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INPUT TAX CREDIT (ITC) under GST

Input Tax- meaning: 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
a. tax paid on reverse charge basis and
b. integrated tax goods and services tax charged on import of goods.
It excludes tax paid under composition scheme.

INPUT TAX CREDIT: Input Tax Credit (ITC) refers to the tax paid on input (purchases) for the
business which can be claimed as deduction at the time of paying tax on output (sale). Input
tax credit is the tax paid by the registered person whether in forward charge or reverse
recharge for the use of such goods or services or both in the course of business or
furtherance of the business.

Calculation of Input Tax Credit

Input Tax Credit = Total Taxable Value of Inputs x GST Rate

Example: If you bought raw materials for your business production worth Rs.2,00,000 @
18%then

input tax credit = Rs.2,00,000 x 18%= Rs 36,000

Tax Liability/Tax Payable

Tax Payable/Tax Due =Output Tax Liability - Input Tax Credit

SET-OFF OF INPUT TAX CREDIT: ITC is credited to a registered person’s electronic credit
ledger. The person may use this to pay his output tax liability. The use of ITC for payment of
tax on inter-state supplies is the point in which GST differ sharply from the previous system
of the central and state taxation. in GST, inter state supplies are levied to IGST, which is the
sum of applicable CGST and SGST/UTGST.
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Accordingly, the input tax credit of these components of GST would be allowed in the
following manner:-
1. ITC of CGST – Allowed 1st for payment of CGST and the balance can be utilised for
the payment of IGST. Credit of CGST is not allowed for payment of SGST.
2. ITC of SGST/ UTGST – Allowed 1st for payment of SGST/UTGST and the balance can
be utilised for the payment of IGST. Credit of SGST/ UTGST is not allowed for
payment of CGST.
3. ITC of IGST – Allowed 1st for payment of IGST, then for payment of CGST and the
balance for payment of SGST/ UTGST.
This has been explained in the following table:-

Maybe utilised further for the

Credit of To be utilised 1st for the payment of
Payment of
CGST CGST IGST

SGST/UTGST SGST/ UTGST IGST

IGST IGST CGST, then SGST/ UTGST

Hence, cross utilization of credit is available only between CGST & IGST and SGST & IGST. The
main restriction is that the CGST credit cannot be utilized for payment of SGST and SGST
credit cannot be utilized for the payment of CGST

DOCUMENTS REQUIRED TO CLAIM ITC

1. Invoice issued by supplier of goods or services or both.
2. Invoice issued by Recipient along with proof of payment of Tax.
3. A Debit note issued by the supplier to recipient
4. Bill of entry or similar document prescribed under the Customs Act.
5. Revised Invoice.
6. Document issued by the Input Service Distributer (ISD)

ELIGIBILTY AND CONDITIONS FOR TAKING ITC [Section 16. CGST ACT]
1. Only a Registered Person would be able to claim the benefit of Input Tax Credit of
GST on all inputs used or intended to be used (whether goods or services) in the
course of or for the furtherance of business. (except in certain specified cases)
2. No registered person shall be entitled to the credit of any input tax in respect of any
supply of goods and services or both to him unless
a. Valid Tax Invoice: He is in possession of Tax Invoice or any other specified tax
paid document. The registered individual must have a valid tax invoice or
other official tax-paying document to be eligible for the credit. (i.e possession
of tax paying documents)
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b. Received the Products: The credit can only be used once the registered
individual has received the goods or services. “Bill to ship” scenarios also
included.
c. Paid Tax: For an individual to be eligible for the credit, the supplier must have
paid the tax amount. Tax charged in respect of such supply has been actually
paid by the supplier to the govt.
d. If the inputs (goods & services) are received in lots or instalments, he would
be eligible to avail the ITC only when the last lot or instalment is received.
3. Credit Ledger : The amount of ITC shall be credited to the Electronic Credit Ledger of
the person entitled.
4. Paid the Vendor Within 180 days: The buyer/Recipient must pay towards the supply
of goods and/or services (total cost of the products or services taken on credit plus
applicable taxes) to suppliers within 180 days from the date of issue of invoice. If
they fail to, then the ITC already claimed will need to be paid to the government,
along with interest. The ITC claim can be again made once the payment is made to
the supplier.
5. No ITC will be allowed if depreciation has been claimed on the tax component of the
cost of a capital goods, plants & machinery purchased.
6. ITC on a tax invoice or debit note belonging to a financial year must be claimed
within the time limit given by the GST provisions.
7. Filed and Submitted the Return: To be eligible for ITC, the registered person must file
and submit the required return.
ITC allowed only for Goods and/or Services used for Business
1. Input Tax Credit is not allowed for Goods and Services used for Personal Use.
2. When Goods and/or Services are received partly for Business and partly for personal
use, one can avail ITC but only for the portion which is used for Business.
3. When goods and/or services are used partly for taxable supplies and partly for
exempt supplies, one can avail ITC only on the portion used for making taxable
supplies and zero-rated supplies.
4. ITC is not allowed on the portion used for making exempt supplies.
Time limit to claim an input tax credit under GST:
The time limit to claim ITC against an invoice or debit note is earlier of two dates, given
below:
1. 30th November of the next financial year.
2. The date of filing the annual returns in form GSTR-9 relating to that financial year

