Input Tax Credit

Important Definitions:

Section

Phrase

Definition

2(59)

Input

means any goods other than capital goods used or intended to be

used by a supplier in the course or furtherance of business.

2(19)

Capital Goods

means goods, the value of which is capitalised in the books of

accounts of person claiming the input tax credit and which are

used or intended to be used in course or furtherance of business.

2(60)

Input Service

means any service used or intended to be used by a supplier in the

course or furtherance of business.

2(63)

Input Tax Credit

means the credit of input tax.

2(62)

Input Tax

In relation to a registered person, means the central tax, state tax,

integrated tax or UT charged on supply of goods or services or both

made to him and includes –

a)the integrated goods and services tax charged on import of goods

b)the tax payable under the provisions of Section 9(3) and 9(4)

c)the tax payable under the provisions of Section 5(3) and 5(4) of IGST

d)the tax payable under the provisions of Section 9(3) and 9(4) of SGST

e)the tax payable under the provisions of Section 7(3) and 7(4) of UGST

But does not include the tax paid under composition levy.

2(82)

Output Tax

In relation to a taxable person, means the tax chargeable under

this Act on taxable supply of goods or services or both made by

him or by his agent but excludes tax payable by him on reverse

charge basis.

Sec 16 – Eligibility and Conditions:

Section

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for taking ITC

and restrictions as may be prescribed and in the manner

specified in Section 49, be entitled to take ITC on any supply

of goods or services or both to him which are used or

intended to be used in course or furtherance of his business

and the said amount shall be credited to electronic credit

ledger.

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 tax invoice or debit note issued by a

supplier registered under this Act, or such other tax paying

doc as may be prescribed (Rule 36 of CGST Rules, 17)

for taking ITC

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 -

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 directions of such registered person,

whether acting as agent or otherwise, before or during the

movement of goods, either by way of transfer of docs of title

to goods or otherwise;

c) Subject to provisions of Section 41, the tax charged in

respect  of  such  supply  has  been  actually  paid  to

Government, either in cash or through utilisation of ITC

admissible in respect of said supply

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for taking ITC

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 -

d) he has furnished the return under Section 39

Provided that where goods against an invoice are received in

lots or instalments, the registered person shall be entitled to

take credit upon the receipt of last lot or instalment.

Provided further that where a recipient fails to pay supplier

of goods or services or both, other than supplies on which tax

is payable on reverse charge basis, the amount towards

value of supply along with tax payable thereon within a

period of 180 days from date of issue of invoice by supplier,

an amount equal to ITC availed by recipient shall be added to

his output tax liability, along with interest thereon, in such

manner as my be prescribed (Rule 37 of CGST Rules, 17)

for taking ITC

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 -

Provided also that the recipient shall be entitled to avail

credit of input tax payment made by him of the amount

towards 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 Income Tax Act, 1961, the

input tax credit on said tax component shall not be allowed.

4.  A registered person shall not be entitled to take ITC in

respect  of  any  invoice/debit  note  for  supply  of

goods/services/both after due date of furnishing the return

under Section 39 for month of Sept following the end of FY to

which such invoice/debit note pertains or furnishing of

relevant annual return, whichever is earlier.

Sec 17 – Apportionment and Blocked:

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17

Apportionment of Credit

1.

Where goods/services/both used by registered person

and Blocked Credits

partly for purposes 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 purposes of his

business.

2.  Where goods/services/both used by registered person

partly for effecting taxable supplies including zero rated

supplies and partly for effecting exempt supplies, amount

of credit shall be restricted to so much of 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 recipient is liable to pay tax under RCM, transactions

in securities, sale of land subject to Para 5(b) of Schedule II,

sale of building (Rule 42 of CGST Rules, 17 – Inputs & Input

Services) & (Rule 43 of CGST Rules, 17- Capital Goods)

17

Apportionment of Credit

4.

