GST · Input Tax Credit ·

Your Checklist for Availing GST Input Tax Credit

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:

  1. You should have the Tax Invoice/Debit or Credit Note issued by a registered person.
  2. The goods/services should have been received.
  3. You should have filed GSTR-3 for the related month
  4. The tax charged has been paid to the government by the supplier, either in cash or through utilization of ITC.

GST | 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. conditions for availing GST Input Tax Credit 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.

conditions for availing GST Input Tax Credit

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:

  1. You are liable to register
    OR
  2. 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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