ITC ON THE REVERSE CHARGE

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Tax paid on reverse charge basis will be available for input tax credit if such goods and/ or
services are used, or will be used for business. The service recipient (i.e who pays reverse
charge tax) can avail input tax credit.
The recipient must mention in his tax invoice whether the tax is payable on reverse charge.
SUPPLY IN THE COURSE OF IMPORT.
The import of goods or services would be deemed to as Inter-State Supply of goods and
services and be subjected to the levy of IGST. The import of goods attract Basic custom
duty(BCD) and also IGST. GST Compensation Cess will be levied and collected at a rate
notified. This will apply on all supplies of goods and services. The purpose is to compensate
states for loss of revenue on the implementation of GST.
SUPPLY IN COURSE OF EXPORT:
The export of goods or services is considered as a zero-rated supply. GST will not be levied
on export of any kind of goods or services but can avail CGST/SGST/IGST Credits. If They are
unable to utilize the credit, then they can go for refund of CGST/SGST/IGST paid on
procurement of such goods and /or services.
OUTPUT TAX CREDIT
 Output tax liability has been defined under section 2(82) of the CGST Act.
 It refers to the money that a business owes to the government for the sale of taxable
goods and services. This amount is supposed to be collected by the government at
the time of sale.
 Output tax credit or output tax set-off is a system in which businesses can set off the
GST collected (output tax) against the GST paid (input tax). In other words, it allows
businesses to adjust or deduct the GST already paid on purchases from the GST they
owe to the government on sales.
 For example, if you are a registered business involved in selling laptops worth
Rs.50,000 each and the rate of GST on laptops is 18%. Then the amount of output tax
will be - Rs.50,000 x 18% = Rs.9,000 each.

Benefits of Output Tax Credit

 Prevents Double Taxation - Output tax credit prevents the cascading effect of taxes
in which tax is calculated on the already paid tax amount. This system makes sure
that tax is levied only on the value added at each stage and not levied twice on the
same value of the product.

 Reduces Tax Liability - It also helps businesses claim an input tax credit and adjust it
with the output tax credit to reduce the overall tax liability. This is extremely
beneficial for businesses having significant amounts of input tax credits.
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 Helps Maintain Compliance - Output tax credit motivates businesses to maintain

proper books of accounts and ensure compliance with the provisions of GST. This is
required because businesses need to match their sales and purchases to claim credit.
 More Cost Efficient - It is a cost-efficient method as the GST paid on inputs can be
passed on to the consumers in the form of reduced prices.
 Provides Competitive Advantage - Businesses that utilize the output tax credit
facility can provide lower prices to their customers and gain a competitive advantage
over others.

Calculation of Output Tax Liability

Output Tax Liability = Total Taxable Value of Goods Supply x GST Rate

Difference Between Output Tax Credit and Input Tax Credit

Particulars Input Tax Credit Output Tax Liability

Nature Tax Credit received on purchases Tax owed to the government on sales

Applicability Is applicable to Purchase and Is applicable to Sales and Supplies

Imported products

Basis of Credits earned against the GST GST on output owed to the government
calculation paid on inputs

Adjustment Reduces Output Tax Offset by Input Tax