A banking company or a financial institution including

and Blocked Credits

NBFC, engaged in supplying services by way of accepting

deposits, extending loans or advances shall have option to

either comply with provisions of sub-section (2), or avail of,

every month, an amount equal to 50% of eligible input tax

credit on inputs, capital goods and input services in that

month and the rest shall lapse. Option once exercised

applies for entire FY. Provided further that restriction of

50% shall not apply to tax paid on supplies made by one

registered person to another registered person having the

same PAN (Rule 38 of CGST Rules, 17)

5.  Notwithstanding anything contained in Section 16(1) and

18(1), 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 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

vehi/conve

ii. Transportation of goods

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Sec 18 – Availability of Credit in Special Circumstances

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Availability of Credit in

1.  Subject to such conditions and restrictions as may be

special circumstances

prescribed –

a)

a person who has applied for registration within 30 days

from date on which he becomes liable for 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 day immediately preceding the

date from which he becomes liable to pay tax under

provisions of the act.

b)

a person who takes registration under Section 25(3)

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 day

immediately  preceding  the  date  of  grant  of

registration.

c)

where any registered person ceases to pay tax under

Section 10, 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 and on

capital goods on day immediately preceding the date

from which he becomes liable to pay tax under Section

9. Provided credit on capital goods shall be reduced by

such percentage points as may be prescribed.

d)

Where an exempt supply of goods/services/both by a

registered person becomes 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.

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18

Availability of Credit in

2.  A registered person shall not be entitled to take ITC under

special circumstances

sub-section (1) in respect of supply of goods or services or

both to him after the expiry of 1 year from the date of issue

of tax invoice relating to such supply.

3.  Where there is a change in constitution of a registered

person  on  account  of  sale,  merger,  demerger,

amalgamation, lease or transfer of business with specific

provisions for transfer of liabilities, the said registered

person shall be allowed to transfer ITC which remains

unutilised in his 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 ITC opts to

pay tax under Section 10 or where goods/services/both

supplied by him become wholly exempt, he shall pay an

amount, by way of debit in electronic credit ledger or

electronic cash ledger, equivalent to credit of input tax in

respect of inputs held stock 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  day  immediately  preceding  date  of

exercising of such option or, as the case maybe, date of such

exemption. Provided that after payment of such amount,

the balance of input tax credit, if any, lying in his electronic

ledger shall lapse.

5.  The amount of credit under 18(1) and 18(4) shall be in

manner specified as Rule 44 of CGST Rules, 17

6.  In case of supply of capital goods or P&M, on which ITC has

been taken, the registered person shall pay an amount

equal to ITC taken on said capital goods or P&M reduced by

such percentage points as may be prescribed or TC of such

capital goods or P&M determined under Section 15,

whichever is higher [same as specified in Rule 44].

Sec 19 – Taking ITC in respect of Inputs & CG –JW

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Taking ITC in respect of

1.  The  principal  shall,  subject  to  such  conditions  and

inputs & capital goods

restrictions as may be prescribed, be allowed ITC on

sent for Job Work

inputs/CG sent to a job-worker for job-work.

2.  Notwithstanding anything contained in Section 16(2)(b),

the principal shall be entitled to take ITC on inputs/CG even

if inputs are directly sent to job worker for job work without

being first brought to his place of business.

3.  Where inputs sent for job work are not received back by

principal after completion of job work or otherwise are not

supplied from place of business of job worker in accordance

with Section 143(1)(b) within 1 year (inputs)/3 years (CG) of

being sent out, it shall be deemed that such inputs had

been supplied by principal to job worker on day when the

said inputs/CG were sent out. Provided that where inputs

are sent directly to a job worker, the period 1/3 year shall be

counted from date of receipt of inputs by job worker.

4.  Where inputs or capital goods are not returned to principal

within time stipulated in Section 143, it shall be deemed

that such inputs or capital goods had been supplied by

principal to JW on day when such inputs/capital goods were

sent out and said supply shall be declared in GSTR-1 and

principal shall be liable to pay tax along with interest – Rule

45(4) of CGST Rules, 17.

