Input Tax Credit under CGST Act on unsold stocks by TRADERS

As a trader, you must know that the taxes paid on inputs are set off against the output GST liability. Input Tax Credit (ITC) is an essential feature of Goods and Services Tax (GST) regime, which allows the tax credit on inputs incurred in the course of business. However, the utilization of ITC on unsold stocks is a matter of debate. In this article, we will discuss Input Tax Credit under CGST Act on unsold stocks by TRADERS.

What is Input Tax Credit (ITC)?

ITC means reducing the tax paid on inputs from the output tax liability on the finished product. It is a credit mechanism used to avoid cascading effect and taxes paid in the earlier stages of the supply chain. The provisions of ITC are laid down under Section 16 of CGST Act, 2017.

Can Input Tax Credit (ITC) be claimed on unsold stocks?

According to the provisions of GST, a taxpayer can claim ITC on the unsold stock carried forward into the next financial year. The ITC on unsold stock can be claimed in the following financial year if the following conditions are met:

The taxpayer is registered under GST and has filed annual returns under Section 44 of the CGST Act.
Should have furnished the return under Section 39 of the CGST Act for the period in which such credit was claimed.
In possession of a tax invoice or debit note issued by the supplier.
Received the goods or services.
The supplier has paid the tax to the government.
The taxpayer has reported the invoice or debit note in the relevant return.

How to claim Input Tax Credit (ITC) on unsold stocks?

The ITC on unsold stocks can be claimed in the following financial year by filing the GSTR-3B for the relevant period. The ITC should be entered in Table 4 of the GSTR-3B form. The details of the invoice or debit note should be entered in Table 6A of the GSTR-1 form. The details of the ITC availed and utilized should be entered in Table 4 of the GSTR-9 form.

What are the implications of Input Tax Credit (ITC) on unsold stocks?

The ITC on unsold stocks is a significant issue for traders. The unutilized ITC, due to the inability to sell the products, leads to an increase in the cost of goods, which ultimately leads to a decrease in profits. The unutilized ITC on unsold stocks can also result in an increase in working capital requirements. This can cause cash flow problems for businesses.

What is the impact of COVID-19 on Input Tax Credit (ITC) on unsold stocks?

The COVID-19 pandemic has caused significant disruptions to businesses, resulting in the accumulation of unsold stocks. The government has provided relief to businesses by allowing them to carry forward the ITC on unsold stocks for the next financial year. The government has also extended the due date for filing GSTR-9 and GSTR-9C for the financial year 2018-19 to 31 December 2020.

Conclusion

Input Tax Credit on unsold stocks is a vital aspect of GST. Traders can claim ITC on unsold stock carried forward into the next financial year, subject to certain conditions. The COVID-19 pandemic has had a significant impact on businesses, resulting in the accumulation of unsold stocks. The government has provided relief to businesses by allowing them to carry forward the ITC on unsold stocks for the next financial year. Traders should keep in mind the implications of unutilized ITC on unsold stocks and maintain proper documentation to claim the credit.