GOODS AND SERVICES TAX COUNCIL

STANDING COMMITTEE ON CAPACITY BUILDING AND

FACILITATION

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 INDEX

SECTION NO CONTENT PAGE NO.

1 SUMMARY SHEET
1A RELEVANT SECTIONS 4
1B SALIENT FEATURES 6
1C DIFFERENCE BETWEEN 10
EXISTING LAWS AND GST

2 FREQUENTLY ASKED QUESTIONS

2A CENTRAL BOARD OF EXCISE 11
AND CUSTOMS- SECOND
EDITION
2B COMMERCIAL TAXES 17
DEPARTMENT, KARNATAKA

2C TWITTER- @ASKGST_GOI 22

3 MISCELLENOUS
3A INPUT TAX MECHANISEM- 23
FLYER, NACIN

4 LEGAL PROVISIONS
4A ACT 28
4B RULES 34
4C FORMATS 45

5 RESOURCES
5A LINKS OF IMPORTANT 61
WEBSITES

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 SUMMARY SHEET

SECTION 1A: RELEVANT LEGAL PROVISIONS

Section 2 of the GST Act, 2017 – relevant definitions

* Input Tax: Section 2(62) of CGST Act, 2017
* Input Service Distributor: Section 2(61) of CGST Act, 2017
* Business – Section 2 (17) of CGST Act, 2017
* Registered Person – Section 2 (94) of CGST Act, 2017
* Electronic Credit Ledger – Section 2 (46) of CGST Act, 2017
* Taxable Supplied – Section 2 (108) of CGST Act, 2017
* Exempt Supply - Section 2 (47) of CGST Act, 2017
* Works Contract Services - Section 2 (119) of CGST Act, 2017
* Capital Goods - Section 2 (19) of CGST Act, 2017
* Input - Section 2 (59) of CGST Act, 2017
* Input Service - Section 2 (60) of CGST Act, 2017
* Invoice - Section 2 (66) of CGST Act, 2017
* Inward Supply - Section 2 (67) of CGST Act, 2017

Section 16 of the GST Act, 2017 – eligibility and conditions for taking ITC
Relevant rules – Rules 1 and 2 of ITC Rules, 2017
* Conditions for availing Input Tax Credit- Section 16 (2) of CGST Act, 2017
* No Input Tax Credit where depreciation has been claimed - Section 16 (3) of CGST Act, 2017
* Time limit for claiming Input Tax Credit - Section 16 (3) of CGST Act, 2017
* No Input Tax Credit where depreciation has been claimed - Section 16 (3) of CGST Act, 2017

Section 17 of the GST Act, 2017 – Apportionment of Credit & Blocked Credits Relevant
rules – Rules 3,7 and 8 of ITC Rules, 2017
* Apportionment of Credit - Section 17 (1), 17 (2), 17 (3) of CGST Act, 2017
* Claim of Credit - Section 17 (1), 17 (2), 17 (3) of CGST Act, 2017
* Blocked Credit - Section 17 (5) of CGST Act, 2017

Section 18 of the GST Act, 2017 – Availability of Credit in special circumstances Relevant
rules – Rules 5, 6 and 9 of ITC Rules, 2017
* Availability of Credit in special circumstances - Section 18 of CGST Act, 2017

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* Transfer of Credit on sale, amalgamation, lease or transfer of business - Section 18 (3) of CGST
Act, 2017
* ITC in case of subsequent availment of composition scheme or where supplies become exempt -
Section 18(4) of CGST Act, 2017
* ITC on supply of capital goods or plant & machinery - Section 18(6) of CGST Act, 2017

Section 19 of the GST Act, 2017 – Credit in case of goods sent for job work
Relevant rules – Rules 10 of ITC Rules, 2017
* Credit in case of goods sent for job work - Section 19 of CGST Act, 2017

Section 20 of the GST Act, 2017 – Manner of distribution of Credit by input service distributor
Relevant rules – Rules 4 of ITC Rules, 2017
* Manner of distribution of Credit by input service distributor - Section 20 of CGST Act, 2017

Section 21 of the GST Act, 2017 – Manner of recovery of credit distributed in excess
* Manner of recovery of credit distributed in excess - Section 21 of CGST Act, 2017

Section 29 of the GST Act, 2017 – ITC in case of a registered person whose registration in cancelled
Relevant rules – Rules 9 of ITC Rules, 2017
* ITC in case of a registered person whose registration in cancelled - Section 29 (5) of CGST Act,
2017

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 SECTION 1B. SALIENT FEATURES OF INPUT TAX CREDIT SCHEME

1. Meaning of input tax credit (ITC)

Input tax credit (ITC) means credit of Central Tax, State Tax, Union Territory Tax,
Integrated Tax and Compensation Cess paid on supply of goods or services by a supplier
that can be used by a recipient for payment of its output tax liability. Integrated Tax paid
on import of goods or services and tax paid by the recipient on reverse charge basis is also
available as input tax credit,

1. Utilization of tax credits of various taxes

Integrated Tax credits can be used for payment of Integrated, Central and State Taxes, or
as the case may be, Union Territory tax in the said order. Central Tax credits can be used
for payment of Central Tax and Integrated Tax in this order. Similarly, State Taxes credits
or Union Territory Taxes credits can be used for payment of State Taxes or Union Territory
Taxes and Integrated Tax in this order. However Central Tax cannot be used for payment
of State Taxes/UT tax and vice-versa.
Input tax credit cannot be used for payment of interest, penalty or fees. Further, the credits
of compensation cess can be used only for payment of compensation cess.

2. Presentation of ITC conditions in a Pictorial Form:-

(1) Motor Vehicles

ITC for
Transportation of Goods, or
Motor Vehicles when
not allowed used for Making the following taxable
services:
A. Further supply of such vehicles
/conveyances; or
B. Transportation of passengers, or
C. Training for Imparting Training
for Driving/flying/ navigating
such vehicles / conveyances;

(2) Restrictions on availment of Input Tax Credit on supply of goods and services as under:-

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 1) ITC allowed ONLY if Goods or services or both of a particular category are used towards
making taxable outward supplies of the same category of goods or services or both or as an
element of taxable composite supply (Section 2(30)) or mixed supply (Section 2(74)).

Food Outdoor Beauty Health Cosmetic and

and Beverages Treatment Services plastic
Catering surgery

2) ITC not allowed

Membership of Health and fitness Travel Benefits to employees

club centre

3) ITC allowed only if the services are notified as obligatory if these are provided by an
employer to an employee.

Life / Health Insurance Rent-a-Cab

(3) Restriction of ITC on construction of Immovable property (other than plant and machinery)

Works contract services, Goods or serv ices received by a taxable

except where it is an input service person for construction of an immovable
for further supply of works property on his own account even when used
contract service in the course or for furtherance of business.

ITC not allowed

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4. Pro rata reversals
When common taxable inputs and/or services are used for making both taxable and
nontaxable/ exempt supplies or inputs and/or services are diverted to non-
business/personal use then the quantum of credit on such inputs/input services is restricted
to the credit attributable to taxable supplies or to the extent such inputs/input services are
used in course or furtherance of business. In other words the total credit will be subject to
prorata reversals i.e. reversal in proportion to value of non-taxable/exempt supplies or value
of inputs/input services diverted for non-business use or personal use.

5. Meaning of exempt supplies for pro rata reversals.

As per the definition of ‘exempt supplies’ under GST law, exempt supplies include supplies which
attracts NIL rate of tax; supplies which may be exempt and includes nontaxable supplies as
well. The ambit of the term ‘exempt supplies’ has been expanded for purpose of
determining pro rata distribution of input tax credits to include the following i. Transaction
in securities (which is neither treated as goods nor services) ii. Sale of land iii. Sale of
building provided the entire consideration has been received after issuance of completion
certificate where required by the competent authority or before its first occupation
whichever is earlier.
ITC rules provide that value of land and building shall be taken as the same as adopted for
the purpose of paying stamp duty and the value of security shall be taken as one percent of
the value of such security.
Credit on capital goods are also subject to pro rata reversal.

6. Input Service Distributor

Businesses opting for centralized procurement of services can make use of provisions of input
service distributor and can distribute the tax credits where such services have been used.
Input service distributor is a special concept to allows the business to distribute the tax credit of
common services to different registrations of the same entity (same PAN)

7. Following conditions have been prescribed for distribution of credit by an ISD:

• ISD registered separately.
• The input service invoice should be in favour of ISD indicating ISD’s GSTIN.
• Distribution to other registrations to be done following prescribed rule
• Input Service Distributor will issue an ISD invoice in favour of the registrations to which credit
belongs. The amount to be distributed has to be calculated separately for credit of four different taxes
• All credits have to be distributed in the same month of availment. Amount in-eligible and the amount
eligible will be distributed separately.

8. Rule for credit distribution by an ISD

• Input credit identifiable to any one particular registration - Will be distributed to only that
registration.
• Input tax credit attributable to more than one registration - credit will be distributed amongst such
registrations to which the credit is attributable and will be distributed pro rata to the turnover of a
registration compared to the aggregate of turnover of all registrations.
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 • Input tax credit is attributable to all registrations - credit will be distributed on a pro rata basis
amongst such registrations to which the credit is attributable.

9. Period for ITC and filing of Annual Return

Credit has to be availed on or before furnishing of the return for the month of September following the
end of the financial year to which invoice relates or furnishing of the relevant annual return whichever is
earlier.
Return for a month is to be filed on or before the twentieth day of the succeeding month. Thus return for
the month of September is to be filed by 20th October.
Input Service Distributor is required to file return within thirteen days of the succeeding month.
Thus for an Input Service Distributor, return for the month of September is to be filed by 13th October.
Annual return is to be filed by thirty first day of December following the end of relevant financial year.

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 SECTION 1C: DIFFERENCES BETWEEN ITC PROVISIONS UNDER EXISTING LAW
AND UNDER GST

Existing Law GST

Criteria for availment : use in factory or Criteria for availment : use in course or
provision of output service furtherance of business

Capital goods specifically defined. Broad definition includes all goods

capitalized in account and used in course or
furtherance of business.

No such condition
Availment of capital goods credit in
instalments
Wider negative list Trimmer negative list
More blocked credits Free flow of credits.
No credit of CST Credit of IGST

No pro rata reversal of credit on capital Pro-rata reversals even in case of capital goods
goods if used for taxable and non-taxable
activities
No concept of matching of invoices Credits based on matching of invoices.

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 SECTION 2A : FREQUENTLY ASKED QUESTIONS(FAQs) ON GOODS AND SERVICES
TAX (GST) –CBEC 2nd Edition. 31st March, 2017

REFERENCE:http://www.cbec.gov.in/resources//htdocs-cbec/gst/new-faq-on-gst-
secondedition.pdf

Q 1. What is input tax?