Sec 20 – Manner of Distribution of Credit by ISD

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of Credit by ISD

ST/IT and IT as IT/ST by way of issue of document containing

the amount of input tax being distributed in such manner as

may be prescribed.

2.  The ISD may distribute credit subject to following conditions –

a) credit can be distributed to recipients of credit against a

doc containing such details as may be prescribed

b) amount of credit distributed shall not exceed the amount

of credit available for distribution

c)

credit  of tax paid on input service attributable to a

recipient of credit shall be distributed only to that

recipient

d)

credit of tax paid on input services attributable to more

than one recipient of credit shall be distributed amongst

such recipients to whom input service is attributable and

such distribution shall be pro rata on basis of turnover in a

state  of  such  recipient,  during  relevant  period,  to

aggregate of turnover of all such recipients to whom such

input service is attributable and which are operational in

current year, during the said relevant period.

e)

Credit of tax paid on input services attributable to all

recipients of credit shall be distributed amongst such

recipients and such distribution shall be pro rata on basis

of turnover in a state of such recipient, during relevant

period, to aggregate of turnover of all recipients and

which are operational in current year, during said relevant

period.

Explanation –

?Relevantperiod –

?Ifrecipients of credit have turnover in state in FY

preceding the year during which credit is to be

distributed, said FY

?Ifsomeor all recipients of credit do not have

turnover in their states in FY preceding the year

during which credit is distributed, last quarter for

which details of such turnover of all recipients are

available, previous to the month during which

credit is distributed

Input Tax Credit

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Recovery of Credits:

Section

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21

Manner of Recovery of

Where the ISD distributes the credit in contravention to Section

Credit  distributed  in

20 resulting in excess of distribution of credit to one or more

excess

recipients of credit, the excess credit so distributed shall be

recovered  from  such  recipients  along  with  interest  and

provisions of Section 73 or Section 74 , as the case may be

mutatis mutandis apply for determination of amounts to be

recovered.

other than fraud or any

of facts to evade tax, he shall serve notice on person who

wilful-misstatement

or

has wrongly availed or utilised ITC, requiring him to show

suppression of facts

cause why he should not pay amount specified in notice

along with interest and penalty.

2.  The proper officer, after considering the representation, if

any, made by person chargeable with tax, determine the

amount of tax, interest and a penalty equivalent to 10% or

10,000 whichever is higher, due from such person and issue

an order.

3.  The proper officer shall issue above order within 3 years

from the due date for furnishing of annual return for FY to

which ITC wrongly availed or utilised relates.

74

Determination  of

ITC

1.  Where it appears to proper officer that ITC has been

wrongly  availed

or

wrongly availed or utilised by reason of fraud or any wilful-

utilised  by  reason

of

misstatement or suppression of facts to evade tax, he shall

fraud  or  any  wilful-

serve notice on person who has wrongly availed or utilised

m i s s t a t e m e n t

o r

ITC, requiring him to show cause why he should not pay

suppression of facts

amount specified in notice along with interest and penalty

equivalent to tax specified in notice.

2.  The proper officer, after considering the representation, if

any, made by person chargeable with tax, determine the

amount of tax, interest and a penalty due from such person

and issue an order.

3.  The proper officer shall issue above order within 5 years

from the due date for furnishing of annual return for FY to

which ITC wrongly availed or utilised relates.

Section 54 - Refunds:

Refunds

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54

Refunds

1.  Any person claiming refund of any tax and interest, if any,

paid on such tax or any other amount paid by him, make an

application before expiry of 2 years from relevant date in

such form and manner as may be prescribed.

2.  A registered person may claim refund of any unutilised

input tax credit at end of any tax period. Provided that no

refund of unutilised input tax credit shall be allowed in

cases other than –

I.  Zero rated supplies made without payment of tax

ii. Where credit has accumulated on account of rate of tax

on inputs being higher than the rate of tax on output

supplies, except supplies of goods or services or both as

may be notified by Govt

Provided further no refund of unutilised ITC shall be

allowed in cases where goods are exported out of India

which are subject to export duty.

