r a k e s a r d

r a k e s a r d n CA. S. Cha

Input Tax Credit (ITC) The definition of ITC has been made wider and all-encompassing, subject to a few exceptions. The intention of GST is to allow and ensure smooth passage of credit to reduce the burden on the taxpayer at various stages of a transaction.

Current ITC Restrictions • Credit of VAT not allowed to be adjusted against service tax output liability • CST credit not to be adjusted against any output liability • SAD under Section 3(5) of Customs Tariff Act not allowed to service provider. • luxury tax, entertainment tax etc. not allowed to be adjusted against output liability. • SBC credit is not allowed to be adjusted; • Reversal of ITC under rule 6(3) • Artificial restrictions on availment of credit under Cenvat Credit Rules, 2004 and under VAT provisions of the State • Levy of entry tax on procurement of specified goods in few states

Important Definitions Input tax- Sec 2(62) • in relation to registered person, means the • CGST, SGST/UTGST charged on any supply of goods or services or both • IGST + import of goods • tax payable (CGST/SGST/IGST/UTGST) by recipient of supply under RCM or on URD purchases • Does not include tax paid under Composition levy Analysis: Input Tax = [IGST (Interstate Supplies & Imports) + CGST & SGST/UTGST Intrastate Supplies + Taxes paid under Reverse Charge]

Important Definitions Input service Capital goods Input service • means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business; • means any service used or intended to be used by a supplier in the course or furtherance of business; • means goods, the value of which is capitalised in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business;

Analysis ØCapitalization in the books of accounts as Capital Goods ØInput does not include Capital Goods ØDirect nexus with outward supply not essential ØUsed or intention of use in the course or furtherance of business ØInput tax credit on Inputs and Capital Goods is allowed in one installment.

Principles of ITC Ø System for a NEAR seamless flow of credit Ø Extends to inter-State supplies Ø Credit utilization would be as follows: *The numbers represent the order of utilization of credit Ø Expectation: Accumulation of unutilized GST credits should be avoided except in cases of exports

Availment of ITC 1. Every registered person is entitled to take ITC on any supply of goods or services or both subject to restrictions. 2. The supply of goods or services are used or intended to be used in the course or furtherance of the business. 3. In case the supply of goods or services are used partly for business and party for other purpose – restriction 4. Same way, if the goods or services are used for taxable and nontaxable supplies – restricted proportionately

Conditions for Availment of ITC For availing credit following conditions need to be fulfilled. 1. Possession of invoice or debit note or tax paying document. 2. Received the goods or services or both 3. Tax charged is actually paid to the appropriate Govt. 4. Furnished the return under section 39 5. Payment within 180 days from Invoice date 6. Else – ITC added to the output tax liability with interest

Conditions for Availment of ITC 7. In case of CG - No ITC if depreciation is claimed under Income Tax Act on tax component. Eg : Plant & machinery of Rs Add: Tax Total Less: Depreciation (10%) 10, 000 +1000 11000 -1100 Total 9900 In the above example ITC cannot be availed on the tax component i. e. , Rs 1000

Conditions for Availment of ITC Ø If the goods are received in lots or installments, ITC to be availed upon receipt of last lot or installment. Illustration: ‘X’ , a registered person received inputs worth Rs. 50, 000/- from ‘Y’ on installment basis as follows: 1 st installment- 20. 06. 2017 - Rs. 10, 000/2 nd installment- 25. 06. 2017 - Rs. 11, 000/3 rd installment- 27. 06. 2017 - Rs. 16, 000/4 th installment- 07. 2017 - Rs. 13, 000/Input tax credit of Inputs worth Rs. 50, 000/- can be availed on or after 07. 2017 i. e. receipt of last installment subject to time limit for availing ITC.

Time limit for availment of ITC Limitation for claiming ITC shall be earliest of the following: a) Last Date of filing of return for the month of September following the end of Financial Year. b) Date of filing of Annual return for the relevant current Financial Year

Time limit for availment of ITC Ex: for the financial year 2016 -17 availment of credit should be earlier Sept 17 – to be filed by 20 th of Oct, 17; or Annual return for 2016 -17 by 31 st of Dec, 17 (whichever is earlier) Eg: Month of Invoice Time limit (a) Time limit (b) Applicable Time limit time to claim credit 20/03/18 20/10/18 31/12/18 20/10/18 7 months

Restrictions – not available ØMotor vehicles and other conveyances – except • used for transportation of goods, supply of vehicles or conveyances, • • transportation of passengers, • imparting training of driving, flying, navigating such vehicles Ø rent-a-cab, life insurance, health insurance except • where Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force.

Restrictions Ø Works contract in relation to immovable property excluding P&M Ø Construction includes - re-construction, renovation, additions or alterations or repairs, to the extent of capitalization Ø Goods- lost, stolen, destroyed, written off or disposed by way of gift or free samples

Restrictions Ø Goods and services, namely: § food and beverages § outdoor catering § beauty treatment § Health Services § cosmetic and plastic surgery Above are eligible for making outward supply of the same category or as a composite / mixed supply as an element. Ø Membership of a club, health and fitness centre Ø Goods – used for personal consumption Ø Travel benefits to employees– leave or home travel concession

Restrictions Partly for business purpose Use of goods & / Services Partly for other purposes Taxable Supplies Eligible Zero rated supplies Eligible Exempt Supplies Not Eligible

ITC in respect of goods sent to Job work Inputs/ Capital Goods sent for job work Principal Received back or directly supplied from jobworker’s premises within 1 year (inputs) or 3 years (capital goods) of being sent out Job Worker ITC available if the conditions and restrictions under job work are satisfied If not received/directly supplied in time: Deemed supply of Inputs/Capital goods on the day when such inputs/capital goods are sent out.