Ans. Input tax means the central tax (CGST), State tax (SGST), integrated tax (IGST) or Union
territory tax (UTGST) charged on supply of goods or services or both made to a registered person.
It also includes tax paid on reverse charge basis and integrated tax goods and services tax charged
on import of goods. It does not include tax paid under composition levy.

Q 2. Can GST paid on reverse charge basis be considered as input tax?

Ans. Yes. The definition of input tax includes the tax payable under the reverse charge.

Q 3. Does input tax includes tax (CGST/IGST/SGST) paid on input goods, input services and
capital goods?
Ans. Yes, it includes taxes paid on input goods, input services and capital goods. Credit of tax
paid on capital goods is permitted to be availed in one instalment.

Q 4. Is credit of all input tax charged on supply of goods or services allowed under GST?
Ans. A registered person is entitled to take credit of input tax charged on supply of goods or
services or both to him which are used or intended to be used in the course or furtherance of
business, subject to other conditions and restrictions.

Q 5. What are the conditions necessary for obtaining ITC?

Ans. Following four conditions are to be satisfied by the registered taxable person for obtaining
ITC:
(a) he is in possession of tax invoice or debit note or such other tax paying documents as may
be prescribed;
(b) he has received the goods or services or both;
(c) the supplier has actually paid the tax charged in respect of the supply to the government;
and
(d) he has furnished the return under section 39.

Q 6. Where the goods against an invoice are received in lots or instalments, how will a registered
person be entitled to ITC?

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 Ans. The registered person shall be entitled to the credit only upon receipt of the last lot or
installment.

Q 7. Can a person take input tax credit without payment of consideration for the supply along with
tax to the supplier?
Ans. Yes, the recipient can take ITC. But he is required to pay the consideration along with tax
within 180 days from the date of issue of invoice. This condition is not applicable where tax is
payable on reverse charge basis.

Q 8. What would happen of the ITC taken by the registered person if he has not paid the
consideration along with tax within 180 days from the date of issue of invoice?
Ans. The amount of ITC would be added to output tax liability of the person. He would also be
required to pay interest.
However, he can take ITC again on payment of consideration and tax.

Q 9. Who will get the ITC where goods have been delivered to a person other than taxable person
(‘bill to’- ‘ship to ’scenarios)?
Ans. It would be deemed that the registered person has received the goods when the goods have
been delivered to a third party on the direction of such taxable person. So ITC will be available to
the person on whose order the goods are delivered to third person.

Q 10. What is the time limit for taking ITC and reasons therefor?
Ans. A registered person cannot take ITC in respect of any invoice or debit note for supply of
goods or services after the due date for furnishing the return under section 39 for the month of
September following the end of financial year to which such invoice/invoice relating to debit note
pertains or furnishing of the relevant annual return, whichever is earlier. So, the upper time limit
for taking ITC is 20th October of the next FY or the date of filing of annual return whichever is
earlier.
The underlying reasoning for this restriction is that no change in return is permitted after
September of next FY. If annual return is filed before the month of September, then no change can
be made after filing of annual return.

Q 11. Where the registered taxable person has claimed depreciation on the tax component of the
cost of capital goods under the provisions of the Income Tax Act,1961, will ITC be allowed in
such cases?
Ans. The input tax credit shall not be allowed on the said tax component in respect of which
depreciation has been claimed.

Q 12. Is credit of tax paid on every input used for supply of taxable goods or services or both is
allowed under GST?

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 Ans. Yes, except a small list of items provided in the law, the credit is admissible on all items.
The list covers mainly items of personal consumption, inputs use of which results into formation
of an immovable property (except plant and machinery), telecommunication towers, pipelines laid
outside the factory premises, etc. and taxes paid as a result of detection of evasion of taxes.

Q 13. A taxable person is in the business of information technology. He buys a motor vehicle for
use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such
motor vehicle?

Ans. No. ITC on motor vehicles can be availed only if the taxable person is in the business of
transport of passengers or goods or is providing the services of imparting training on motor
vehicles.

Q 14. Sometimes goods are destroyed or lost due to various reasons? Can a person take ITC to the
extent of such goods?
Ans. No, a person cannot take ITC with respect to goods lost, stolen, destroyed or written off. In
addition, ITC with respect of goods given as gifts or free samples are also not allowed.

Q 15. Can a registered person get ITC with respect of goods or services used for construction of
a building for business purposes?
Ans. No. ITC on goods or services by a person for construction of immovable property, other than
plant and machinery, is not allowed. Plant and machinery cover only apparatus, equipment, and
machinery fixed to earth by foundation or structural support, and excludes land and building,
among other things.

Q 16. What is the ITC entitlement of a newly registered person?

Ans. A person applying for registration can take input tax credit of inputs held in stock and inputs
contained in semifinished or finished goods held in stock on the day immediately preceding the
date of grant of registration. If the person was liable to take registration and he has applied for
registration within thirty days from the date on which he became liable to registration, then input
tax credit of inputs held in stock and inputs contained in semifinished or finished goods held in
stock on the day immediately preceding the date on which he became liable to pay tax can be
taken.

Q 17. A person becomes liable to pay tax on 1st August, 2017and has obtained registration on
15th August, 2017. Such person is eligible for input tax credit on inputs held in stock as on:
(a) 1st August, 2017
(b) 31st July, 2017
(c) 15th August, 2017
(d) He cannot take credit for the past period
Ans. 31st July, 2017.
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Q 18. What is the eligibility of input tax credit on inputs in stock for a person who obtains
voluntary registration?
Ans. The person who obtains voluntary registration is entitled to take the input tax credit of input
tax on inputs in stock, inputs in semi- finished goods and finished goods in stock, held on the day
immediately preceding the date of registration.

Q 19. What would be input tax eligibility in cases where there is a change in the constitution of a
registered person?
Ans. The registered person shall be allowed to transfer the input tax credit that remains unutilized
in its electronic credit ledger to the new entity, provided that there is a specific provision for
transfer of liabilities.

Q 20. Where goods or services or both received by a taxable person are used for effecting both
taxable and non-taxable supplies, whether the input tax credit is available to the registered taxable
person?
Ans. The input tax credit of goods or services or both attributable only to taxable supplies can be
taken by registered person. The manner of calculation of eligible credit would be provided by rules.

Q 21. If input tax credit is allowed only in respect of goods or services or both for effecting
taxable supplies, would it not lead to loss of input tax credit on exempt supplies when exported?
Ans. Zero-rated supplies have been covered within taxable supplies for the purpose of allowing
input tax credit. The scope of zero-rated supply is provided in the Integrated Goods and Services
Tax Act which includes even exempt supplies.

Q 22. Which of the following is included for computation of taxable supplies for the purpose of
availing credit?

(a) Zero-rated supplies

(b) Exempt supplies
(c) Both
Ans. Zero rated supplies.

Q 23. Where goods or services received by a registered person are used partly for the purpose of
business and partly for other purposes, whether the input tax credit is available to the person?
Ans. The input tax credit of goods or services or both attributable only to the purpose of business
can be taken by registered person. The manner of calculation of eligible credit would be provided
by rules.

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Q 24. A person paying tax under compounding scheme crosses the compounding threshold and
becomes a regular taxable person. Can he avail ITC and if so from what date?
Ans. He can avail ITC in respect of inputs held in stock and 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 ceases to be eligible for composition scheme.
The manner of calculation of eligible credit would be provided by rules.

Q 25. Are there any special provisions in respect of banking companies?

Ans. A banking company or a financial institution including a non-banking financial company
engaged in supply of specified services would either avail proportionate credit or avail 50% of the
eligible input tax credit.

Q 26. Mr. A, a registered person was paying tax under composition scheme up to 30th July, 2017.
However, w.e.f 31st July, 2017, Mr. A becomes liable to pay tax under regular scheme. Is he
eligible for ITC?

Ans. Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in
semifinished or finished goods held in stock and capital goods (reduced by such percentage points
as may be prescribed) as on 30th July, 2017.

Q 27. Mr. B applies for voluntary registration on 5th June, 2017 and obtained registration on
22nd June, 2017. Mr. B is eligible for input tax credit on inputs in stock as on…………..
Ans. Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in
semifinished or finished goods held in stock as on 21st June, 2017. Mr. B cannot take input tax
credit in respect of capital goods.

Q 28. What would happen to the input tax credit availed by a registered person who opts for
composition scheme or where the goods or services or both supplied by him become wholly
exempt?
Ans. The registered person has to pay an amount equal to the input tax credit in respect of stocks
held on the day immediately preceding the date of exercise of option or date of exemption. In
respect of capital goods, the payable amount would be calculated by reducing by a prescribed
percentage point. The payment can be made by debiting electronic credit ledger, if there is
sufficient balance in the credit ledger, or by debiting electronic cash ledger. If any balance remains
in the credit ledger, it would lapse.

Q 29. Is there any restriction on period for availment of ITC?

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 Ans. In cases of new registration, change from composition to normal scheme, from exempt to
taxable supplies, the concerned person cannot avail ITC after the expiry of one year from the date
of issue of tax invoice relating to such supply.

Q 30. What happens where the details of inward supplies furnished by the recipient do not match
with the outward supply details furnished by the supplier in his valid return?
Ans. In case of mismatch, the communication would be made to the both parties. If the mismatch
is not rectified, then the amount will be added to the output liability of recipient in the return for
the month succeeding the month in which discrepancy is communicated.

Q 31. Is input tax credit allowed only after matching?

Ans. No, input tax credit is allowed provisionally for two months. The supply details are matched
by the system and discrepancies are communicated to concerned supplier and recipient. In case
mismatch continues, the ITC taken would be reversed automatically.

Q 32. Can provisionally allowed ITC be used for payment of all liabilities?
Ans. No, provisionally allowed ITC can be used only for the payment of self-assessed output tax
in the return.

Q 33. What will be the tax impact when capital goods on which ITC has been taken are supplied
by taxable person?

Ans. In case of supply of capital goods or plant and machinery on which input tax credit has been
taken, the registered person shall pay an amount equal to the input tax credit taken on the said
capital goods or plant and machinery reduced by the percentage points as may be specified in this
behalf or the tax on the transaction value of such capital goods, whichever is higher.

Q 34. What is the tax implication of supply of capital goods by a registered person who had taken
ITC on such capital goods?
Ans. The registered person would pay an amount equal to ITC reduced by prescribed percentage
point or tax on the transaction value, whichever is higher. But in case of refractory bricks, moulds
and dies, jigs and fixtures when these are supplied as scrap, the person can pay tax on the
transaction value.

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 SECTION 2B : FREQUENTLY ASKED QUESTIONS(FAQs) ON INPUT TAX CREDIT IN GOODS
AND SERVICES TAX (GST) – COMMERCIAL TAX DEPARTMENT, KARNATAKA (AS
AMENDED BY EXCISE AND TAXATION DEPARTMENT HARYANA FOR THE PURPOSES OF
THIS CMPILATION)

REFERENCE: http://ctax.kar.nic.in/ http://164.100.80.121/gst_faq/

 What is input tax?