Provided also no refund of ITC shall be allowed, if supplier

of goods/services/both avails of drawback in respect of CT

or claims refund of IT on such supplies.

Sec 49(5) – Manner of Utilization:

Section

Title

Relevant Sub-Section

49

Payment of Tax, Interest,

5.  The amount of input tax credit available in the electronic

Pe n a l t y  a n d  o t h e r

credit ledger of registered person on account of –

amounts

a) IT shall first be utilised towards payment of IT and

amount remaining, if any, may be utilised towards the

payment of CT and ST, or as the case may be, UT, in that

order

b) CT shall first be utilised towards payment of CT and the

amount remaining, if any, may be utilised towards

payment of IT

c) ST shall first be utilised towards payment of ST and

amount remaining, if any, may be utilised towards

payment of IT

d) CT shall not be utilised towards payment of ST or UT and

e) ST or UT shall not be utilised towards payment of CT.

Rule 36 – Documentary Requirements and Conditions:

Section

Title

Deals with

36

Documentary

1.  The input tax credit shall be availed by a registered person

Requirements and

on basis of invoice/challan for RCM/Debit Note/BOE in case

Conditions for claiming

of imports/ISD Invoice/ISD credit note.

ITC

2.  ITC shall be availed by a registered person only if all

applicable  particulars  as  specified  in  Chapter  VI  are

contained  in  said  doc,  and  relevant  information,  as

contained in said doc, is furnished in 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 fraud, willlful misstatement or suppression of facts.

Section

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Deals with

37

Reversal of ITC in case of

1.  A registered person who has availed ITC but fails to pay to

n o n - p a y m e n t  o f

the supplier, the value of supply along with tax payable,

consideration

within 180 days, shall furnish the details of such supply,

amount of value not paid and amount of ITC availed of

proportionate to such amount not paid to supplier in GSTR-

2 for the month immediately following period of 180 days.

Provided  that  the  value  of  supplies  made  without

consideration as specified in Schedule I shall be deemed to

have been paid for purposes of second proviso to Section

16(2).

2.  The amount of ITC specified above, shall be added to output

tax liability of registered person for month in which details

are furnished.

3.  The registered person shall be liable to pay interest in terms

of Section 50(1) for period starting from 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).

4.  The time limit specified in Section 16(4) shall not apply to a

claim for re-availing of any credit, in accordance with

provisions of this act or provisions of this chapter, that has

been reversed earlier.

Rule 42 – Manner of Distribution – Input/Input Services:

Section

Title

Deals with

or  input  services

and

reversal thereof

Total Credit:

?TotalITCinvolved on inputs and input services in a tax period = T

Eliminate Exclusive Credits for Exempted & Ineligible Credits:

?ITCexclusively used for purposes other than business = T1

?ITCexclusively used for purposes of exempted supplies = T2

?AmountofITC on which credit is not allowed as per 17(5) = T3

?AmountofITC credited to credit ledger = C1 = T – (T1 + T2 + T3)

Identify Exclusive Credits for Taxable Supplies:

?ITCexclusively used for taxable supplies = T4

Arrive at Common Credits:

?CommonCredits = C2 = C1 – T4

Arrive at Common Credits pertaining to Exempt Supplies:

?Amountof common ITC towards exempt supplies = D1 = E/F *

C2

E = Aggregate value of exempt supplies during tax period

F = Total turnover in the state of registered person during tax

period

Arrive at Common Credits pertaining to Other than business

purposes:

?Amountof common ITC towards non-business = D2 = 5% * C2

Identify Common Credits for business purposes and Taxable

Supplies:

?Amountof common ITC for taxable and business purposes =

C3 = C2 – (D1+D2)

Adding D1 & D2 to output tax liability for the tax period:

?D1andD2 shall be added to output tax liability and to be

checked with final turnovers.

