In the current tax regime, various conditions are applicable for availing input tax credit. A brief overview is given below:
|
Type
of Input Tax Credit
|
Conditions
for availing Input Tax Credit (ITC)
|
|
VAT
|
As a VAT dealer, you can avail
credit of the VAT paid on goods purchased in the course of business, for
re-sale or for manufacture of goods, subject to conditions. Only purchases
from registered dealers within the state are eligible for ITC
|
|
CENVAT/Service Tax
|
As a manufacturer, you can avail
CENVAT credit on all inputs used directly or indirectly in relation to the
manufacture of final products. You can also avail ITC on the service tax paid
on any input service.
If you are a service provider providing taxable service, you can avail ITC on the service tax paid on input services used for provision of the taxable services. |
Under the GST regime, input tax credit
can be availed by every registered taxable person on all inputs used or
intended to be used in the course of or for furtherance of business.
This, of course, is subject to certain conditions. The conditions
which need to be satisfied to avail input credit under GST are the
following:
- You should have the Tax Invoice/Debit or Credit Note issued by a registered person.
- The goods/services should have been received.
- You should have filed GSTR-3 for the related month
- The tax charged has been paid to the government by the supplier, either in cash or through utilization of ITC.
Let us now understand the situations in which you will be eligible to avail ITC under GST.
Situations in which Input Tax Credit can be availed under GST
When you apply for registration under GST
You can apply for registration under GST in 2 scenarios:
- You are liable to register
OR - You voluntarily apply for registration
- When you apply for registration under GST, on becoming liable to register
When you apply for registration under GST
on becoming liable to register, you can avail ITC on inputs and inputs
contained in semi-finished or finished goods in stock, on the day before
the date on which you become liable to pay tax, only if you have:
- Applied for registration within 30 days from the date on which you become liable to register and
- Been granted registration
Example: You are a manufacturer of apparel and have crossed the threshold limit for registration on 1st
October 2017. You have stock of raw materials worth Rs. 5,00,000 on
this date and have paid GST @ 18% (Rs 90,000) on them. You must ensure
that you apply for registration within 30 days from 1st October 2017. If not, you will lose the eligible ITC of Rs 90,000 on the raw materials in stock.
- When you voluntarily apply for registration
Even though you have not crossed the threshold limit for
registration, provisions of the Law allow for ‘voluntary registration’.
If you voluntarily apply for GST registration,
you can avail ITC on inputs and inputs contained in semi-finished or
finished goods in stock on the day before you are granted registration.
Example: You are a dealer of electronic products and
due to your business operations, you voluntarily apply for
registration, even though the threshold limit has not been crossed. You
have been granted registration on 10th September 2017 and
have electronic products worth Rs 2,00,000 in stock, on which GST @ 18%
(Rs 36,000) has been paid. You can avail the ITC of Rs 36,000 on the
electronic products in stock.
When you leave the composition scheme and become a regular dealer
If you are registered under the composition scheme
and your aggregate turnover crosses Rs 50 Lakhs, you have to move away
from the composition scheme and become a regular dealer. When you leave
the composition scheme and become a regular dealer, you can avail ITC on
inputs, inputs contained in semi-finished or finished goods in stock,
and capital goods on the day before the date on which you become liable
to pay tax. The credit on capital goods will be reduced by percentage
points, which will be notified.
Example: You have been registered as a composition
dealer under GST and your turnover has now crossed Rs 50 lakhs. Hence,
you leave the composition scheme and become a regular dealer. Your
turnover has crossed Rs. 50 Lakhs on 10th October 2017 and your stock on 9th October 2017 contains the following inputs-
|
Type of input
|
Value (Rs.)
|
GST Paid @18% (Rs.)
|
|
Raw materials
|
1,00,000
|
18,000
|
|
Inputs in semi- finished goods
|
50,000
|
9,000
|
|
Inputs in finished goods
|
1,50,000
|
27,000
|
|
Total
input tax paid
|
54,000
|
|
You can avail the full ITC of Rs 54,000 and ITC on capital goods (reduced by the notified percentage points).
When exempted goods or services become taxable
When goods or services declared as exempt from GST are made taxable,
you can avail ITC on the following on the day before the supply becomes
taxable:
- Inputs in stock and inputs contained in semi-finished or finished goods in stock, which are relatable to the exempt supply.
- Capital goods exclusively used for the exempt supply. The credit on capital goods will be reduced by percentage points, which will be notified.
Example: You manufacture an exempt good. This exempt good is made taxable on 5th December 2017. You have the following inputs (used to manufacture the exempt good) in stock on 4th December 2017-
|
Closing
stock- 4.12.2017
|
||
|
Inputs
|
Value (Rs.)
|
GST paid on inputs @ 18% (Rs.)
|
|
Raw material A
|
3,00,000
|
54,000
|
|
Raw material B
|
30,000
|
5,400
|
|
Total
|
3,30,000
|
59,400
|
You can avail the full ITC of Rs. 59,400 on the inputs used to
manufacture the exempt good which has been made taxable. You can also
avail ITC on capital goods exclusively used for the exempt supply,
reduced by percentage points, which will be notified.