“Input tax” has been defined in section 2 (62) of the CGST ACT.
Act. Input tax in relation to a taxable person, means the {IGST and CGST} in respect of CGST Act and
{IGST and SGST} in respect of SGST Act, charged on any supply of goods and/or services to him which are
used, or are intended to be used, in the course or furtherance of his business and includes the tax payable
under sub•section (4) of section 9. Under the IGST Act, input tax is defined as IGST, CGST or SGST charged
on any supply of goods and / or services.

 What is the implication of different definition of “input tax” in three acts

viz CGST, SGST and IGST Acts?

It implies that input tax consists of IGST & CGST in CGST Act and IGST & SGST in SGST Act. In the
IGST Act, input tax consists of all three taxes namely, IGST, CGST and SGST. It further implies that credit
of all three can be used for discharging IGST liability, whereas only credit of IGST & CGST can be taken in
CGST Act and that of IGST & SGST can be taken under SGST Act. Further the credit of CGST & SGST
cannot be cross•utilized.

 Can GST paid on reverse charge be considered as input tax?

Yes. The definition of input tax includes the tax payable under sub-section (4) of section 9 (Reverse Charge).
The credit can be availed if such goods and/or services are used, or are intended to be used, in the course or
furtherance of his business.
 Does input tax include tax (CGST/ IGST/SGST) paid on input goods, input services and/ or capital
goods?

Yes, in terms of section 2(62) of CGST Act, 2017. It may be noted that credit of tax paid on capital goods
also is permitted to be availed in one installment.
 What is the ITC entitlement of a person who has applied for registration under the Act within thirty
days from the date on which he becomes liable to registration and has been granted such
registration? (Section 18(1)(a))

He shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in
semi•finished or finished goods held in stock on the day immediately preceding the date from which he
becomes liable to pay tax under the provisions of this Act. It may be noted that the credit on pre•registration
stock would not be admissible if the registration has not been obtained within a period of 30 days from the
date on which he becomes liable to registration.

 A person becomes liable to pay tax on 1st August, 2017 and has obtained
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 registration on 15th August, 2017. Such person is eligible for input tax credit on inputs held in
stock as on …….
31st July, 2017.

 What is the eligibility of input tax credit on inputs in stock for a person who obtains voluntary
registration?

As per section 18(1)(b) of CGST Act, 2017, the person who obtains voluntary registration is entitled to take
the input tax credit of input tax on inputs in stock, inputs in semi•finished goods and finished goods in stock,
held on the day immediately preceding the date of registration.
 Where goods and/or services received by a taxable person are used
for effecting both taxable and non•taxable supplies, whether the input tax credit is available to the
registered taxable person?

As per section 17(2) of CGST Act, 2017, the input tax credit of goods and / or service attributable to
only taxable supplies can be taken by registered taxable person. The amount of eligible credit would be
calculated in a manner to be prescribed in terms of section 17(1) of the CGST Act, 2017, read with Rule 42.
It is important to note that credit on capital goods also would now be permitted on proportionate basis.

 Where goods and/or services received by a taxable person are used for
the purpose of business and non•business supplies, whether the input tax credit is available to the
registered taxable person?

As per section 17(1) of the CGST Act, 2017, the input tax credit of goods and / or service attributable to only
supplies effected for business purpose can be taken by registered taxable person. The amount of eligible credit
would be calculated in a manner to be prescribed in terms of section 17(6) of the CGST Act, 2017 read with
Rule 42. It is important to note that credit on capital goods also would now be permitted on proportionate
basis (Rule 43).

 What would be input tax eligibility in cases where there is a change in the constitution of a
registered taxable person?

As per section 18(3) of the CGST Act, 2017 read with Rule 41 the transferor shall be allowed to transfer the
input tax credit that remains unutilized in its books of accounts to the transferee provided that there is a
specific provision for transfer of liabilities.
 What would be input tax eligibility in case where the goods
and/or services supplied by a registered taxable person become absolutely exempt?

As per section 18(4) of the CGST Act, 2017, the registered taxable person who supplies goods and / or
services which become absolutely exempt, has to pay an amount equivalent to the input tax credit in respect
of inputs held in stock and inputs contained in semi¬finished or finished goods held in stock on the day
immediately preceding the date of
such exemption. It has also been provided that after payment of the amount on such goods, the balance, if
any available in electronic credit ledger would lapse. The amount, required to be paid, is to be calculated in
terms of section
18(5) of the CGST Act, 2017.

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  What would be input tax eligibility in cases where registered taxable person paying tax under
section 9 opts to pay tax under Compounding Scheme under Section 10?

As per section 18(4) of the CGST ACT, 2017, the registered taxable person, who was paying tax under section
9 opts to pay tax under Compounding Scheme under Section 10, has to pay an amount equivalent to the input
tax credit in respect of inputs held in stock and inputs contained in semi¬finished or finished goods held in
stock on the day immediately preceding the date of such switch over. It has also been provided that after
payment of the amount on such goods, the balance, if any available in electronic credit ledger would lapse.
The amount, required to be paid, is to be calculated in terms of section 18(5) of the CGST Act, 2017.
 A dealer paying tax on compounding basis crosses the compounding threshold and becomes a
regular taxable person. Can he avail ITC and if so from what date?

As per section 18(1) (c) of the CGST Act, 2017, he can avail ITC in respect of inputs held in stock and inputs
contained in semi¬finished or finished goods held in stock on the day immediately preceding the date from
which he becomes liable to pay tax under section 9.

 Mr. B, a registered taxable person was paying tax under composition rate up to 30th July, 2017.
However, w.e.f 31st July, 2017. Mr. B becomes liable to pay tax under regular scheme. Is he
eligible for ITC?

Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semifinished or finished
goods held in stock as on 30th July,2017.
 Mr. A applies for voluntary registration on 5th June, 2017 and obtained registration on 22nd June,
2017. Mr. A is eligible for input tax credit on inputs in stock as on …………..
Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semifinished or finished
goods held in stock as on 21st June, 2017.
 When shall a taxable person be not entitled to take input tax credit in respect of any supply of
goods and / or services to him?

As per section 18(1) of the CGST Act, 2017, he cannot avail ITC after the expiry of one year from the date
of issue of tax invoice relating to such supply.

 Whether the principal is eligible to avail input tax credit of inputs sent to job worker for job work?

Yes, the principal is eligible to avail the input tax credit on inputs sent to job worker for job work in terms of
Section 19 (1) of the CGST Act, 2017.

 What is the time period within which the inputs sent for job work has to be received back by
the principal?
1 year.

 Whether principal has to reverse the input tax credit on inputs which have not been received back
from the job worker within 180 days?
Yes, the principal has to reverse the credit along with interest on inputs which have not been received back
19
from job worker within 1 year but he can reclaim the credit on receipt of inputs.
 Which of the following is included for computation of taxable supplies
for the purpose of availing credit: (a) Zero¬rated supplies;
Zero rated supplies.
 What is the time period within which the capital goods sent for job work has to be received back
by the principal?

Three years (section 19(6)).

 What is the liability of the principal if the capital goods sent to job worker have not been received
within 3 years from the date of being sent?

Principal has to pay an amount equal to credit taken on such capital goods along with interest. But he can
reclaim the credit on receipt of inputs.

 A Taxable person is in the business of information technology. He buys a motor vehicle for use of
his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such motor
vehicle?

No. As per section 17(5) of the CGST Act, 2017, ITC on motor vehicles can be availed only if the taxable
person is in the business of transport of passengers or goods or is providing the services of imparting training
on motor vehicles.
 Where the registered taxable person has claimed depreciation on the tax component of the cost of
capital goods under the provisions of the Income Tax Act, 1961, will ITC be allowed in such
cases?

As per section 16(3) of the CGST Act, 2017, the input tax credit shall not be allowed on the said tax
component.
 What are the conditions necessary for obtaining ITC?

As per Section 16(2) of the CGST Act, 2017, following four conditions are stipulated: (a) The registered
taxable person should be in possession of tax paying document issued by a supplier; (b) The taxable person
must have received the goods and / or services; (c) The tax charged on such supply has been actually paid to
the government either in cash or through utilization of input tax credit; and (d) The taxable person should
have furnished the return under section 27.

 Where the goods against an invoice are received in lots or installments, how will a registered
taxable person be entitled to ITC?

As per proviso to section 16(2) of the CGST Act, 2017, the registered taxable person shall be entitled to the
credit upon receipt of the last lot or installment.

 Who will get the ITC where goods have been delivered to a person other
than taxable person (‘bill to’­ ‘ship to’ scenarios)?
20
As per explanation clause to section 16(2) of the CGST Act, 2017, for this purpose of receiving the goods, it
would be deemed that the taxable person has received the goods when the goods have been delivered to a
third party on the direction of such taxable person. So ITC will be available to the person on whose order the
goods are delivered to third person.

 What is the time limit for taking ITC?

As per Section 16 (4) of the CGST Act, 2017, ITC cannot be taken beyond the month of September of the
following FY to which invoice pertains or date of filing of annual return, whichever is earlier. The underlying
reasoning for this restriction is that no change in return is permitted after September of next FY. If annual
return is filed before the month of September then no change can be made after filing of annual return.
 Is there any negative list on which ITC is not permitted?
Section 17 (5) of the CGST Act, 2017, provides for the negative list with respect to the admissibility of ITC.
It has been provided that the ITC on following items cannot be availed: (a) motor vehicles, except when they
are supplied in the usual course of business or are used for providing the following taxable services— (i)
transportation of passengers, or (ii) transportation of goods, or (iii) imparting training on motor driving skills;
(b) goods and / or services provided in relation to food and beverages, outdoor catering, beauty treatment,
health services, cosmetic and plastic surgery, membership of a club, health and fitness center, life insurance,
health insurance and travel benefits extended to employees on vacation such as leave or home travel
concession, when such goods and/ or services are used primarily for personal use or consumption of any
employee; (c) goods and/or services acquired by the principal in the execution of works contract when such
contract results in construction of immovable property, other than plant and machinery; (d) goods acquired
by a principal, the property in which is not transferred (whether as goods or in some other form) to any other
person, which are used in the construction of immovable property, other than plant and machinery; (e) goods
and/or services on which tax has been paid under section 8; and (f) goods and/or services used for private or
personal consumption, to the extent they are so consumed.

 Section 42 of the CGST Act, 2017, provides that the ITC would be confirmed only if the inward
details filed by the recipient are matched with the outward details furnished by the supplier in his
valid return. What happens if there is a mismatch?

In case of mismatch between the inward and outward details, the supplier would be required to rectify the
mis-match within a period of two months and if the mis- match continues, the ITC would have to be reversed
by the recipient.
 What will be the tax impact when capital goods on which ITC has been taken are supplied by
taxable person?

As per section 18(1) of the CGST Act, 2017, in case of supply of capital goods on which input tax credit has
been taken, the registered taxable person shall pay an amount equal to the input tax credit taken on the said
capital goods reduced by the percentage points as may be specified in this behalf or the tax on the transaction
value of such capital goods, whichever is higher.

