CONTENTS

1. What is input tax credit?

2. Who can claim ITC?

3. What can be claimed as ITC?

4. How to claim ITC?

5. Reversal of Input Tax Credit

6. Reconciliation of ITC

7. Documents required for claiming ITC

8. Special cases of ITC

a. ITC for Capital Goods

b. ITC on Job Work
c. ITC provided by the Input service distributor (ISD)
d. ITC on Transfer of Business
 ACKNOWLEDGEMENT
I have taken efforts in this project. However, it would not
have been possible without the kind support and help of
many individuals and organizations. I would like to extend
my sincere thanks to all of them.

I am highly indebted to PIMR DEPARTMENT OF LAW for their

guidance and constant supervision as well as for providing
necessary information regarding the project & also for their
support in completing the project.
I would like to express my gratitude towards my parents &
member of PRESTIGE INSTITUTE for their kind co-operation
and encouragement which help me in completion of this
project.
I would like to express my special gratitude and thanks to
industry persons for giving me such attention and time.
My thanks and appreciations also go to my colleague in
developing the project and people who have willingly helped
me out with their abilities.

What is input tax credit?

Input credit means at the time of paying tax on output, you can
reduce the tax you have already paid on inputs and pay the
balance amount.
Here’s how-
When you buy a product/service from a registered dealer you pay
taxes on the purchase. On selling, you collect the tax. You adjust
the taxes paid at the time of purchase with the amount of output
tax (tax on sales) and balance liability of tax (tax on
sales minus tax on purchase) has to be paid to the government.
This mechanism is called utilization of input tax credit.
For example- you are a manufacturer: a. Tax payable on output
(FINAL PRODUCT) is Rs 450 b. Tax paid on input
(PURCHASES) is Rs 300 c. You can claim INPUT CREDIT of Rs
300 and you only need to deposit Rs 150 in taxes.

Who can claim ITC?

ITC can be claimed by a person registered under GST only if he

fulfills ALL the conditions as prescribed.
a. The dealer should be in possession of tax invoice
b. The said goods/services have been received
c. Returns have been filed.
d. The tax charged has been paid to the government by the
supplier.
e. When goods are received in installments ITC can be claimed
only when the last lot is received.
f. No ITC will be allowed if depreciation has been claimed on tax
component of a capital good

What can be claimed as ITC?

ITC can be claimed only for business purposes. ITC will not
be available for goods or services exclusively used for:
a. Personal use b. Exempt supplies c. Supplies for which ITC is
specifically not available

How to claim ITC?

All regular taxpayers must report the amount of input tax

credit(ITC) in their monthly GST returns of Form GSTR-3B. The
table 4 requires the summary figure of eligible ITC, Ineligible ITC
and ITC reversed during the tax period. The format of the Table 4
is given below:

A taxpayer can claim ITC on a provisional basis in the GSTR-3B to an

extent of 20% of the eligible ITC reported by suppliers in the auto-
generated GSTR-2A return.
Hence, a taxpayer should cross-check the GSTR-2A figure before
proceeding to file GSTR-3B. A taxpayer could have claimed any amount
of provisional ITC until 9 October 2019. But, the CBIC has notified that from
9 October 2019, a taxpayer can only claim not more than 20% of the
eligible ITC available in the GSTR-2A as provisional ITC. This means that
the amount of ITC reported in the GSTR-3B from 9 October 2019 will be
the total of the actual ITC in GSTR-2A and the provisional ITC being 20%
of the actual eligible ITC in the GSTR-2A. Hence, matching of the purchase
register or expense ledger with the GSTR-2A becomes crucial.

Reversal of Input Tax Credit

ITC can be availed only on goods and services for business

purposes. If they are used for non-business (personal) purposes,
or for making exempt supplies ITC cannot be claimed . Apart from
these, there are certain other situations where ITC will be
reversed.

ITC will be reversed in the following cases-

1) Non-payment of invoices in 180 days– ITC will be reversed

for invoices which were not paid within 180 days of issue.
2) Credit note issued to ISD by seller– This is for ISD. If a credit
note was issued by the seller to the HO then the ITC
subsequently reduced will be reversed.
3) Inputs partly for business purpose and partly for exempted
supplies or for personal use – This is for businesses which use
inputs for both business and non-business (personal) purpose.
ITC used in the portion of input goods/services used for the
personal purpose must be reversed proportionately.
4) Capital goods partly for business and partly for exempted
supplies or for personal use – This is similar to above except
that it concerns capital goods.
5) ITC reversed is less than required- This is calculated after
the annual return is furnished. If total ITC on inputs of
exempted/non-business purpose is more than the ITC actually
reversed during the year then the difference amount will be added
to output liability. Interest will be applicable.

Reconciliation of ITC
ITC claimed by the person has to match with the details
specified by his supplier in his GST return. In case of
any mismatch, the supplier and recipient would be
communicated regarding discrepancies after the filling of
GSTR-3B. Learn how to go about reconciliation through
our article on GSTR-2A Reconciliation. Please read our
article on the detailed explanation of the reasons
for mismatch of ITC and procedure to be followed to apply
for re-claim of ITC.

Documents Required for Claiming ITC

The following documents are required for claiming ITC:
1. Invoice issued by the supplier of goods/services

2. The debit note issued by the supplier to the recipient (if any)

3.Bill of entry

4. An invoice issued under certain circumstances like the bill of

supply issued instead of tax invoice if the amount is less than Rs
200 or in situations where the reverse charge is applicable as per
GST law.

5. An invoice or credit note issued by the Input Service

Distributor(ISD) as per the invoice rules under GST.

6. A bill of supply issued by the supplier of goods and services or

both.

Special cases of ITC

a. ITC for Capital Goods

ITC is available for capital goods under GST.

However, ITC is not available for- i. Capital Goods used exclusively for
making exempted goods ii. Capital Goods used exclusively for non-
business (personal) purposes Note: No ITC will be allowed if
depreciation has been claimed on tax component of capital goods.

b. ITC on Job Work

A principal manufacturer may send goods for further processing to a job
worker. For example, a shoe manufacturing company sends half-made
shoes (upper part) to job workers who will fit the soles. In such a situation
the principal manufacturer will be allowed to take credit of tax paid on the
purchase of such goods sent on job work.
ITC will be allowed when goods are sent to job worker in both the cases:

1. From principal’s place of business

2. Directly from the place of supply of the supplier of such goods

c. ITC Provided by Input Service Distributor (ISD)

An input service distributor (ISD) can be the head office (mostly) or a
branch office or registered office of the registered person under GST. ISD
collects the input tax credit on all the purchases made and distribute it to all
the recipients (branches) under different heads like CGST, SGST/UTGST,
IGST or cess.

d. ITC on Transfer of Business

This applies in cases of amalgamations/mergers/transfer of business. The
transferor will have available ITC which will be passed to the transferee at
the time of transfer of business.