Meaning of Input Tax Credit under GST



Input Tax Credit under GST is a credit which is available to supplier to set off the tax he has paid on purchase of goods from output tax on sale of such goods. Hence, the tax will levy on the value added which results in avoiding double taxation.

Input Tax in relation to a taxable person, means the tax charged on any supply of goods and/or services to him which are used in the course or furtherance of his business, but does not include the tax paid under the Composition levy.


Under GST Regime, the tax has been divided into 3 main parts – Integrated Goods and Services Tax (IGST), Central Goods and Services Tax (CGST) and State Goods and Services Tax (SGST). This bifurcation of taxes might lead to confusion as to how the input and output taxes are to be adjusted.

Eligibility for Input Tax Credit under GST

  • A person will be entitled to Input Tax Credit under GST in respect of inputs held in stock  or in semi finished state immediately preceding the date of which he becomes liable to pay tax, if he has applied for new registration.
  • Voluntary registration can be taken by any person. He can pay tax even when his turnover is less than the specified limit. He can take Input Tax Credit under GST in respect of the goods which are held in stock on the day immediately preceding the registration date.
  • If a person who has opted for composition scheme switches over to the normal scheme, then he shall be entitled to take Input Tax Credit under GST in respect of “goods held in stock” on the day immediately preceding the date when he becomes liable to pay tax as normal taxpayer.

Utilization of CGST’s Input Tax Credit under GST

The Input Tax Credit under GST of CGST shall be

  • first utilized towards the payment of output CGST
  • and then towards the payment of output IGST

However, Input Tax Credit under GST of CGST can’t be used to adjust SGST.

Let us take an illustration to understand:

  • Let’s assume that the tax credit of Rs. 5,00,000 is available with the supplier and output CGST is Rs. 1,00,000, output  IGST is Rs. 3,00,000, and output SGST is Rs. 2,00,000.
  • The amount will be reduced from the CGST Account and transferred to the IGST Account in order to avail the benefits of the input tax credit of CGST for paying the IGST as shown in the Monthly Return.

INPUT TAX CREDIT UNDER CGST

Utilization of SGST’s Input Tax Credit under GST

The Input Tax Credit under GST of SGST shall be

  • first utilized towards the payment of output SGST;
  • and then towards the payment of output IGST

However, Input Tax Credit under GST of CGST can’t be used to adjust CGST.

Let us take an illustration to understand:

  • Let’s assume that the tax credit of Rs. 5,00,000 is available with the supplier and output SGST is Rs. 1,00,000, output  IGST is Rs. 3,00,000, and output CGST is Rs. 2,00,000.
  • Now in order to avail the benefits of the tax credit of SGST for paying IGST as shown in the Monthly Return, the amount will be reduced from the SGST Account and transferred to the IGST Account.

input-tax-credit-under-sgst-example

Utilization of IGST’s Input Tax Credit under GST

The Input Tax Credit under GST of IGST shall be

  • first utilized towards payment of IGST;
  • then towards the payment of output CGST;
  • and then towards the payment of output SGST

Let us take an illustration to understand:

  • Let’s assume that Input Tax Credit under GST of Rs. 5,00,000 is available with the supplier, and output CGST is Rs. 1,00,000, output  IGST is Rs. 3,00,000, and output SGST is Rs. 2,00,000.
  • Now in order to avail the benefits of the tax credit of IGST, the Input Tax Credit under GST shall be first adjusted from IGST, then CGST and then SGST.

input-tax-credit-under-igst-example

Requirements for Input Tax Credit under GST

  • GST Tax Invoice

It is one of the most essential item for input tax credit. A GST Tax Invoice shall be retained whenever an input tax is paid.

  • Receive the Goods & Services

Whenever a tax credit refund is claimed, the goods and services on which it is claimed shall have to be received. In order to process the refund of input tax credit under GST, a proof of this will be required . A proof of actual tax paid by the dealer or supplier to the government shall also be required. The refund of input tax credit under GST cannot be claimed if the GST has not been paid or the proof has not been retained.

  • Furnishing of GST Return

It is compulsory for every GST taxpayer to file the returns to the concerned GST authorities. Therefore, to apply for GST input tax credit, a copy of GST Return is necessary. The details of the transactions shall also be included in the returns furnished so that they can be easily verified and checked with respect to the authenticity of the input tax credit paid to the dealer of the specified goods and (or) services.

Summary
input tax credit

In case you are confused about GST as a business owner, feel free to consult the GST experts at LegalRaasta. You can get comprehensive assistance on GST Enrolment and GST Return Online. You can also use our GST software for doing end-to-end GST compliance.