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Published on:
February 20, 2023
By
Paramita

Conditions for Claiming Input Tax Credit under GST

Goods and Services Tax (GST) was introduced in India in July 2017 to simplify the tax structure and promote ease of doing business. One of the major benefits of GST is the input tax credit (ITC) mechanism. As the name suggests, ITC allows businesses to claim credit on the taxes paid on inputs or raw materials used in the production of goods or services. This helps to reduce the tax burden on businesses and promote the growth of the economy.

However, claiming ITC under GST is subject to certain conditions, which businesses need to fulfill to avail this benefit. In this article, we will discuss in detail the conditions for claiming input tax credit under GST.

Conditions for claiming input tax credit under GST

1. Possession of Tax Invoice

The first and foremost condition for claiming ITC is the possession of a valid tax invoice. A tax invoice is a document issued by the supplier of goods or services to the recipient, indicating the details of the transaction, such as the amount of tax charged, the date of supply, and the GST registration number of the supplier. A valid tax invoice must contain all the mandatory details as specified under GST laws. Businesses need to ensure that they have a valid tax invoice before claiming ITC.

2. Receipt of Goods or Services

The second condition for claiming ITC is the receipt of goods or services. Businesses can claim ITC only on the taxes paid on the inputs or raw materials that they have received. If the goods or services are not received, ITC cannot be claimed. Therefore, businesses need to ensure that they have received the goods or services before claiming ITC.

3. Payment of Tax by the Supplier

The third condition for claiming ITC is the payment of tax by the supplier. The supplier of goods or services must have paid the taxes due on the supply of goods or services. If the supplier has not paid the taxes, ITC cannot be claimed by the recipient. Therefore, businesses need to ensure that the supplier has paid the taxes before claiming ITC.

4. Timely Filing of Returns

The fourth condition for claiming ITC is the timely filing of returns by the recipient. Businesses need to file their GST returns within the due date to claim ITC. If the returns are not filed within the due date, ITC cannot be claimed. Therefore, businesses need to ensure that they file their returns on time.

5. Eligible Inputs or Inputs Services

The fifth condition for claiming ITC is that the inputs or input services must be eligible for ITC. Not all inputs or input services are eligible for ITC. The inputs or input services must be used in the course or furtherance of business and should not be used for personal use. Also, certain goods or services are excluded from ITC, such as motor vehicles and goods or services used for the construction of immovable property. Therefore, businesses need to ensure that the inputs or input services they are claiming ITC on are eligible for the same.

6. Computation of ITC

The sixth condition for claiming ITC is the correct computation of ITC. Businesses need to compute the ITC accurately and claim only the eligible amount of ITC. The ITC amount claimed should match the amount mentioned in the tax invoice. Also, businesses cannot claim ITC on the taxes paid on exempted goods or services or on goods or services used for personal use. Therefore, businesses need to ensure that they compute the ITC accurately and claim only the eligible amount of ITC.

7. Reversal of ITC

The seventh condition for claiming ITC is the reversal of ITC in certain cases. There are certain situations where businesses need to reverse the ITC claimed earlier. For example, if the recipient fails to pay the supplier within 180 days from the date of issue of the tax invoice, the ITC claimed earlier needs to be reversed. Also, if the inputs or input services are used for a purpose other than the intended purpose, the ITC claimed earlier needs to be reversed. Therefore, businesses need to ensure that they reverse the ITC in such cases.

Conclusion

ITC is a major benefit of GST, which helps to reduce the tax burden on businesses and promote the growth of the economy. However, claiming ITC under GST is subject to certain conditions, which businesses need to fulfill to avail this benefit. Businesses need to ensure that they possess a valid tax invoice, have received the goods or services, the supplier has paid the taxes, file their returns on time, the inputs or input services are eligible for ITC, compute the ITC accurately, and reverse the ITC in certain cases. By fulfilling these conditions, businesses can claim ITC under GST and reduce their tax burden.

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Updated on:
March 16, 2024