The Goods and Service Tax (GST) is a comprehensive indirect tax on the supply of goods and services throughout India. It has replaced all other indirect taxes and has been in place since July 1, 2017. The GST is levied on the value addition of goods and services at each stage of the supply chain. One of the major features of GST is the input tax credit (ITC) system, which allows businesses to claim credit for the taxes paid on the inputs used in the production of goods and services.
Input Tax Credit (ITC) is the tax paid by a taxpayer on goods or services which are used or will be used for business purposes. Under GST, the ITC is available only on those goods and services that are used or intended to be used in the course of business. The ITC can be claimed by the registered taxpayers while filing their GST returns. The ITC claimed by the taxpayer is offset against the output tax liability, thereby reducing the amount of tax to be paid.
Under GST, certain goods and services are not eligible for ITC, and some ITC claims can be blocked by the government. The list of ineligible goods and services and the reasons for blocking ITC is provided by the government from time to time. Some common examples of ineligible ITC are:
There are situations where the taxpayer has claimed ITC but later, the government finds that the ITC was either ineligible or blocked. In such cases, the taxpayer is required to reverse the ITC claimed earlier. The reversal of ITC needs to be done in the Form GSTR-3B, which is the monthly return filed by the GST registered taxpayers. The Form GSTR-3B contains details of the inward and outward supplies, the ITC claimed, and the tax liability for the month.
The reversal of ITC can be done in the following two situations:
When the ITC claimed by the taxpayer is found to be ineligible, the taxpayer is required to reverse the ITC in the next return. The ITC reversal needs to be done in Table 4 of the Form GSTR-3B. The amount to be reversed is the total amount of ITC claimed in the earlier return. The taxpayer is also required to pay interest on the amount reversed at the rate of 18% per annum from the date of claiming the ITC till the date of reversal of ITC.
When the ITC claimed by the taxpayer is found to be blocked by the government, the taxpayer is required to reverse the ITC in the next return. The ITC reversal needs to be done in Table 4 of the Form GSTR-3B. The amount to be reversed is the total amount of ITC claimed on the blocked goods or services. The taxpayer is not required to pay any interest on the amount reversed.
The mandatory furnishing of ineligible/blocked ITC and the reversal thereof in the Form GSTR-3B is an important aspect of GST compliance. The taxpayers need to be aware of the list of goods and services that are not eligible for ITC and the reasons for blocking ITC. The taxpayers also need to ensure that they comply with the reversal of ITC requirements as per the instructions provided by the government.
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