC) is an essential element of GST which allows to recover tax paid on business expenses incurred in producing goods or rendering services. Read all about how to claim input tax credit, and in what cases input tax credit is not available.

GST, GSTR-1, taxIf the GST did not include Input Tax Credit it would result in a tax on tax, defeating the whole purpose of GST regime.

By Tanvi Loond

Input tax credit (ITC) is an essential element of GST which allows to recover tax paid on business expenses incurred in producing goods or rendering services. If the GST did not include Input Tax Credit it would result in a tax on tax, defeating the whole purpose of GST regime. Using ITC, GST paid on business expenses such as marketing expenses, telephone charges, office rent etc can be set off against the GST charged to the customers.

For example, Simran who runs a marketing agency charged her clients Rs. 1,00,000 + GST@ 18% i.e. Rs. 18,000 for a particular period. During the same period, she paid office rent of Rs. 60,000 + GST @ 18%. i.e. Rs. 10,800. Simran has charged a GST of Rs. 18,000 but since she will claim ITC of Rs. 10,800, she will only deposit the balance i.e. Rs. 7,200 with the government.

Eligibility for claiming ITC

Every person registered under GST is entitled to claim ITC for goods or services used in the course of running the business. Therefore, GST incurred on personal expenses cannot be claimed as credit.

Conditions for claiming credit

Credit can be claimed only if the following conditions are met:

  • You are in possession of a tax invoice or debit note issued by a registered supplier;
  • You have received the goods or services or both;
  • You have furnished the GST return;
  • Tax charged in respect of such supply has been actually paid by the supplier;
  • You shall not be entitled to take ITC in respect of a particular invoice after the due date of furnishing of the GST for the month of September following the end of financial year to which such invoice pertains or furnishing of the relevant annual return, whichever is earlier.

Crediting the credit

GST is levied on inter-state and Intra-state transactions and therefore is categorized into Central GST (CGST), State GST (SGST), Union GST (UGST) and Integrated GST (IGST). The amount of input tax credit available in your electronic credit ledger is utilized as tabulated below:

  • Credit under IGST: Utilised under IGST; Balance utilised under — 1st CGST, then SGST/UGST
  • Credit under: CGST: Utilised under CGST; Balance utilised under IGST
  • Credit under: SGST/UGST: Utilised under SGST/UGST; Balance utilised under IGST

Blocked Credit

Input tax credit shall not be available in respect of the following goods / services

  • Motor vehicles and other conveyances except when they are used for further supply of such vehicles, transportation of passengers/ goods or imparting training on driving, flying, navigating such vehicles;
  • 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;
  • Rent-a-cab, life insurance and health insurance except where such services are obligatory for an employer to provide to its employees under any law for the time being in force or where 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;
  • Membership of a club, health and fitness centre;
  • Travel benefits extended to employees on vacation such as leave or home travel concession;
  • Goods or services or both
    1. on which tax has been paid under composition levy
    2. received by a non-resident taxable person except on goods imported by him
    3. used for personal consumption
  • Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples
  • Any tax paid in accordance with the provisions of
    1. Section 74 (tax not paid/short paid by reason of fraud etc.);
    2. Section 129 (Detention, Seizure and release of goods and conveyances in transit); and
    3. Section 130. (Confiscation of goods or conveyances and levy penalty
  • 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;
  • 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.

The author is Founder, Insta C.A. Views are author’s own

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