Section

Title

Deals with

42

Manner

of distribution

The ITC determined under sub-rule (1) shall be calculated finally

of ITC in respect of input for financial year before the due date of furnishing of return for

or  input

services  and

month of September following the end of financial year to which

reversal thereof

such credit relates, in manner specified as under:

?Ifthefinal D1 and D2 are greater than provisional D1 and D2,

then such excess D1 and D2 shall be added to output tax

liability in month not later than month of September

following the end of financial year to which such credit

relates and said person shall be liable to pay interest on said

amount in terms of Section 50(1) starting from first day of

April of succeeding financial year till date of payment

Total Credits

Credit on Inputs & Input Services

T

15,00,00

Elimination of Ineligible & Exempt Credi

Exclusively used for Non-Business

T1

1,00,00

Exclusively used for Exempt

T2

3,00,00

Ineligible under Sec 17(5)

T3

75,00

Credit allowed in Ledger

ITC credited to ledger

C1

T - (T1+T2+T3)

10,25,00

Credit Exclusively used for Taxable Supp

Exclusively used

T4

3,25,00

Common Credits both for Taxable & Exempted

Common ITC

C2

C1- T4

7,00,00

Common Credits for Exempted & Non-Business

Common ITC for Exempted

D1

E/F * C2

1,86,66

Common ITC for Non-Business

D2

5%*C2

35,00

Common Credits for Taxable

Common ITC for Taxable

C3

C2-(D1+D2)

4,78,33

Addition to Output Tax Liability

To be added to Output Tax

D1+D2

2,21,66

Net Credit Allowed for tax period

ITC allowed

C1-(D1+D2)

8,03,33

Rule 43 – Manner of Distribution – Capital Goods:

Section

Title

Deals with

43

Manner

of distribution

The manner for determining reversal of credit as specified in

of  ITC  in  respect  of

Section 17(1) and 17(2) is as under:

Capital

Goods  and

a)

Credit of ITC in respect of CG used exclusively for non-

reversal thereof

business or exempted supplies shall not be taken in credit

ledger

b) Credit of ITC in respect of CG used exclusively for effecting

supplies shall be taken in credit ledger

c)  Amount of ITC in respect of CG not covered above, demoted

as ‘A’, shall be credited to credit ledger and useful life of

goods shall be taken as 5 years from date of invoice for such

goods

d)

The aggregate of amounts ‘A’ credited to ledger under

clause (c) to be denoted as Tc, shall be common credit in

respect of capital goods for a tax period

e) The amount of ITC 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 ITC, at the beginning of a tax period, on all

common capital goods whose useful remains during tax

period, be denoted as Tr and shall be aggregate of Tm for all

such capital goods

g)

The  amount  of  common  credit  attributable  towards

exempted supplies, be denoted Te= (E/F) * Tr

E = Aggregate value of exempt supplies during tax period

F = Total turnover in the state of registered person during

tax period

h) The amount of Te along with applicable interest shall,

during every tax period of the useful life of concerned

capital goods, be added to output tax liability of person

making such claim of credit.

Section

Title

Deals with

38

Claim  of  Credit  by  a

1.  A banking company or a FI (including NBFC), engaged in

Banking Company or a

supply of services by accepting deposits or extending loans

Financial Institution

or advances that chooses not to comply with Section 17(2),

they can follow the procedure namely –

?saidcompany/institution shall not avail credit of –

?taxpaidon input and input services that are used for

non-business purposes

?creditattributable to supplies specified in 17(5)

?saidcompany or institution shall avail the credit of tax

paid on inputs and input services referred to in the

second proviso to Section 17(4) and not covered under

17(5) or 17(1)

?50%ofremaining amount of input tax shall be input tax

credit admissible to the company or institution and shall

be furnished in GSTR-2.

Section

Title

Deals with

Circumstances

and capital goods held in stock shall, for purposes of Section

18(4), be determined in the following manner, namely –