January 30, 2023

Input Tax Credit (ITC): The Backbone of GST

When we purchase goods and services, we pay taxes on them. Envision yourself to be a financial specialist. You pay tax on the merchandise you bought. At the point when you exchange them, you will likewise charge tax for storing them to the public authority. What's more, this cycle continues endlessly. What might happen to the cost of the goods? It will soar because of the excessive tax assessment. However, that isn't the case today. Because of the idea of  Input Tax Credit (ITC).

What is Input Tax Credit?

As the name recommends,  Input Tax Credit (ITC) is the tax credit you can benefit from while paying GST. It implies that the GST paid while buying the sources can be changed while depositing GST. Let’s understand it with an example.

Assume you have paid GST of Rs 100 while purchasing unrefined substances of Rs 800. Then, you produce the end result and sell it for Rs 1000. Expecting the rate to be 18%, you need to deposit GST of Rs 180. Be that as it may, here's a trick. You need to deposit just Rs 80 (180-100), as you have previously paid GST while buying unrefined components.

Why Input Tax Credit Introduced?

You might ask why the public authority presented the idea of an Input Tax Credit when it might have procured additional income without it.

It is basic. The public authority did as such to guarantee public government assistance. How? Without ITC, you would charge a greater cost, as the input cost incorporates GST paid on inputs. Because of ITC, you can get a credit of Rs 100. Thus, you will not think about it as your expense of production.

Now, you can sell your items at lower costs. It makes the item reasonable to additional individuals. Accordingly, it prompts public government assistance. Perceive how liberal the public authority is. It forfeited its duty income for individuals.

Conditions for claiming Input Tax Credit

As you can see over, an Input Tax Credit diminishes the expense income of the public authority. Thus, the public authority won't set you free without any problem. It has put a few circumstances that you should satisfy to claim ITC:

1. Just an individual enlisted under GST can claim the Input Tax Credit. All things considered, unregistered entrepreneurs don't collect GST in any case. Benefiting ITC is a far-off dream for them.

2. You can claim ITC just for deals. Assuming you have purchased products for individual purposes, you are something like a conventional client.

3. The money manager ought to have confirmation of the buying exchange. For this situation, you ought to have a duty receipt for the acquisition of sources of info. How might you anticipate that the public authority should trust you in the event that you don't for even a moment have an expense receipt?

4. You ought to have gotten the merchandise: Simply having an expense receipt will not tackle your concern. You ought to likewise get the products. Imagine a scenario in which you guaranteed ITC and returned the products a while later. It will make a major wreck.

5. Both the gatherings ought to record the return: Both the purchaser and the vendor need to document GSTR-3B and GSTR-1. Without you recording these profits, the public authority wouldn't be able to follow the development of products.

Here is a fun fact. You can claim input tax credit provided that the merchant has kept the duty. It implies that you need to compel the vendor to record the return and pay the charge on time to benefit ITC.

Our government is a bit savage. It made pressure between the parties and enjoyed the view from the top.  

Reversal of Input Tax Credit

Most likely, the circumstances to claim ITC is awkward. Yet, it doesn't imply that your life will be a walk in the park after you have claimed ITC. It can likewise get turned around, i.e., you need to pay the ITC recently profited.

It occurs in any of the accompanying cases:

1. Involving products for individual purposes: Did you want to profit ITC on the merchandise by showing them for business utilization? Indeed, it isn't. Assuming you have done as such, you need to pay the ITC you profited from beforehand. You may likewise need to suffer the recommended consequence for misleading CBIC.

2. Making exempt supplies: In GST, the offer of fundamental products is excluded from GST. It is to try not to expand the cost of necessities.

3. Yet, there is one imperfection here. The provider can't guarantee ITC. In this way, he will incorporate the expense paid in the expense also. Also, charge the cost likewise. It nullifies the whole point of making the deal absolved from the charge.

4. Non-payment of invoices within in 180 days or less: You could benefit from ITC solely after the merchant has saved the assessment. In any case, it doesn't imply that you can postpone his payment until the end of time. He has the privilege to get convenient installments too. And, surprisingly, the public authority remembers it.

5. For that reason, this standard got executed. Either pay the provider in 180 days or less. Else, you will be ineligible for ITC.

6. Transactions of Blocked Credit: There are a few exchanges where ITC is impeded. It implies that you can't benefit from ITC assuming you play out any of these administrations. In the event that you have profited from ITC beforehand, you need to turn around it.


Because of the significance of the Input Tax Credit, you can call it the backbone of GST. Thus, it is fundamental to have every one of the essential archives, particularly the GST-compliant invoices. There are a few circumstances where you can't claim ITC. Indeed, even the ITC recently asserted by you might get switched in remarkable conditions.

Eventually, remember every one of them. Else, all of your GST paid will go down the channel.


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