 What is the recovery mechanism for wrongly availed credit in case of ISD?

As per section 21 of the CGST Act, 2017, the wrongly availed credit would be recovered from the registered
taxable person in terms of section 73, 74 of CGST Act, 2017.

21
 SECTION 2C: FREQUENTLY ASKED QUESTIONS (FAQs) ON INPUT TAX CREDIT IN
GOODS AND SERVICES TAX (GST) – TWITTER @askgst_goi
REFERENCE: http://www.cbec.gov.in/resources//htdocs-cbec/gst/tweet-faq.pdf

Input Tax Credit

1 Is SGST of Rajasthan charged by SGST of one State cannot be utilized for
. supplier on purchase from Rajasthan can be discharging of output tax liability of another
utilize for payment of SGST in Madhya State.
Pradesh?
2 How one can use SGST credit for the SGST Credit can be used for payment of
. payment of IGST on another state? IGST liability under the same GSTIN only.

3 Can one State CGST be used to pay The CGST and SGST Credit for a State can
. another state CGST? be utilized for payment of their respective
CGST/SGST liabilities within that State for the
same GSTIN only.
4 In case of service supplied, should the Tax will be collected in the State from
. credit be given to the state where it is billed which the supply is made. The supplier will
or the state it is rendered? collect IGST and the recipient will take IGST
credit.
5 Company is engaged in manufacturing Detailed rules for reversal of ITC when the
. of cement & power. Which rule to be supplier is providing exempted and
referred for reversal of credit related to nonexempted supplies have been provided in
power business? ITC Rules.
. 6 How will the credit / debit note from Like invoice, credit/debit notes on behalf of
unregistered supplier be reported to GSTN unregistered person will be given by registered
and ITC claimed in the same? person only. Further, GSTR2 provides for
reporting of same by the recipient.

22
 SECTION 3A: GST (GOODS AND SERVICES TAX) INPUT TAX CREDIT
MECHANISM

REFERENCE : http://www.cbec.gov.in/resources//htdocs-cbec/gst/input-taxcredit-
mechanism-onlineversion-07june2017.pdf

Uninterrupted and seamless chain of input tax credit (hereinafter referred to as,
“ITC”) is one of the key features of Goods and Services Tax. ITC is a mechanism to
avoid cascading of taxes. Cascading of taxes, in simple language, is ‘tax on tax’.
Under the present system of taxation, credit of taxes being levied by Central
Government is not available as set-off for payment of taxes levied by State
Governments, and vice versa. One of the most important features of the GST system
is that the entire supply chain would be subject to GST to be levied by Central and
State Government concurrently. As the tax charged by the Central or the State
Governments would be part of the same tax regime, the credit of tax paid at every
stage would be available as set-off for payment of tax at every subsequent stage. Let
us understand how ‘cascading’ of taxes takes place in the present regime. Central
excise duty charged on inputs used for manufacturing of final product can be availed
as credit for payment of central excise duty on the final product. For example, to
manufacture a pen, the manufacturer requires, plastic granules, refill tube, metal clip,
etc. All these ‘inputs’ are chargeable to central excise duty. Once a ‘pen’ is
manufactured by using these inputs, the pen is also chargeable to central excise duty.
Let us assume that the cost of all the above mentioned inputs is say, Rs.10/- on which
central excise duty @10% is paid, means Re.1. The cost of the manufactured pen is
say Rs.20/-, the central excise duty payable on the pen @10% will be Rs.2/- . Now
the manufacturer of the pen can use the duty paid on inputs, i.e. Re.1/- for payment
of duty on the pen. So he will use Re.1 paid on inputs and he will pay Re.1/- through
cash (1+1=2), the price of the pen becomes Rs. 22/-. In effect, he actually pays duty
on the ‘value added’ over and above the cost of the inputs. This mechanism
eliminates cascading of taxes. However, when the pen is sold by the manufacturer
to a trader, he is required to levy VAT on such sale. But under the present system,
the manufacturer cannot use the credit of central excise duty paid on the pen for
payment of VAT, as the two levies are being levied by Central and State government
respectively with no statutory linkage between the two. Hence, he is required to pay
VAT on the entire value of the pen, i.e. Rs.22/-, which actually includes the central
excise duty to the tune of Rs.2/-. This is cascading of taxes or tax on tax, as now
VAT is not only paid on the value of pen i.e. Rs.20/- but also on tax i.e. Rs.2/-.
Goods and Services Tax (GST) would mitigate such cascading of taxes. Under
this new system, most of the indirect taxes levied by Central and the State
Governments on supply of goods or services or both, would be combined together

23
under a single levy. The major taxes/levies which are going to be clubbed together
or subsumed in the GST regime are as under:

CENTRAL TAXES
• Central Excise duty
• Additional duties of excise
• Excise duty levied under Medicinal & Toilets Preparation Act
• Additional duties of Customs (CVD & SAD)
• Service Tax
• Surcharges & Cesses

STATE TAXES
• State VAT/Sales Tax
• Central Sales Tax
• Purchase Tax
• Entertainment Tax (other than those levied by local bodies)
• Luxury Tax
• Entry Tax (All forms)
• Taxes on lottery, betting & gambling

GST comprises of the following levies:

a. Central Goods and Services Tax (CGST) [also known as Central Tax] on
intrastate or intra-union territory without legislature supply of goods or services
or both.
b. State Goods and Services Tax (SGST) [also known as State Tax] on intra-state
supply of goods or services or both.
c. Union Territory Goods and Services Tax (UTGST) [also known as Union
territory Tax] on intra-union territory supply of goods or services or both.
d. Integrated Goods and Services Tax (IGST) [also known as Integrated Tax] on
inter-state supply of goods or services or both. In case of import of goods also,
the present levy of Countervailing Duty (CVD) and Special Additional Duty
(SAD) would be replaced by integrated tax.
The protocol to avail and utilise the credit of these taxes is as follows:
To be utilised May be utilised
Credit of first for further for
payment of payment of
CGST CGST IGST
SGST/UTGST SGST/UTGST IGST

24
 IGST IGST CGST, then
SGST/UTGST

Credit of CGST cannot be used for payment of SGST/UTGST and credit of

SGST/UTGST cannot be utilised for payment of CGST.

Some of the technical aspects of the scheme of Input Tax Credit are as under:
A.Any registered person can avail credit of tax paid on the inward supply of goods
or services or both, which is used or intended to be used in the course or furtherance
of business. B. The pre-requisites for availing credit by registered person are:
a. He is in possession of tax invoice or any other specified tax paying document.
b. He has received the goods or services. “Bill to ship” scenarios also included.
c. Tax is actually paid by the supplier.
d. He has furnished the return.
e. If the inputs are received in lots, he will be eligible to avail the credit only
when the last lot of the inputs is received.
f. He should pay the supplier, the value of the goods or services along with the
tax within 180 days from the date of issue of invoice, failing which the amount
of credit availed by the recipient would be added to his output tax liability,
with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid,
the recipient will be entitled to avail the credit again. In case part payment has
been made, proportionate credit would be allowed.
C. Documents on the basis of which credit can be availed are:
a. Invoice issued by a supplier of goods or services or both
b. Invoice issued by recipient along with proof of payment of tax
c. A debit note issued by supplier
d. Bill of entry or similar document prescribed under Customs Act
e. Revised invoice
f. Document issued by Input Service Distributor
D. No ITC beyond September of the following FY to which invoice pertains or date
of filing of annual return, whichever is earlier
E. The Input Service Distributor (ISD) may distribute the credit available for
distribution in the same month in which, it is availed. The credit of CGST,
SGST, UTGST and IGST shall be distributed as per the provisions of Rule 4(1)
(d) of ITC Rules. ISD shall issue invoice in accordance with the provisions made
under Rule 9(1) of Invoice Rules.
F. ITC is not available in some cases as mentioned in section 17(5) of CGST Act,
2017. Some of them are as follows:

25
a. motor vehicles and other conveyances except under specified circumstances.
b. goods and/or services provided in relation to:
i. Food and beverages, outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery, except under specified circumstances;
ii. Membership of a club, health and fitness center; iii. Rent-a-cab, life
insurance, health insurance except where it is obligatory for an employer
under any law;
iv. Travel benefits extended to employees on vacation such as leave or home
travel concession;
c. Works contract services when supplied for construction of immovable
property, other than plant & machinery, except where it is an input service for
further supply of works contract;
d. Goods or services received by a taxable person for construction of immovable
property on his own account, other than plant & machinery, even when used
in course or furtherance of business;
e. Goods and/or services on which tax has been paid under composition scheme;
f. Goods and/or services used for private or personal consumption, to the extent
they are so consumed;
g. Goods lost, stolen, destroyed, written off, gifted, or free samples;
h. Any tax paid due to short payment on account of fraud, suppression,

misdeclaration, seizure, detention. G. Special circumstances under which ITC

is available:
a. A person who has applied for registration within 30 days of becoming liable
for registration is entitled to ITC of input tax in respect of goods held in stock
(inputs as such and inputs contained in semi-finished or finished goods) on
the day immediately preceding the date from which he becomes liable to pay
tax.
b. A person who has taken voluntary registration under section 23(3) of the
CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in
stock (inputs as such and inputs contained in semi-finished or finished goods)
on the day, immediately preceding the date of registration.
c. A person switching over to normal scheme from composition scheme under
section 10 is entitled to ITC in respect of goods held in stock (inputs as such
and inputs contained in semi-finished or finished goods) and capital goods on
the day immediately preceding the date from which he becomes liable to pay
tax as normal taxpayer.
d. Where an exempt supply of goods or services or both become taxable, the
person making such supplies shall be entitled to take ITC in respect of goods
held in stock (inputs as such and inputs contained in semi-finished or finished
goods) relatable to exempt supplies. He shall also be entitled to take credit on

26
 capital goods used exclusively for such exempt supply, subject to reductions
for the earlier usage as prescribed in the rules.
e. ITC, in all the above cases, is to be availed within 1 year from the date of issue
of invoice by the supplier.
f. In case of change of constitution of a registered person on account of sale,
merger, demerger etc, the unutilised ITC shall be allowed to be transferred to
the transferee.
g. A person switching over from composition scheme under section 10 to normal
scheme or where a taxable supply become exempt, the ITC availed in respect
of goods held in stock (inputs as such and
h. inputs contained in semi-finished or finished goods) as well as capital goods
will have to be paid. In case of supply of capital goods or plant and machinery,
on which ITC is taken, an amount equivalent to ITC availed minus the
reduction as prescribed in rules (5% for every quarter or part thereof) shall
have to be paid. In case the tax on transaction value of the supply is more, the
same would have to be paid.

