Availment of ITC and Utilisation thereof under GST Law

GST or Goods and Services Tax is a comprehensive indirect tax imposed on the manufacture, sale, and consumption of goods and services in India. One of the key features of the GST system is the Input Tax Credit (ITC). This article aims to provide an in-depth understanding of the Availment of ITC and Utilisation thereof under GST Law.

What is Input Tax Credit (ITC)?

Input Tax Credit (ITC) is a mechanism whereby a taxpayer can claim a credit for the taxes paid on inputs such as raw materials, services, or capital goods used in the production of goods or services. The tax paid on such inputs is known as Input Tax. The ITC can be used to set off the output tax liability of the taxpayer. This helps to avoid the cascading effect of taxes, which is the tax on tax effect.

Conditions for Availing Input Tax Credit

Before availing of ITC, certain conditions must be met by the taxpayer, which are as follows:

The taxpayer must be registered under GST.
The taxpayer must have a valid tax invoice or debit note or any other tax-paying document.
The goods or services must have been received.
The tax charged on the invoice must have been paid to the government by the supplier.
The taxpayer must have furnished the prescribed GST returns.

Availment of Input Tax Credit

The ITC can be availed by the taxpayer in the following manner:

ITC can be claimed only in the tax period in which the invoice or debit note is received.
ITC must be claimed in the GST return filed for that month. If the ITC is not claimed in the same month, it can be claimed in the return for the subsequent month but not later than the return for September of the next financial year or the date of filing of annual return, whichever is earlier.
The ITC can be claimed only up to the extent of the tax paid on the invoice or debit note.
If the supplier of goods or services has not paid the tax to the government, the ITC cannot be claimed by the taxpayer.

Utilisation of Input Tax Credit

The ITC can be utilised by the taxpayer to set off its output tax liability. The output tax liability is the tax payable on the supply of goods or services by the taxpayer. The ITC can be utilised in the following manner:

The ITC can be utilised only for the payment of output tax liability. It cannot be used for payment of penalty or interest or any other dues.
The ITC can be utilised only after exhausting the available cash balance in the electronic cash ledger. The electronic cash ledger is the account of the taxpayer maintained on the GST portal for payment of taxes.
The ITC can be utilised in the following order: IGST, CGST, and SGST or UTGST. The ITC of IGST can be first used to set off the IGST liability and then the remaining can be used for the CGST or SGST or UTGST liability.
The ITC of one tax period cannot be utilised for the payment of the tax liability of another tax period.
The ITC cannot be utilised if the taxpayer has not furnished the prescribed GST returns.

Conclusion

Input Tax Credit is an essential feature of the GST system that helps to avoid the cascading effect of taxes. The ITC can be availed only if certain conditions are met, and it can be utilised only for the payment of output tax liability. The taxpayer must be cautious while availing and utilising the ITC to avoid any compliance-related issues.