April 12, 2023

Input Tax Credit Validity and FAQs 

A registered taxpayer's Input Tax Credit claim will be rejected if they have received it for the provision of goods and/or services but haven't paid the amount and the tax due within 180 days of the invoice's issuance. The Input Tax Credit validity the buyer has is 180 days from the invoice issue date to pay for the supply of goods and/or services.

In Budget 2023, Section 16 mandates that customers who fail to pay their suppliers the invoice value, including the GST amount, must pay interest, an amount equal to the ITC claimed. Once the supplier has been paid, the ITC claim can be submitted again. The Input Tax Credit that was already claimed and any interest due under Section 50 must be paid to the government. The re-availing of ITC is not subject to any time limit.

This ITC reversal must be included in the GSTR-3B return that is submitted after 180 days have passed since the invoice's issuing date. However, supplies for which GST is due on a reverse charge basis are not covered by this clause.

Only some supplies are eligible for ITC claims by GST taxpayers. ITC can only be claimed on goods and services that are provided for business purposes and not for personal use, to be more explicit. These claims are also subject to a number of restrictions, such as a deadline of 180 days from the invoice's issue.

Input Tax Credit Validity

Frequently asked questions

What is Input Tax Credit? 

Input Tax Credit (ITC) is a mechanism that allows registered taxpayers to claim a credit for the taxes paid on goods or services used for business purposes. In simpler terms, when a business purchases goods or services that are subject to GST (Goods and Services Tax) or other indirect taxes, they can claim a credit for the taxes paid on those purchases when they file their tax returns. This credit can then be used to offset the tax liability on their sales or output. 

Can GST paid on a reverse charge basis be considered input tax?

Yes. The definition of input tax includes the tax payable under the reverse charge.

What are the conditions necessary for availing Input Tax Credit?

1. Taxpayer must have a tax invoice, debit note, or other tax-paying documentation in his hands (such as a bill of entry or another document allowed by the Customs Act, an ISD invoice allowed by Rule 36(1) of the CGST Regulations).

2. They received the products, services, or both;

3. The supplier has really paid the government the tax owed on the supply.

4. They submitted the return in accordance with section 39.

What would happen to the ITC if he has not paid the amount with tax within 180 days from issue of invoice?

The ITC amount would be added to the person's output tax liability. In addition, he would have to pay interest. He may, however, claim ITC once again after paying consideration and taxes.

Is there any time limit for re-claiming the credit

No. The time limit specified in section 16(4) shall not apply to a claim for re-availing of any credit. 

When goods are sent to someone who is not a taxable person ('bill to'-'ship to' scenarios), who will receive the ITC?

Yes, when the items are given to a third party at the request of the taxpayer, it is assumed that the registered person has received the goods. Hence, the person on whose order the products are supplied to a third party will have access to ITC.

Is it permitted under GST to claim a tax credit for each input used to supply taxable goods, services, or both?

Yes, except for a small list of items provided in the law (under Section 17(5) of the CGST Act, 2017), credit is admissible on all items. 

Can a person take ITC for destroyed or lost goods?

No, a person cannot claim ITC for items that were stolen, lost, destroyed, or written off. Moreover, ITC with regard to products given as presents or free samples is not permitted.

Can a registered person claim ITC for goods or services used for the construction of a building for business purposes?

No, ITC on products or services provided by an individual for the building of real estate other than machinery and plant is not permitted. Plant and machinery only refer to items that are supported by a foundation or other kind of structural support and excludes things like land and buildings.

A taxpayer under composition scheme crosses the threshold and becomes a regular taxable person. Can he avail ITC?

Yes, On the day before the date on which he is no longer eligible for the composition scheme, he may claim ITC for inputs held in stock, inputs contained in semi-finished or finished goods held in stock, and on capital goods (reduced by stipulated percentage points). The CGST Regulations specify how eligible credit is calculated. Other requirements include that the invoices for such inside supply should not be older than a year.


Rule 39: CGST SGST Rules

Books of Accounts & Records Under GST

Recent Updates In GST till 05th October 2022