27
 SECTION 4A: STATUTORY PROVISIONS
REFERENCE: http://www.cbec.gov.in/resources//htdocs-cbec/gst/cgst-act.pdf

CHAPTER V

INPUT TAX CREDIT

16. (1) Every registered person shall, subject to such conditions and restrictions as may be Eligibility and prescribed and
in the manner specified in section 49, be entitled to take credit of input tax charged on any conditions for taking input tax supply of
goods or services or both to him which are used or intended to be used in the course or credit.
furtherance of his business and the said amount shall be credited to the electronic credit ledger of such
person.
(2) Notwithstanding anything contained in this section, no registered person shall be entitled to the credit of any
input tax in respect of any supply of goods or services or both to him unless,––
(a) he is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such
other tax paying documents as may be prescribed; (b) he has received the goods or services or both.
Explanation.—For the purposes of this clause, it shall be deemed that the registered person has received
the goods where the goods are delivered by the supplier to a recipient or any other person on the direction of
such registered person, whether acting as an agent or otherwise, before or during movement of goods, either by
way of transfer of documents of title to goods or otherwise;
(c) subject to the provisions of section 41, the tax charged in respect of such supply has been actually paid
to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said
supply; and (d) he has furnished the return under section 39:
Provided that where the goods against an invoice are received in lots or instalments, the registered person
shall be entitled to take credit upon receipt of the last lot or instalment:
Provided further that where a recipient fails to pay to the supplier of goods or services or both, other than
the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with
tax payable thereon within a

period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the
input tax credit availed by the recipient shall be added to his output tax liability, along with
interest thereon, in such manner as may be prescribed:
Provided also that the recipient shall be entitled to avail of the credit of input tax on
payment made by him of the amount towards the value of supply of goods or services or both
along with tax payable thereon.
(3) Where the registered person has claimed depreciation on the tax component of the cost of
capital goods and plant and machinery under the provisions of the Income-tax
Apportionment Act, 1961, the input tax credit on the said tax component shall not be allowed. 43 of 1961.
of credit and
blocked credits. (4) A registered person shall not be entitled to take input tax credit in respect of any invoice or
debit note for supply of goods or services or both after the due date of furnishing of the return under
section 39 for the month of September following the end of financial year to which such invoice or
invoice relating to such debit note pertains or furnishing of the relevant annual return, whichever is
earlier.
17. (1) Where the goods or services or both are used by the registered person partly for the
purpose of any business and partly for other purposes, the amount of credit shall be restricted to so
much of the input tax as is attributable to the purposes of his business.

28
 (2) Where the goods or services or both are used by the registered person partly foreffecting
taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and
Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit
shall be restricted to so much of the input tax as is attributable to the said taxable supplies including
zero-rated supplies.
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed, and
shall include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions
in securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.
(4) A banking company or a financial institution including a non-banking financialcompany,
engaged in supplying services by way of accepting deposits, extending loans or advances shall have
the option to either comply with the provisions of sub-section (2), or avail of, every month, an amount
equal to fifty per cent. of the eligible input tax credit on inputs, capital goods and input services in
that month and the rest shall lapse:
Provided that the option once exercised shall not be withdrawn during the remaining part of the
financial year:
Provided further that the restriction of fifty per cent. shall not apply to the tax paid on supplies
made by one registered person to another registered person having the same Permanent Account
Number.
(5) Notwithstanding anything contained in sub-section (1) of section 16 and subsection (1) of
section 18, input tax credit shall not be available in respect of the following, namely:— (a) motor
vehicles and other conveyances except when they are used––
(i) for making the following taxable supplies, namely:—(A) further supply of such
vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such
vehiclesor conveyances;
(ii) for transportation of goods;
(b) the following supply of goods or services or both—
(i) 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;
(ii) membership of a club, health and fitness centre;
(iii) rent-a-cab, life insurance and health insurance except where––
(A) the Government notifies the services which are obligatory for anemployer to
provide to its employees under any law for the time being in force; or
(B) such inward supply of goods or services or both of a particularcategory 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; and
(iv) travel benefits extended to employees on vacation such as leave orhome travel concession;
(c) works contract services when supplied for construction of an immovableproperty (other than plant
and machinery) except where it is an input service for further supply of works contract service;
(d) goods or services or both received by a taxable person for construction of animmovable 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.

29
 Explanation.––For the purposes of clauses (c) and (d), the expression “construction” includes
reconstruction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said
immovable property;
(e) goods or services or both on which tax has been paid under section 10;
(f) goods or services or both received by a non-resident taxable person excepton goods imported by
him;
(g) goods or services or both used for personal consumption;
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and (i)
any tax paid in accordance with the provisions of sections 74, 129 and 130.
(6) The Government may prescribe the manner in which the credit referred to in sub-sections (1) and (2) may
be attributed. Explanation.––For the purposes of this Chapter and Chapter VI, the expression “plant and machinery”
means apparatus, equipment, and machinery fixed to earth by foundation or structural support that are used for making
outward supply of goods or services or both and includes such foundation and structural supports but excludes— (i)
land, building or any other civil structures; (ii) telecommunication towers; and
(iii) pipelines laid outside the factory premises.
18. (1) Subject to such conditions and restrictions as may be prescribed— Availability of credit in
(a) a person who has applied for registration under this Act within thirty special days from the
circumstances.
date on which he becomes liable to registration and has been
granted such
registration shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in
semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes
liable to pay tax under the provisions of this Act;
(b) a person who takes registration under sub-section (3) of section 25 shall be entitled to take credit of
input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock
on the day immediately preceding the date of grant of registration;
(c) where any registered person ceases to pay tax under section 10, he shall beentitled to take credit of
input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and
on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under
section 9:
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed;
(d) where an exempt supply of goods or services or both by a registered personbecomes a taxable supply,
such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in
semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively
used for such exempt supply on the day immediately preceding the date from which such supply becomes
taxable:
Provided that the credit on capital goods shall be reduced by such percentage points as may be prescribed.
(2)A registered person shall not be entitled to take input tax credit undersub-section (1) in respect of any supply
of goods or services or both to him after the expiry of one year from the date of issue of tax invoice relating to such
supply.
(3)Where there is a change in the constitution of a registered person on account ofsale, merger, demerger,
amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities, the said registered
person shall be allowed to transfer the input tax credit which remains unutilised in his electronic credit ledger to such
sold, merged, demerged, amalgamated, leased or transferred business in such manner as may be prescribed.
(4)Where any registered person who has availed of input tax credit opts to pay taxunder section 10 or, where the
goods or services or both supplied by him become wholly exempt, he shall pay an amount, by way of debit in the
electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock
and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage
points as may be prescribed, on the day immediately preceding the date of exercising of such option or, as the case
may be, the date of such exemption:
30
 Provided that after payment of such amount, the balance of input tax credit, if any, lying in his electronic credit
ledger shall lapse.
(5)The amount of credit under sub-section (1) and the amount payable under sub-section (4) shall be calculated
in such manner as may be prescribed.
(6)In case of supply of capital goods or plant and machinery, on which input tax credithas been taken, the
registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and
machinery reduced by such percentage points as may be prescribed or the tax on the transaction value of such capital
goods or plant and machinery determined under section 15, whichever is higher:
Provided that where refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person
may pay tax on the transaction value of such goods determined under section 15.

31
 19. (1) The principal shall, subject to such conditions and restrictions as may be prescribed, be Taking input tax
allowed input tax credit on inputs sent to a job worker for job work. credit in respect
of inputs and
(2) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the principal capital goods
sent for job
shall be entitled to take credit of input tax on inputs even if the inputs are directly sent to a job worker work.
for job work without being first brought to his place of business.
(3) Where the inputs sent for job work are not received back by the principal aftercompletion
of job work or otherwise or are not supplied from the place of business of the job worker in accordance
with clause (a) or clause (b) of sub-section (1) of section 143 within one year of being sent out, it shall be
deemed that such inputs had been supplied by the principal to the job worker on the day when the said
inputs were sent out:
Provided that where the inputs are sent directly to a job worker, the period of one year shall be counted
from the date of receipt of inputs by the job worker.
(4) The principal shall, subject to such conditions and restrictions as may be prescribed,be
allowed input tax credit on capital goods sent to a job worker for job work.
(5) Notwithstanding anything contained in clause (b) of sub-section (2) of section 16, the
principal shall be entitled to take credit of input tax on capital goods even if the capital goods are directly
sent to a job worker for job work without being first brought to his place of business.
(6) Where the capital goods sent for job work are not received back by the principalwithin a
period of three years of being sent out, it shall be deemed that such capital goods had been supplied by the
principal to the job worker on the day when the said capital goods were sent out:
Provided that where the capital goods are sent directly to a job worker, the period of three years shall
be counted from the date of receipt of capital goods by the job worker.
(7) Nothing contained in sub-section (3) or sub-section (6) shall apply to moulds and dies,
jigs and fixtures, or tools sent out to a job worker for job work.
Explanation.––For the purpose of this section, “principal” means the person referred to in section
143. Manner of
distribution of
20. (1) The Input Service Distributor shall distribute the credit of central tax as central tax or credit by Input
Service
integrated tax and integrated tax as integrated tax or central tax, by way of issue of a document containing
Distributor.
the amount of input tax credit being distributed in such manner as may be prescribed.
(2) The Input Service Distributor may distribute the credit subject to the following conditions, namely:––
(a) the credit can be distributed to the recipients of credit against a documentcontaining such details as
may be prescribed;
(b) the amount of the credit distributed shall not exceed the amount of creditavailable for distribution;
(c) the credit of tax paid on input services attributable to a recipient of credit shallbe distributed only to
that recipient;
(d) the credit of tax paid on input services attributable to more than one recipientof credit shall be
distributed amongst such recipients to whom the input service is attributable and such distribution shall be pro
rata on the basis of the turnover in a State or turnover in a Union territory of such recipient, during the relevant
period, to the aggregate of the turnover of all such recipients to whom such input service is attributable and
which are operational in the current year, during the said relevant period;
(e) the credit of tax paid on input services attributable to all recipients of creditshall be distributed
amongst such recipients and such distribution shall be pro rata on the basis of the turnover in a State or turnover
in a Union territory of such recipient, during the relevant period, to the aggregate of the turnover of all recipients
and which are operational in the current year, during the said relevant period.
Explanation.––For the purposes of this section,––
(a) the “relevant period” shall be––

32
 (i) if the recipients of credit have turnover in their States or Unionterritories
in the financial year preceding the year during which credit is to be distributed, the
said financial year; or
(ii) if some or all recipients of the credit do not have any turnover intheir
States or Union territories in the financial year preceding the year during which the
credit is to be distributed, the last quarter for which details of such turnover of all
the recipients are available, previous to the month during which credit is to be
distributed;
(b) the expression “recipient of credit” means the supplier of goods orservices or both
having the same Permanent Account Number as that of the Input Service Distributor;

(c) the term ‘‘turnover’’, in relation to any registered person engaged inthe supply of
taxable goods as well as goods not taxable under this Act, means the value of turnover,
reduced by the amount of any duty or tax levied under entry 84 of List I of the Seventh
Schedule to the Constitution and entries 51 and 54 of List II of the said Schedule.

