Input Tax Credit or ITC
Inputs are all those goods that went into making the completed products issued to the final consumer. Organizations are charged GST on goods/services that are utilized as inputs. The ITC mechanism permits GST registered businesses to accept refunds on the GST paid for acquiring all inputs. This helps to avoid the cascading taxation effect, which was the essential purpose behind the introduction of the GST.
For example, GST payable on the stock of the last product of a manufacturer is Rs. 850 and the GST paid on inputs is Rs. 725. The producer can demand Rs. 725 as ITC. This brings the net tax payable during the supply to Rs. 125 only (Rs. 850 – Rs. 725).
Under the past indirect tax system of levy of Service Tax, VAT, and Excise – a lot of input tax credit was not appropriately utilized.
Who are eligible to claim Input Tax Credit?
ITC is accessible only for those elements that have enrolled under the GST Act. Only GST registered businesses can assert ITC on the tax paid for the buying of any business relevant inputs.
Who cannot claim ITC?
Input Tax Credit can be asserted only for business purposes. It is not accessible for goods or services completely used for:
- Personal use,
- Exempt supplies,
- Supplies for which ITC is specifically not available.
Along with the above mentioned, there are some other cases where ITC will be switched. Such as Credit Note issued to ISD, Non-payment of invoices within 180 days, recourses bought partly or wholly for excluded supplies or personal use, etc.
Conditions for claiming Input Tax Credit
- GST invoice showing details of tax paid is necessary,
- The goods on which GST has been paid have been received by the consumer,
- The applicant has filed the relevant tax returns,
- The supplier had paid the due tax to the government,
- The ITC applicant is registered under GST,
- If goods were received in installments, ITC can be claimed only after the final lot has been received.
ITC cannot be claimed if:
- Composition tax registered entities paying GST on inputs,
- If depreciation has been claimed on the tax part of a capital good,
- On goods not used as inputs such as supplies for personal use,
- On goods on which ITC is not applicable under the GST Act (exempted goods).
Input tax credits can be used as:
- CGST input tax credits are allowed to be used to pay CGST and IGST,
- SGST input tax credits are allowed to be used to pay SGST and IGST,
- IGST input tax credits are allowed to be used to pay CGST, SGST, and IGST.
