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Published on:
March 21, 2023
By
Prudhvi Raj

Availment of ITC and Utilisation thereof under GST Law

GST as a Tax – Regressive, Progressive or Hybrid?Input Tax Credit (ITC) is a mechanism under the Goods and Services Tax (GST) system that allows a registered taxpayer to claim a credit for the tax paid on inputs used for the furtherance of their business.

The Goods and Services Tax (GST) system is a comprehensive indirect tax system that has replaced many of the indirect taxes in India. Under the GST system, businesses can avail Input Tax Credit (ITC) on the taxes paid on their inward supplies, i.e., the goods and services they purchase for their business. The ITC can then be utilized to pay the tax liability on their outward supplies, i.e., the goods and services they sell. This system helps to avoid the cascading effect of taxes, i.e., taxes being levied on taxes, and thus reduces the overall tax burden on businesses. However, there are certain conditions and restrictions that need to be followed while availing and utilizing ITC under GST. In this context, it is important for businesses to understand the various aspects of the availment and utilization of ITC under GST law.

Restriction on the utilization of Input Tax Credit (ITC) under GST

There are restrictions on the utilization of Input Tax Credit (ITC) under GST. The following are some of the restrictions:

1. ITC cannot be utilized for the payment of tax liability on exempt supplies. Exempt supplies include goods and services that are not liable to GST or are specifically exempted from GST.

2. ITC cannot be utilized for the payment of tax liability under the composition scheme. The composition scheme is a simplified scheme for small taxpayers who have a turnover up to a certain limit.

3. ITC can be utilized only after the tax liability on outward supplies has been discharged. In other words, ITC cannot be used to pay the tax liability before the due date of filing the return.

4. ITC on goods or services used for personal consumption or for non-business purposes cannot be claimed or utilized.

5. ITC can be claimed only for goods or services that are used or intended to be used in the course or furtherance of business. ITC cannot be claimed for goods or services that are used for personal consumption or for non-business purposes.

6. ITC cannot be claimed or utilized for goods or services used for construction of immovable property, except for certain specified cases.

It is important for taxpayers to be aware of these restrictions while availing and utilizing ITC to avoid any penalties or legal complications.

Utilization of Input Tax Credit (ITC) under GST

Input Tax Credit (ITC) can be utilized under GST to pay the tax liability on outward supplies of goods and services. The following are the various ways in which ITC can be utilized:

1. ITC can be utilized to pay the tax liability on the supply of goods or services.

2. ITC can be utilized to pay the tax liability on the supply of both goods and services.

3. ITC can be utilized to pay the tax liability on the supply of inter-state goods or services.

4. ITC can be utilized to pay the tax liability on the supply of goods or services to a SEZ developer or SEZ unit.

5. ITC can be utilized to pay the tax liability on the supply of goods or services by a composition taxpayer to a regular taxpayer.

6. ITC can be utilized to pay the tax liability on the reverse charge mechanism. The reverse charge mechanism is a mechanism under which the recipient of the goods or services is liable to pay the tax instead of the supplier.

It is important for taxpayers to utilize ITC carefully and ensure that they are complying with the rules and regulations under GST. Any misuse of ITC can lead to penalties and legal complications.

Conditions for availing of Input Tax Credit (ITC) under GST

The following are the conditions for availing Input Tax Credit (ITC) under GST:

1. The recipient should possess a tax invoice or debit note or any other prescribed document evidencing the payment of tax by the supplier.

2. The recipient should receive the goods or services.

3. The tax charged on the invoice should have been actually paid to the government by the supplier.

4. The recipient should have filed the GST return for the period in which the ITC is being claimed.

5. The recipient should be a registered person under GST.

6. The goods or services for which ITC is claimed should have been used or intended to be used in the course or furtherance of business.

7. The recipient should not have utilized ITC for the payment of tax liability on exempt supplies, for the payment of tax liability under the composition scheme, for the payment of tax liability before the due date of filing the return, for goods or services used for personal consumption or non-business purposes, or for goods or services used for construction of immovable property (except for certain specified cases).

It is important for taxpayers to adhere to these conditions while availing ITC to avoid any penalties or legal complications. It is also important to maintain proper documentation and records to support the claim of ITC.

FAQs

Here are some FAQs related to the availment of ITC and utilization thereof under GST law:

Q: What is Input Tax Credit (ITC) under GST?

A: Input Tax Credit (ITC) is a credit mechanism available to a registered taxpayer for the tax paid on inputs used for the furtherance of their business. It can be claimed against the output tax liability of the taxpayer.

Q: What are the conditions for availing Input Tax Credit (ITC) under GST?

A: To avail ITC under GST, the following conditions must be satisfied:

1. The taxpayer should be a registered person under GST.

2. The goods or services for which ITC is claimed must have been used or intended to be used for the furtherance of business.

3. The tax invoice or debit note must be in possession of the taxpayer.

4. The supplier of goods or services must have deposited the tax with the government.

5. The taxpayer must have furnished their GST returns.

Q: What is the time limit for availing Input Tax Credit (ITC) under GST?

A: The time limit for availing ITC under GST is the earlier of the following:

1. The due date of filing of the GST return for the month of September of the following financial year or

2. The date of filing of the annual return for the relevant financial year.

Q: Can Input Tax Credit (ITC) be claimed on all goods and services?

A: No, ITC cannot be claimed on all goods and services. ITC is not available for certain goods and services, such as motor vehicles, food and beverages, and outdoor catering.

Q: How can Input Tax Credit (ITC) be utilized under GST?

A: ITC can be utilized by a registered taxpayer against their output tax liability. It can be used to pay the tax liability on outward supplies of goods and services.

Q: Is there any restriction on the utilization of Input Tax Credit (ITC) under GST?

A: Yes, there are restrictions on the utilization of ITC under GST. For example, ITC cannot be utilized for the payment of tax liability on exempt supplies or for the payment of tax liability under the composition scheme. Additionally, ITC can be utilized only after the tax liability on outward supplies has been discharged.

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Updated on:
March 16, 2024