Manner of 21. Where the Input Service Distributor distributes the credit in contravention of the
recovery of
credit distributed provisions contained in section 20 resulting in excess distribution of credit to one or more
in excess. recipients of credit, the excess credit so distributed shall be recovered from such recipients
along with interest, and the provisions of section 73 or section 74, as the case may be, shall,
mutatis mutandis, apply for determination of amount to be recovered.

33
 SECTION 4B: RULES
REFERENCE: http://www.cbec.gov.in/resources//htdocs-cbec/gst/itc-rules-17052017.pdf

Input Tax Credit

1.Documentary requirements and conditions for claiming input tax credit

(1) The input tax credit shall be availed by a registered person, including the Input
Service Distributor, on the basis of any of the following documents, namely:-

(a) an invoice issued by the supplier of goods or services or both in accordance

with the provisions of section 31;
(b) an invoice issued in accordance with the provisions of clause (f) of
subsection
(3) of section 31, subject to payment of tax;
(c) a debit note issued by a supplier in accordance with the provisions of section
34;
(d) a bill of entry or any similar document prescribed under the Customs Act,
1962 or rules made thereunder for assessment of integrated tax on imports;
(e) an ISD invoice or ISD credit note or any document issued by an Input
Service Distributor in accordance with the provisions of sub-rule (1) of rule invoice.7.

(2) Input tax credit shall be availed by a registered person only if all the applicable
particulars as prescribed in Chapter ---- (Invoice Rules) are contained in the said document, and
the relevant information, as contained in the said document, is furnished in FORM GSTR-2 by
such person.

(3) No input tax credit shall be availed by a registered person in respect of any tax that
has been paid in pursuance of any order where any demand has been confirmed on account of any
fraud, willful misstatement or suppression of facts.

2.Reversal of input tax credit in case of non-payment of consideration

(1) A registered person, who has availed of input tax credit on any inward supply of
goods or services or both, but fails to pay to the supplier thereof the value of such supply along
with the tax payable thereon within the time limit specified in the second proviso to sub-section
(2) of section 16, shall furnish the details of such supply, the amount of value not paid and the
amount of input tax credit availed of proportionate to such amount not paid to the supplier in
FORM GSTR-2 for the month immediately following the period of one hundred and eighty
days from the date of issue of invoice.

Provided that the value of supplies made without consideration as specified in Schedule I shall be
deemed to have been paid for the purposes of the second proviso to sub-section (2) of section 16.

(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the
output tax liability of the registered person for the month in which the details are furnished.

34
 (3) The registered person shall be liable to pay interest at the rate notified under
subsection
(1) of section 50 for the period starting from the date of availing credit on such supplies till the
date when the amount added to the output tax liability, as mentioned in sub-rule (2), is paid.
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for reavailing
of any credit, in accordance with the provisions of the Act or these rules, that had been reversed
earlier.

3.Claim of credit by a banking company or a financial institution

A banking company or a financial institution, including a non-banking financial company,

engaged in supply of services by way of accepting deposits or extending loans or advances that
chooses not to comply with the provisions of sub-section (2) of section 17, in accordance with the
option permitted under sub-section (4) of that section, shall follow the procedure specified below
-

(a) the said company or institution shall not avail the credit of,-
(i) tax paid on inputs and input services that are used for non-business
purposes, and
(ii) the credit attributable to supplies specified in sub-section (5) of section 17,
in FORM GSTR-2;
(b) the said company or institution shall avail the credit of tax paid on
inputs and input services referred to in the second proviso to sub-section (4) of
section 17 and not covered under clause (a);

(c) fifty per cent. of the remaining amount of input tax shall be the input
tax credit admissible to the company or the institution and shall be furnished in
FORM GSTR-2;

(d) the amount referred to in clauses (b) and (c) shall, subject to the
provisions of sections 41, 42 and 43, be credited to the electronic credit ledger of
the said company or the institution.

4.Procedure for distribution of input tax credit by Input Service Distributor

(1) An Input Service Distributor shall distribute input tax credit in the manner and subject to the
conditions specified below-

(a) the input tax credit available for distribution in a month shall be distributed in the
same month and the details thereof shall be furnished in FORM GSTR-6 in accordance
with the provisions of Chapter ---- (Return Rules);

(b) the Input Service Distributor shall, in accordance with the provisions of clause (d),
separately distribute the amount of ineligible input tax credit (ineligible under the
provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible input
tax credit;

35
 (c) the input tax credit on account of central tax, State tax, Union territory tax and
integrated tax shall be distributed separately in accordance with the provisions of clause
(d);

(d) the input tax credit that is required to be distributed in accordance with the
provisions of clause (d) and (e) of sub-section (2) of section 20 to one of the recipients ‘R1’,
whether registered or not, from amongst the total of all the recipients to whom input tax
credit is attributable, including the recipient(s) who are engaged in making exempt supply,
or are otherwise not registered for any reason, shall be the amount, “C1”, to be calculated by
applying the following formula:-

C1 = (t1÷T) × C

where,
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of person R1 during the relevant
period, and
“T” is the aggregate of the turnover, during the relevant period, of all recipients to
whom the input service is attributable in accordance with the provisions of section
20,;

(e) the input tax credit on account of integrated tax shall be distributed as input
tax credit of integrated tax to every recipient;

(f) the input tax credit on account of central tax and State tax or Union
territory tax shall,
(i) in respect of a recipient located in the same State or Union territory
in which the Input Service Distributor is located, be distributed as input tax credit
of central tax and State tax or Union territory tax respectively;

(ii) in respect of a recipient located in a State or Union territory other

than that of the Input Service Distributor, be distributed as integrated tax and the
amount to be so distributed shall be equal to the aggregate of the amount of input
tax credit of central tax and State tax or Union territory tax that qualifies for
distribution to such recipient in accordance with clause (d);

(g) The Input Service Distributor shall issue an ISD invoice, as prescribed in
sub-rule (1) of rule invoice-7, clearly indicating in such invoice that it is issued only
for distribution of input tax credit.

(h) The Input Service Distributor shall issue an ISD credit note, as prescribed
in subrule (1) of rule Invoice-7, for reduction of credit in case the input tax credit
already distributed gets reduced for any reason.

(i) Any additional amount of input tax credit on account of issuance of a debit
note to an Input Service Distributor by the supplier shall be distributed in the manner
and subject to the conditions specified in clauses (a) to (f) and the amount attributable
to any recipient shall be calculated in the manner provided in clause (d) above and
36
 such credit shall be distributed in the month in which the debit note is included in the
return in FORM GSTR-6.

(j) Any input tax credit required to be reduced on account of issuance of a

credit note to the Input Service Distributor by the supplier shall be apportioned to each
recipient in the same ratio in which input tax credit contained in the original invoice
was distributed in terms of clause (d) above, and the amount so apportioned shall be,-

(i) reduced from the amount to be distributed in the month in which the
credit note is included in the return in FORM GSTR-6; or

(ii) added to the output tax liability of the recipient where the amount
so apportioned is in the negative by virtue of the amount of credit under
distribution being less than the amount to be adjusted.

(2) If the amount of input tax credit distributed by an Input Service Distributor is
reduced later on for any other reason for any of the recipients, including that it was distributed
to a wrong recipient by the Input Service Distributor, the process prescribed in clause (j) of sub-
rule (1) shall apply, mutatis mutandis, for reduction of credit.

(3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the ISD
credit note specified in clause (h) of sub-rule (1), issue an ISD Invoice to the recipient entitled
to such credit and include the ISD credit note and the ISD Invoice in the return in FORM
GSTR-6 for the month in which such credit note and invoice was issued.

5.Manner of claiming credit in special circumstances

(1) Input tax credit claimed in accordance with the provisions of sub-section (1) of section 18
on the inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or
the credit claimed on capital goods in accordance with the provisions of clauses (c) and (d) of the
said sub-section, shall be subject to the following conditions -

(a) The input tax credit on capital goods, in terms of clauses (c) and (d) of subsection
(1) of section 18, shall be claimed after reducing the tax paid on such capital goods by five
percentage points per quarter of a year or part thereof from the date of invoice or such other
documents on which the capital goods were received by the taxable person.

(b) The registered person shall within thirty days from the date of his becoming eligible
to avail of input tax credit under sub-section (1) of section 18 shall make a declaration,
electronically, on the Common Portal in FORM GST ITC-01 to the effect that he is eligible to
avail of input tax credit as aforesaid.

(c) The declaration under clause (b) shall clearly specify the details relating to the
inputs held in stock or inputs contained in semi-finished or finished goods held in stock, or as the
case may be, capital goods–
(i) on the day immediately preceding the date from which he becomes liable
to pay tax under the provisions of the Act, in the case of a claim under clause (a) of
subsection (1) of section 18,

37
 (ii) on the day immediately preceding the date of grant of registration, in the
case of a claim under clause (b) of sub-section (1) of section 18,
(iii) on the day immediately preceding the date from which he becomes liable
to pay tax under section 9, in the case of a claim under clause (c) of sub-section (1) of
section 18,
(iv) on the day immediately preceding the date from which supplies made by
the registered person becomes taxable, in the case of a claim under clause (d) of
subsection (1) of section 18.

(d) The details furnished in the declaration under clause (b) shall be duly certified by
a practicing chartered accountant or a cost accountant if the aggregate value of claim on account
of central tax, State tax, Union territory tax and integrated tax exceeds two lakh rupees.

(e) The input tax credit claimed in accordance with the provisions of clauses (c) and
(d) of sub-section (1) of section 18 shall be verified with the corresponding details furnished by
the corresponding supplier in FORM GSTR-1 or as the case may be, in FORM GSTR- 4, on
the Common Portal.

(2) The amount of credit in case of supply of capital goods or plant and machinery, for the
purposes of sub-section (6) of section 18, shall be calculated by reducing the input tax on the said
goods at the rate of five percentage points for every quarter or part thereof from the date of issue
of invoice for such goods.

6.Transfer of credit on sale, merger, amalgamation, lease or transfer of a business

(1) A registered person shall, in the event of sale, merger, de-merger, amalgamation,
lease or transfer or change in ownership of business for any reason, furnish the details of sale,
merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02,
electronically on the Common Portal along with a request for transfer of unutilized input tax credit
lying in his electronic credit ledger to the transferee:

Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of the
value of assets of the new units as specified in the demerger scheme.

(2) The transferor shall also submit a copy of a certificate issued by a practicing
chartered account or cost accountant certifying that the sale, merger, de-merger, amalgamation,
lease or transfer of business has been done with a specific provision for transfer of liabilities.

(3) The transferee shall, on the Common Portal, accept the details so furnished by the
transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall
be credited to his electronic credit ledger.