When sale/merger/demerger/amalgamation/lease/transfer of the business occurs
In any of these cases, if there is a specific provision for transfer
of liabilities, the unutilized ITC can be transferred to the sold,
merged, demerged, amalgamated, leased, or transferred business.
Example: Mohan Electricals Private Ltd sold its
business to Ram Electricals Private Ltd. At the time of sale, Mohan
Electricals Private Ltd had unutilized ITC of Rs. 2,50,000. In the sale
agreement, it was agreed that all liabilities and assets of Mohan
Electricals Private Ltd will be transferred to Ram Electricals Private
Ltd. In this case, Mohan Electricals Private Ltd can transfer the
unutilized ITC of Rs. 2,50,000 to Ram Electricals Private Ltd.
When goods and/or services are used partly for business and partly for other purposes
When goods and/or services are used partly for business and partly
for other than business purposes, ITC can be availed only on the portion
used for the purpose of business.
Example:
You are an electronic goods dealer and you purchased computers for Rs. 3,00,000 from a manufacturer, on which GST of Rs. 54,000 (@18%) has been paid. Out of the computers purchased, computers worth Rs. 1,00,000 were taken by you for your personal use. The remaining computers were sold to customers. In this case, ITC can be availed only on the portion used for business, i.e. Rs. 2,00,000. Hence, eligible ITC here is Rs. 36,000 (2,00,000*18%).
When goods and/or services are used partly for taxable supplies and partly for exempt supplies
When goods and/or services are used partly for taxable supplies and partly for exempt supplies, ITC can be availed only on the portion used for making taxable supplies and zero rated supplies. ITC is not allowed on the portion used for making exempt supplies, and supplies where the receiver pays tax on reverse charge basis.Example: You are a manufacturer. You purchased raw materials for Rs. 1,00,000, on which GST paid is Rs. 18,000 (@18%). These raw materials have been used partly for manufacturing Item A which is taxable and Item B, which is exempt. The details are shown below-
|
Input
|
Value (Rs.)
|
Portion used to manufacture Item A
(Taxable) (Rs.)
|
Portion used to manufacture Item B
(Exempt) (Rs.)
|
GST paid on Input (Rs.)
|
Proportionate GST paid on portion
used to manufacture Item A (Taxable) (Rs.)
|
Proportionate GST paid on portion
used to manufacture Item B (Exempt) (Rs.)
|
|
Raw material
|
1,00,000
|
60,000
|
40,000
|
18,000
|
10,800
|
7,200
|
You can avail ITC of Rs. 10,800 on the portion of raw materials used
to manufacture Item A, which is taxable. The ITC of Rs. 7,200 on the
portion used to manufacture Item B cannot be availed, as Item B is
exempt.
Exceptional scenarios
Listed below are few exceptional scenarios in which ITC can be availed, subject to laid down conditions.
When goods are received in lots or installments
When goods are received in lots or installments, ITC can be availed only upon receipt of the last lot or installment.
Example: You are a mobile phone dealer. On 1st
August 2017, you purchase 50 mobile phones from a manufacturer, valued
at Rs. 5,000 each. It is agreed that the mobile phones will be sent by
the manufacturer in 2 lots of 25 mobile phones each, on 1st of the following two months. Your inward supplies register appears as shown below-
|
Inward
Supplies Register
|
||||||||||
|
Date
|
Description
of goods
|
Quantity
|
Rate
|
Total
|
CGST
|
SGST
|
IGST
|
|||
|
Rate
|
Amount
|
Rate
|
Amount
|
Rate
|
Amount
|
|||||
|
1st
Sept ‘17
|
Mobile
phones
|
50
|
5,000
|
2,50,000
|
9%
|
22,500
|
9%
|
22,500
|
–
|
–
|
|
1st
Oct ‘17
|
Mobile
phones
|
50
|
5,000
|
2,50,000
|
9%
|
22,500
|
9%
|
22,500
|
–
|
–
|
|
Total
|
100
|
5,00,000
|
45,000
|
45,000
|
–
|
–
|
||||
Here, even though a portion of the mobile phones was received on 1st September 2017, you can avail the ITC of Rs. 90,000 only on the receipt of the last lot on 1st October 2017.
ITC on pipelines and telecommunication towers
ITC on pipelines and telecommunication towers purchased can be availed in the following manner:
|
Year
|
Maximum
ITC to be availed
|
|
The financial year in which the
pipeline and/or telecommunication tower is received
|
1/3rd of the total input tax paid
|
|
The succeeding year
|
2/3rd of the total input tax,
including credit availed in the previous year
|
|
Any subsequent financial year
|
Balance input credit
|
Example: ABC Telecom Private Ltd purchases a
telecommunication tower in April 2017, on which GST paid is Rs. 30
Lakhs. They can avail ITC on the tower in the following manner:
|
Year
|
Maximum
ITC to be availed
|
|
2017
|
10 Lakhs
|
|
2018
|
10 Lakhs
|
|
2019
|
10 Lakhs
|
In this article, we learnt of the scenarios in which ITC can be availed,
and conditions applicable in each of these scenarios. In our next blog,
we will look at the situations in which ITC cannot be availed.
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