Input Tax Credit (ITC) is a boon for businesses as it helps them in reducing their tax burden. But, ITC is not a freebie. To claim ITC, businesses have to fulfil certain eligibility criteria and comply with specific conditions. In this article, we will discuss the eligibility and conditions for claiming ITC under GST.
Before we dive into the eligibility and conditions for claiming ITC, let's understand what ITC is all about. Under GST, the tax paid on purchases is allowed as a credit against the output tax liability. In simple words, a business can claim the tax paid on its purchases as a credit against the tax liability on its sales. This mechanism is known as Input Tax Credit (ITC).
For example, let's say a business buys raw materials worth Rs. 1,00,000, and the GST rate on the same is 18%. The business will pay Rs. 18,000 as GST on the purchase. Now, when the business sells the finished goods, it charges GST from the customer. Let's say the sale value is Rs. 1,50,000, and the GST rate on the same is 18%. The GST liability on the sale will be Rs. 27,000. In this case, the business can claim ITC of Rs. 18,000 against the output tax liability of Rs. 27,000. The net tax liability will be Rs. 9,000 (Rs. 27,000 - Rs. 18,000).
To claim ITC under GST, a business has to fulfil the following eligibility criteria:
1. The business must be registered under GST.
2. The goods or services on which ITC is being claimed must have been used or intended to be used for the furtherance of business.
3. The tax invoice or debit note or any other prescribed document must have been received by the recipient.
4. The supplier must have filed the GST return, and the tax charged by the supplier must have been paid to the government.
5. The recipient must have filed its GST return.
Failure to meet any of the above criteria can lead to rejection of the ITC claim.
Even if a business fulfils the eligibility criteria, it still has to comply with certain conditions to claim ITC under GST. Let's take a look at these conditions:
A business can claim ITC only if it has furnished all the GST returns required under the law. Any delay in filing GST returns can lead to the rejection of the ITC claim.
Under GST, proper invoicing is crucial for claiming ITC. The following are the invoicing requirements for claiming ITC:
a. The tax invoice issued by the supplier must contain all the details required under the law, such as the name, address, and GSTIN of the supplier and the recipient, the description, quantity, and value of goods or services, the rate and amount of GST charged, etc.
b. The recipient must verify the details of the supplier and the goods or services received before claiming the ITC.
c. The recipient must possess a valid tax invoice or debit note or any other prescribed document to claim ITC.
Matching of invoices is a critical condition for claiming ITC under GST. The recipient must ensure that the details of the invoices match with the details furnished by the supplier in his GST returns. In case of any mismatch, the ITC claim can be rejected.
A business has to reverse the ITC claimed earlier in case of the following scenarios:
a. If the goods or services are used for non-business purposes.
b. If the recipient fails to make payment to the supplier within 180 days from the date of issue of invoice.
c. If the supplier fails to pay the tax collected to the government.
d. If the supplier has issued a tax invoice incorrectly or fraudulently.
Input Tax Credit is an essential aspect of GST, and businesses can reduce their tax burden by claiming ITC. However, the eligibility and conditions for claiming ITC are stringent, and businesses have to comply with them to avoid rejection of ITC claims. We hope this article has helped you understand the eligibility and conditions for claiming ITC under GST.
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