(4) The inputs and capital goods so transferred shall be duly accounted for by the
transferee in his books of account.

38
7.Manner of determination of input tax credit in respect of inputs or input services and
reversal thereof

(1) The input tax credit in respect of inputs or input services, which attract the provisions of
subsection (1) or sub-section (2) of section 17, being partly used for the purposes of business and
partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies
and partly for effecting exempt supplies, shall be attributed to the purposes of business or for
effecting taxable supplies in the following manner, namely,-

(a) total input tax involved on inputs and input services in a tax period, be denoted as
‘T’;

(b) the amount of input tax, out of ‘T’, attributable to inputs and input services intended
to be used exclusively for purposes other than business, be denoted as ‘T1’;

(c) the amount of input tax, out of ‘T’, attributable to inputs and input services intended
to be used exclusively for effecting exempt supplies, be denoted as ‘T2’;

(d) the amount of input tax, out of ‘T’, in respect of inputs and input services on which
credit is not available under sub-section (5) of section 17, be denoted as ‘T3’;

(e) the amount of input tax credit credited to the electronic credit ledger of registered
person, be denoted as ‘C1’ and calculated as:
C1 = T- (T1+T2+T3);

(f)the amount of input tax credit attributable to inputs and input services intended to be used
exclusively for effecting supplies other than exempted but including zero rated supplies, be
denoted as ‘T4’;

(g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person
at the invoice level in FORM GSTR-2;

(h) input tax credit left after attribution of input tax credit under clause (g) shall be
called common credit, be denoted as ‘C2’ and calculated as:
C2 = C1- T4;

(i) the amount of input tax credit attributable towards exempt supplies, be denoted as ‘D 1’ and
calculated as:
D1= (E÷F) × C2
where,

‘E’ is the aggregate value of exempt supplies during the tax period, and

‘F’ is the total turnover in the State of the registered person during the tax period:

39
Provided that where the registered person does not have any turnover during the said tax period
or the aforesaid information is not available, the value of ‘E/F’ shall calculated by taking values
of ‘E’ and ‘F’ of the last tax period for which details of such turnover are available, previous to
the month during which the said value of ‘E/F’ is to calculated;

Explanation: For the purposes of this clause, the aggregate value of exempt supplies and total
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh
Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule.

(j)the amount of credit attributable to non-business purposes if common inputs and input
services are used partly for business and partly for non-business purposes, be denoted as ‘D2’, and
shall be equal to five per cent. of C2; and

(k) the remainder of the common credit shall be the eligible input tax credit attributed
to the purposes of business and for effecting supplies other than exempted supplies but including
zero rated supplies and shall be denoted as ‘C3’, where,-
C3 = C2 - (D1+D2);

(l) the amount ‘C3’ shall be computed separately for input tax credit of central tax, State tax,
Union territory tax and integrated tax;

(m) the amount equal to aggregate of ‘D1’ and ‘D2’ shall be added to the output tax
liability of the registered person:

Provided that where the amount of input tax relating to inputs or input services used partly for
purposes other than business and partly for effecting exempt supplies has been identified and
segregated at invoice level by the registered person, the same shall be included in ‘T 1’ and ‘T2’
respectively, and the remaining amount of credit on such inputs or input services shall be included
in ‘T4’.

(2) The input tax credit determined under sub-rule (1) shall be calculated finally for the financial
year before the due date for furnishing of the return for the month of September following the end
of the financial year to which such credit relates, in the manner prescribed in the said subrule and,

(a) where the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’
exceeds the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’,
such excess shall be added to the output tax liability of the registered person in the month not later
than the month of September following the end of the financial year to which such credit relates
and the said person shall be liable to pay interest on the said excess amount at the rate specified in
sub-section (1) of section 50 for the period starting from first day of April of the succeeding
financial year till the date of payment; or

(b) where the aggregate of the amounts determined under sub-rule (1) in respect of
‘D1’ and ‘D2’ exceeds the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’,
such excess amount shall be claimed as credit by the registered person in his return for a month
not later than the month of September following the end of the financial year to which such credit
relates.

40
8. Manner of determination of input tax credit in respect of capital goods and reversal
thereof in certain cases

(1) Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of
capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, being partly
used for the purposes of business and partly for other purposes, or partly used for effecting taxable
supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed
to the purposes of business or for effecting taxable supplies in the following manner, namely,-

(a) the amount of input tax in respect of capital goods used or intended to be used
exclusively for non-business purposes or used or intended to be used exclusively for
effecting exempt supplies shall be indicated in FORM GSTR-2 and shall not be credited to
his electronic credit ledger;
(b) the amount of input tax in respect of capital goods used or intended to be used
exclusively for effecting supplies other than exempted supplies but including zero-rated
supplies shall be indicated in FORM GSTR-2 and shall be credited to the electronic credit
ledger;
(c) the amount of input tax in respect of capital goods not covered under clauses (a)
and (b), denoted as ‘A’, shall be credited to the electronic credit ledger and the useful life of
such goods shall be taken as five years from the date of invoice for such goods:

Provided that where any capital goods earlier covered under clause (a) is subsequently
covered under this clause, the value of ‘A’ shall be arrived at by reducing the input tax at
the rate of five percentage points for every quarter or part thereof and the amount ‘A’ shall
be credited to the electronic credit ledger;
Explanation: An item of capital goods declared under clause (a) on its receipt shall not
attract the provisions of sub-section (4) of section 18 if it is subsequently covered under
this clause.

(d) the aggregate of the amounts of ‘A’ credited to the electronic credit ledger under
clause (c), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods for
a tax period:
Provided that where any capital goods earlier covered under clause (b) is subsequently
covered under clause (c), the value of ‘A’ arrived at by reducing the input tax at the rate of
five percentage points for every quarter or part thereof shall be added to the aggregate value
‘Tc’;
(e) the amount of input tax credit attributable to a tax period on common capital goods
during their useful life, be denoted as ‘Tm’ and calculated as:-

Tm= Tc÷60
(f) the amount of input tax credit, at the beginning of a tax period, on all
common capital goods whose useful life remains during the tax period, be denoted as
‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods.
(g) the amount of common credit attributable towards exempted supplies, be
denoted as ‘Te’, and calculated as:

41
 Te= (E÷ F) x Tr
where,

‘E’ is the aggregate value of exempt supplies, made, during the tax period, and

‘F’ is the total turnover of the registered person during the tax period:

Provided that where the registered person does not have any turnover during the said tax period
or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by taking values
of ‘E’ and ‘F’ of the last tax period for which details of such turnover are available, previous to
the month during which the said value of ‘E/F’ is to calculated;

Explanation: For the purposes of this clause, the aggregate value of exempt supplies and total
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh
Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule;

(h) the amount Te along with applicable interest shall, during every tax period of the useful life
of the concerned capital goods, be added to the output tax liability of the person making such
claim of credit.

(2) The amount Te shall be computed separately for central tax, State tax, Union territory tax and
integrated tax.

9. Manner of reversal of credit under special circumstances

(1) The amount of input tax credit relating to inputs held in stock, inputs contained in
semi-finished and finished goods held in stock, and capital goods held in stock shall, for the
purposes of sub-section (4) of section 18 or sub-section (5) of section 29, be determined in the
following manner namely,-

(a) for inputs held in stock and inputs contained in semi-finished and finished
goods held in stock, the input tax credit shall be calculated proportionately on the basis of
corresponding invoices on which credit had been availed by the registered taxable person
on such input;

(b) for capital goods held in stock the input tax credit involved in the remaining
useful life in months shall be computed on pro-rata basis, taking the useful life as five
years.

Illustration
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= Ç
Input tax credit attributable to remaining useful life= C multiplied by 5/60

(2) The amount, as prescribed in sub-rule (1) shall be determined separately for input
tax credit of integrated tax and central tax.

42
 (3) Where the tax invoices related to the inputs held in stock are not available, the
registered person shall estimate the amount under sub-rule (1) based on the prevailing market price
of goods on the effective date of occurrence of any of the events specified in sub-section (4) of
section 18 or, as the case may be, sub-section (5) of section 29.

(4) The amount determined under sub-rule (1) shall form part of the output tax liability
of the registered person and the details of the amount shall be furnished in FORM GST ITC-03,
where such amount relates to any event specified in sub-section (4) of section 18 and in FORM
GSTR-10, where such amount relates to cancellation of registration.

(5) The details furnished in accordance with sub-rule (3) shall be duly certified by a
practicing chartered accountant or cost accountant.

(6) The amount of input tax credit for the purposes of sub-section (6) of section 18
relating to capital goods shall be determined in the same manner as prescribed in clause (b) of sub-
rule (1) and the amount shall be determined separately for input tax credit of IGST and CGST.
Where the amount so determined is more than the tax determined on the transaction value of the
capital goods, the amount determined shall form part of the output tax liability and the same shall
be furnished in FORM GSTR1.

10: Conditions and restrictions in respect of inputs and capital goods sent to the job worker

(1) The inputs, semi-finished goods or capital goods shall be sent to the job
worker under the cover of a challan issued by the principal, including where such goods
are sent directly to a job-worker.

(2) The challan issued by the principal to the job worker shall contain the
details specified in rule Invoice.10:

(3) The details of challans in respect of goods dispatched to a job worker or

received from a job worker during a tax period shall be included in FORM GSTR-1
furnished for that period.

(4) Where the inputs or capital goods are not returned to the principal within
the time stipulated in section 143, the challan issued under sub-rule (1) shall be deemed to
be an invoice for the purposes of the Act.

Explanation.- For the purposes of this Chapter,-

(1) “capital goods” shall include “plant and machinery” as defined in the Explanation
to section 17;

(2) for determining the value of an exempt supply as referred to in sub-section (3) of
section 17:-
(a) the value of land and building shall be taken as the same as adopted for the purpose
of paying stamp duty; and
(b) the value of security shall be taken as one per cent. of the sale value of such
security.
43
44
SECTION 4C: GOODS AND SERVICES TAX RULES, 2017 INPUT TAX CREDIT FORMATS
REFERENCE: http://www.cbec.gov.in/resources//htdocs-cbec/gst/itc-formats17052017-revised2.pdf

List of Forms

Sr. No. Form No. Description

1. Form GST ITC – 1 Declaration for claim of input tax credit under sub-section (1) of section 18.

2. Form GST ITC – 2 Declaration for transfer of ITC in case of sale, merger, demerger, amalgamation, lease or transfer of a business under
subsection (3) of section 18.

3. Form GST ITC – 3 Declaration for intimation of ITC reversal on inputs, inputs contained in semi-finished and finished goods and capital goods
in stock under sub-section (4) of section 18.

