Input Tax Credit – A Brief Analysis

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TaxClue Team
TaxClue Team
Taxclue is an online news portal for reporting all news, articles, judgments, Circulars, orders, and notifications relating to various corporate and tax laws in India. We use the tagline ‘Simplifying Laws’. Our mission is to Simplify the Laws and make people aware of their rights and duties in relation to tax matters in order to equip them to participate in nation-building.

What is Input Tax Credit (ITC) in GST?The input tax credit means the amount of tax paid by the recipient on the purchase of some Goods or Services.Let’s say you are a Manufacturer of Computers. You have paid a sum of money at the time of Purchase of Raw material for computer and also on the purchase of certain services from some professionals and other bodies. They have imputed GST on their Goods and services. The amount of GST paid by you at the time of purchase of Goods or Services is called Input Tax Credit.At the time of paying output liability, you can reduce the amount of tax you have already paid on inputs.Numerical Example: -ABC Ltd. Purchase goods on which they have paid Rs. 5000 as input tax and sold goods on which they have imputed Rs. 6000 as output tax. In this case, ABC Ltd can claim Input Credit of Rs. 5000 and need to deposit Rs. 1000 as output taxes.

Understanding Input Tax Credit


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Tax to paid by the ABC ltd. = Rs. 6000 – Rs. (1500+2700+800) = Rs. 1000

Here Input Tax Credit = Rs. 5000

 Note: Input Tax Credit is available to you when you are a manufacturer, supplier, e-commerce operator (ECO), aggregator or any of the persons mentioned registered under GST.How to claim Input Tax Credit (ITC) under GST?Conditions to claim the input tax credit under GST –

  • You must possess a tax invoice (of purchase of goods or Services) or debit note issued by a registered dealer.

Note: Where goods are received in lots/instalments, the input tax credit will be available against the tax invoice upon receipt of last lot or instalment.

  • Goods and Services should also receive.

Note: Where the recipient of service does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input credit based on the invoice, the said input tax credit will be added to his output tax liability along with interest as may be prescribed.

  • The tax charged on your purchases has been paid to the government by the supplier in cash or by claiming input credit.
  • Supplier of goods and services has filed returns.

Maybe the most path-breaking improvement of GST is that ITC is ONLY allowable if your supplier has deposited the tax to the govt. he collected from you. So every input credit you are claiming shall be matched and validated before claiming.So, to allow you to claim the input tax credit on Purchases of Goods or Services all your suppliers must be GST compliant also.The more you should know about input credit –

  • It is probable to have an unclaimed input tax credit. Due to tax on purchases of goods or services being higher than the tax on the sale of such goods or services provided by you. In such a case, you are allowed to carry forward the ITC or claim a refund of GST.
  • Input tax credit (ITC) cannot be taken on purchase invoices which are more than one year old. The period is calculated from the date of the issue of the tax invoice.
  • Since GST is charged on both goods and services, input tax credit (ITC) can be availed on both goods and services (excluding those which are on the exempted/negative list).
  • Input tax credit (ITC) is allowed on capital goods.
  • Input tax credit (ITC) is not allowed for goods and services for personal use.
  • No ITC shall be permitted after GST return has been filed for September month following the end of the financial year to which such invoice relates or filing of the relevant annual return, whichever is earlier.

Source: Indirect Taxation, ICAI 2019

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