ITC in respect of goods sent to Job work Inputs/ Capital Goods sent directly for job work without being first brought to his place of business. Principal Received back or directly supplied from jobworker’s premises within 1 year (inputs) or 3 years (capital goods) of being sent out Job Worker Period of 1 year/3 Years shall be counted from the day on which job worker receives the goods ITC available if the conditions and restrictions under job work are satisfied If not received/directly supplied in time: Deemed supply of Inputs/Capital goods on the day when such inputs/capital goods are received by job worker.

ITC in respect of goods sent to Job work Illustrations: Eg: “A” a manufacturer located in Delhi sent inputs on 20. 07. 2017 to Z located in Kolkata who is a job worker registered under GST and Inputs received back on 01. 07. 2018 No supply 01. 08. 2018 Inter state supply Eg: “X” a manufacturer located in Bangalore sent Capital goods directly on 20. 07. 2017 which are received by Z located in Bangalore who is a job worker registered under GST on 05. 08. 2017 and Inputs received back on 01. 08. 2019 No supply 05. 09. 2020 Intra state supply

ITC in special circumstances Availability of credit in case of mandatory registration and voluntary registration: Mandatory registration Registration on crossing of exemption limit Voluntary registration without crossing of exemption limit Conditions: No conditions prescribed a) Applied for registration within 30 days from the date on which he is required to obtain registration b) Registration has been granted Eligible to take to ITC on inputs held in stock or inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date on which he becomes liable to pay tax No ITC can be availed after the expiry of 1 year from the invoice date. Eligible to take to ITC on goods held in stock or inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of grant of registration.

ITC in special circumstances ITC in case of switch over from Composition to Regular Scheme and vice -versa. Composition to Regular Scheme § Avail ITC on: Ø Inputs held in stock Ø Inputs contained in WIP Ø Inputs contained in FG Ø Capital Goods Held in stock on the day immediately preceding the date from which he becomes liable to pay tax under Regular Scheme. § § ITC on Capital goods shall be reduced by such percentage points as may be prescribed- 5% per quarter No ITC can be availed after the expiry of 1 year from the invoice date. Regular to Composition Scheme § Pay an amount equivalent to ITC in respect of – Ø Inputs held in stock Ø Inputs contained in WIP Ø Inputs contained in FG Ø Capital Goods reduced by such percentage points as may be prescribed Held in stock on the day immediately preceding the date of such switch over. § Payment can be made by way of debit to electronic credit or cash ledger § Balance input tax credit lying after payment of such amount in electronic credit ledger shall lapse

ITC in special circumstances ITC in case of exempt supply of goods and/ services becoming taxable and vice -versa Exempt supply of goods and/ services becoming taxable Taxable supply of goods and/ services becoming exempt Avail ITC on: a) Inputs held in stock b) Inputs contained in WIP c) Inputs contained in FG d) Capital Goods exclusively used for such exempt supply hitherto Held in stock on the day immediately preceding the date from which such exempt supply becomes taxable • ITC on Capital goods shall be reduced by such percentage points as may be prescribed-5% per quarter • No ITC can be availed after the expiry of 1 year from the invoice date. Pay an amount equivalent to ITC in respect of – a) Inputs held in stock b) Inputs contained in WIP c) Inputs contained in FG d) Capital Goods reduced by such percentage points as may be prescribed Held in stock on the day immediately preceding the date of such exemption. Payment can be made by way of debit to electronic credit or cash ledger Balance input tax credit lying after payment of such amount in electronic credit ledger shall lapse

ITC in special circumstances Dealers moving from Composition to Normal scheme/ Exempt supplies to taxable- claim ITC Ø File GST ITC-01 within 30 days from change over with details of a) Stock of Inputs b) Inputs contained in semi finished goods c) Input contained in Finished goods d) Capital Goods Ø Certificate of CA/CMA- if credit amount > 2, 000 Ø Tax credit will be allowed only after verification of corresponding sale by the supplier.

ITC in special circumstances Ø In case of change in the constitution of registered taxable person on account of sale, merger, de-merger, amalgamation, lease or transfer of the business with a specific provision for transfer of liabilities, ITC remaining unutilized in the books of the transferor shall be permitted to be transferred to transferee. [Transferor – file FORM GSTR ITC 02+request for transfer of unutilized credit+certificate by CA/CMA. Unutilized shall be credited to electronic credit ledger of transferee ]

ITC in special circumstances Ø No credit shall be availed in respect of supply of G/S after 1 year from the date of issue of tax invoice. Ø In case of supply of capital goods or P & M on which ITC is availed, pay an amount equivalent to higher of– § ITC availed, reduced by such percentage points as may be specified or § Tax on transaction value. Ø In case of supply of refractory bricks, moulds & dies, jigs & fixtures are supplied as scrap, pay tax on transaction value.

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