4. Form GST ITC – 4 Details of goods/capital goods sent to job worker and received back.

Form GST ITC – 1

[See Rule _____]
Declaration for claim of input tax credit under sub-section (1) of section 18

Claim made under

45
 Section
18 (1)(a)
Section
18 (1)(b)
Section
18 (1)(c)
Section
18 (1)(d)

1. GSTIN

2. Legal name

3. Trade name, if any

4. Date from which liability to pay tax arises under section 9, except section 9 (3) and section 9 (4)
[For claim under section 18 (1)(a) and section 18 (1)(c))]

5. Date of grant of voluntary registration [For claim made under section 18 (1)(b)]

6. Date on which goods or services becomes taxable [For claim made under section 18 (1)(d)]

7. Claim under section 18 (1) (a) or section 18 (1) (b)

Details of stock of inputs and inputs contained in semi-finished goods or finished goods on which ITC is claimed
Sr. GSTIN/ Invoice * Description of inputs held in Unit Quantity Value Amount of ITC claimed (Rs.)
stock, inputs contained in

46
 Registration No. Date semi-finished or finished Quantity (As adjusted by Central State Tax UT Tax Integrated Cess
under CX/ goods held in stock debit note/credit Tax Tax
No. Code
note)
VAT of (UQC)
supplier
1 2 3 4 5 6 7 8 9 10 11 12 13

7 (a) Inputs held in stock

7 (b) Inputs contained in semi-finished or finished goods held in stock

• In case it is not feasible to identify invoice, the principle of first-in-first out may be followed.

8. Claim under section 18 (1) (c) or section 18 (1)(d)

Details of stock of inputs, inputs contained in semi-finished goods or finished goods and capital goods on which ITC is claimed
Sr. GSTIN/ Invoice */ Description of Unit Qty Value** Amount of ITC claimed (Rs.)
Bill of entry inputs held in (As
Quantity
stock, inputs adjusted
No. Code by debit

47
 Registra No. Date contained in (UQC) note/cre Central Tax State Tax UT Tax Integ Cess
tion under semifinished or dit note) rated
CX/ finished goods
Tax
held in stock,
VAT of
capital goods
supplier
1 2 3 4 5 6 7 8 9 10 11 12 13

8 (a) Inputs held in stock

8 (b) Inputs contained in semi-finished or finished goods held in stock

8 (c) Capital goods in stock

* In case it is not feasible to identify invoice, principle of first in and first out may be followed.
** The value of capital goods shall be the invoice value reduced by five percentage points per quarter of a year or part thereof from the date of invoice

9. Particulars of certifying Chartered Accountant or Cost Accountant [where applicable] a) Name of the Firm issuing certificate

b) Name of the certifying Chartered Accountant/Cost Accountant

48
c) Membership number

d) Date of issuance of certificate

e) Attachment (option for uploading certificate)

10. Verification

I __________________________________________ hereby solemnly affirm and declare that the information given hereinabove is true and correct to the best of my knowledge and belief
and nothing has been concealed there from.

Signature of authorized signatory _______________________________________ Name

_______________________________________
Designation/Status ____________________________ Date --- dd/mm/yyyy

Form GST ITC -02

[See Rule – _______]

Declaration for transfer of ITC in case of sale, merger, demerger, amalgamation, lease or transfer of a business under subsection (3) of section 18

1. GSTIN of transferor

2. Legal name of transferor

49
 3. Trade name, if any

4. GSTIN of transferee

5. Legal name of transferee

6. Trade name, if any

7. Details of ITC to be transferred

Tax Amount of matched ITC Amount of matched ITC to be transferred
available

1 2 3

Central Tax

State Tax

UT Tax

Integrated
Tax

Cess

8. Particulars of certifying Chartered Accountant or Cost Accountant

50
a) Name of the Firm issuing certificate

b) Name of the certifying Chartered Accountant/Cost Accountant

c) Membership number

d) Date of issuance of certificate to the transferor

e) Attachment (option for uploading certificate)

9. Verification

I __________________________________________ hereby solemnly affirm and declare that the information given hereinabove is true and correct to the best of my knowledge and belief
and nothing has been concealed there from.

Signature of authorized signatory _______________________________________ Name

_______________________________________

Designation/Status ____________________________ Date --- dd/mm/yyyy

Form GST ITC -03
[See Rule – _______]
Declaration for intimation of ITC reversal/payment of tax on inputs held in stock, inputs contained in semi-finished and finished goods held in stock and capital goods under sub-
section (4) of section 18

1. GSTIN

51
2. Legal name

3. Trade name, if any

4(a). Details of application filed to opt for (i) Application reference number
composition scheme (ARN)
[ applicable only for section 18 (4)] (ii) Date of filing

4(b). Date from which exemption is effective

[ applicable only for section 18 (4)]

5. Details of stock of inputs held in stock, inputs contained in semi-finished or finished goods held in stock, and capital goods on which input tax credit is required to be paid under
section 18(4).

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 *Invoice /Bill Description of inputs
of held in stock, inputs Unit Amount of ITC claimed (Rs.)
GSTIN/ Registration Value** (As
Sr. Entry contained in semi- Quantity
under CX/VAT of Qty adjusted by debit
No. finished or finished Code
supplier note/credit note) Integrated
goods held in stock and (UQC)
No. Date capital goods Central Tax State Tax UT Tax Tax Cess

1 2 3 4 5 6 7 8 9 10 11 12 13
5 (a) Inputs held in stock (where invoice is available)

5 (b) Inputs contained in semi-finished and finished goods held in stock (where invoice available)

5 (c) Capital goods held in stock (where invoice available)

5 (d) Inputs held in stock and as contained in semi-finished /finished goods held in stock ( where invoice not available)

5 (e) Capital goods held in stock (where invoice not available)

53
* (1) In case, it is not feasible to identify invoice, the principle of first in first out may be followed.
(2) If Invoice is not available for certain inputs or capital goods, the value shall be estimated based on prevailing market price
** The value of capital goods shall be the invoice value reduced by five percentage points per quarter of a year or part thereof from the date of invoice

6. Amount of ITC payable and paid (based on table 5)

Sr. Description Tax payable Paid through Debit entry
No. no. Amount of ITC paid standard
Cash/ Credit
Ledger

Central Tax State Tax UT Tax Integrated Tax Cess

1 2 3 4 5 6 7 8 9

1. Central Tax Cash Ledger

Credit Ledger

2. State Tax Cash Ledger

Credit Ledger

3. UT Tax Cash Ledger

Credit Ledger

4. Integrated Tax Cash Ledger

54
 Credit Ledger

5. CESS Cash Ledger

Credit Ledger

7. Verification

I __________________________________________ hereby solemnly affirm and declare that the information given hereinabove is true and correct to the best of my knowledge and belief
and nothing has been concealed there from.

Signature of authorized signatory _______________________________________ Name

_______________________________________
Designation/Status ____________________________
Date - dd/mm/yyyy

Form GST ITC-04

[See Rule – _______]

55
Details of goods/capital goods sent to job worker and received back

1. GSTIN -

2. (a) Legal name -

(b) Trade name, if any -

3. Details of inputs/capital goods sent for job-work

GSTIN / Challa n Challan Goods Place of Descriptio n UQC Quantity Taxable Type of Amount of tax
no. date Supply value goods
Name of Receipt date
job (State of (Inputs Central Tax State Tax
(In case of UT Tax Integrate d Cess
recipient /capital Tax
worker if direct
unregiste ) goods)
delivery to
red
Job-worker) Rat e Am Rate Amt Rat e Am Rat e Am Amt.
(%)
(%) t. . (%) t. (%) t.

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19

56
3A. Amendment of details of inputs/capital goods removed for job-work

Original details Revised details

Amount of tax

GSTI GSTI Goods Type of UT Integrated

Challa Receipt date POS goods Central Tax State Tax Cess
N/ N/ Challa Tax Tax
Challan Challan n n in case of Descrip UQ Quantit Taxab (Inputs/
(place of
Name no. date Name of direct tion C y le value
of Job Job Date delivery to Supply)
No. capital
worker worker Jobworker. goods) Amt.
Rate Rate Rate Rate
Amt. Amt Rate Amt
(%) (%) (%) (%)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22

57
 4. Details of inputs/capital goods received back from job worker or sent out from business place of job-work

Invoice details Amount of tax

in case of sent
GSTIN out directly Type of
/ Received Original Original goods
Taxable
back/sent challan challan Description UQC Quantity Integrated
Name of value (Inputs/
out directly No. date Central Tax State Tax UT Tax Tax Cess
job capital
worker No. Date goods)
Rate Rate Rate Rate
Amt. Amt. Rate Amt. Amt.
(%) (%) (%) (%)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 12 13 14 15

4A. Amendments of Details of inputs/capital goods received back or disposed of from business place of job-work

Received Original details Revised Details

back/sent
Amount of tax involved on goods received
out
directly GSTIN / Challan Challan Taxable Type of
Description UQC Quantity goods
no. no. value

58
 Name of job Invoice Details (Inputs/
worker Challan Challan in case of sent capital Central State Integrated Cess
date date out Directly goods) UT Tax
Tax Tax Tax

Rat e Rat e A A Rat e A Amt.

A Rate
(%) (%) (%) (%)
m m mt Mt
No. Date
t. t. . .

1 1
1 2 3 4 5 6 7 8 9 10 11 12 13 14 16 18 19 20 21 22
5 7

5. Verification (by authorized signatory)

I hereby solemnly affirm and declare that the information given herein above is true and correct to the best of my knowledge and belief and nothing has been concealed therefrom.

Signature
Name of Authorized Signatory ….……………………
Plac
e

59
60
 SECTION 5A: RESOURCES

Organisation / State Link Address

Central Board of Excise and Customs www.cbec.gov.in

National Academy of Excise and Customs www.nacen.gov.in

Goods and Services Tax Network www.gst.gov.in

Commercial Tax Department, Andhra Pradesh http://www.apcommercialtaxes.gov.in

Commercial Tax Department, Bihar www.comtax.bih.nic.in/

Commercial Tax Department, Delhi www.dvat.gov.in/dvatonline/index.php

Commercial Tax Department , Goa www.goagovt.nic.in

Commercial Tax Department, Gujarat www.commercialtax.gujarat.gov.in

Commercial Tax Department, Haryana www.haryanatax.com

Commercial Tax Department, Himachal www.hptax.nic.in

Pradesh

Commercial Tax Department, Jharkhand www.jharkhandcomtax.nic.in

Commercial Tax Department, Karnataka http://ctax.kar.nic.in

Commercial Tax Department, Kerala www.kerala.gov.in/dept_taxes

Commercial Tax Department, Madhya www.mptax.net

Pradesh

Commercial Tax Department, Manipur www.manipurtaxation.nic.in/TaxesinManipur.htm

Commercial Tax Department, Mizoram www.zotax.nic.in

Commercial Tax Department, Orissa http://www.ori.nic.in/salestax

Commercial Tax Department, Rajasthan www.rajtax.net

Commercial Tax Department, Tripura www.tripura.nic.in/taxes/

Commercial Tax Department, Tamilnadu www.tnsalestax.com

Commercial Tax Department, West Bengal www.wbcomtax.nic.in

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