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ITC is one of the core aspects of GST. Simply put, ITC is a credit of input tax. Input credit means that the taxpayer can reduce the output tax liability by the amount of tax already paid on inputs.
So, every registered person while paying the tax on output can claim the credit of tax already paid on input(purchases). The credit claimed shall be credited to the electronic credit ledger of that person. The inputs on which credit is claimed should have been used in the course or furtherance of business.
In the earlier Indirect tax regime, the credit of central taxes could not be set off against a state levy and vice versa. So, we can say that ITC was not available on inter-State purchases. This resulted in cascading effect, thereby increasing the price of goods and services.
The GST Regime promises seamless credit on goods and services across the entire supply chain with some exceptions. So, in GST, ITC Scheme has been designed to mitigate the cascading effect of taxes and make GST a destination-based tax. In GST law, it does not require a ‘one-to-one’ co-relation between inward supply and outward supply, because of which, now, any eligible ITC can be used for payment of tax on any taxable output supply.
In the following specific cases ITC shall not be allowed if allowed subject to some conditions:
No ITC shall be available unless the registered person complies with the conditions laid down under Section 16 of the CGST Act, according to which ITC shall only be allowed if the person has tax invoice, has received goods and services or both, the tax has been paid to govt., and has furnished a return under section 39.
No ITC shall be allowed if depreciation is claimed on the tax component.
NO ITC in respect of any invoice after the due date of furnishing return under section 39.
No ITC on exempt supplies. (Exception: Zero-rated Supplies i.e., exports or supplies made to special economic zones, ITC shall be available.)
NO ITC on tax paid in pursuance of any order where any demand has been confirmed on account of wilful misstatement or suppression of facts.
Following are the cases of Blocked Credits as per section 17(5) of CGST Act, 2017, where no ITC shall be available even when used for the business purpose:
ITC allowed subject to conditions
Motor vehicles having an approved seating capacity of not more than 13 persons including the driver, vessels, Aircraft.
ITC allowed when the Motor Vehicle, aircraft, or vessel is used for making the following taxable supplies:
Further supply of such motor vehicles, Vessels, aircraft
Transportation of passengers
Imparting training on driving of such motor vehicle, navigating the vessel, or on flying such aircraft
General Insurance, servicing, repair, and maintenance
Not allowed in case of Motor Vehicle, Vessel or Aircraft on which ITC disallowed.
Allowed in case of Motor Vehicle, Vessel or Aircraft on which ITC allowed.
Food and Beverages
Leasing renting or hiring of motor Vehicle or vessels or aircraft
Travel benefits extended to employees on vocation
NO ITC Allowed
ITC shall be available when such services are used as an input supply to provide the same category of outward supply.
ITC shall also be allowed when such services are provided as an obligation under any law for the time being in force.
On membership of club, health and fitness centre.
Works contract services for the construction of an immovable property (other than P&M) or goods and services received by a taxable person on his own account.
In the case of a works contract, it shall be available when such services are used as an input service for further supply of works contract service.
Good and services on which tax has been paid under Section 10.
Goods and services are received by a non-resident taxable person.
ITC shall be available on goods imported by him.
Goods and services imported for personal consumption, stolen, theft, destroyed or written off, or disposed of by way of gift or free samples.
The input tax credit can be availed by a registered person, including Input Service Distributor on the basis of any of the following documents:
An invoice, revised invoice, or debit note issued by the supplier,
Invoice issued by the recipient in case of reverse charge mechanism,
Bill of Entry or similar document prescribed under the customs act, 1962,
Document issued by Input service distributor.
Without proper documentation, there will be difficulty in claiming the Input tax credit. Also, any inadmissible or fake credit availed, then as per Rule 86A commissioner or an officer (not below the rank of an Assistant Commissioner) can impose restrictions on utilization of such ITC.
It has been observed that there are some taxpayers who take inflated or bogus ITC, even when proper tax invoices or debit notes in respect of inputs or inputs services are not available. So, to exercise control over such malpractices of availing bogus ITC by taxpayers, certain restrictions have been placed on availment of ITC. So, to safeguard the revenue interest of the government and to block the ineligible ITC or fake ITC Rule 36(4) has been brought.
According to this, ITC on all invoices and debit notes which are uploaded by the supplier in their GSTR-1 can be availed in full.
In respect of invoices, the details of which are not uploaded by the supplier in their GSTR-1 and hence cannot be seen in the recipients GSTR-2A and GSTR-2B, ITC can be availed only up to 5% of the eligible credit available in respect of invoices and debit notes the details of which has been uploaded by the supplier in their GSTR-1.
In simple language, we can say that the ITC claimed should not exceed 105% of ITC reflecting in GSTR-2A on the due date of filing of GSTR-1 of the suppliers for the said tax period.
Imp: The restricted amount of ITC claimed on the invoices, the details of which are not available should not exceed the actual eligible ITC available in respect of invoices uploaded.
SO, it is very important for the reconciliation of GSTR-2A to claim full ITC. This can be done with minimum efforts using Webtel Electrosoft software for filing GST. At Webtel, GSTR-2A is just one click away, which means taxpayers can now download GSTR-2A in one click for the whole financial year or YTD for matching. Webtel also has an advanced matching tool to claim 100% accurate ITC.
As per section 49(5), the amount of input tax credit available in the electronic credit ledger of the registered person on account of:
IGST shall be first utilized towards payment of IGST and any remaining amount shall be utilized towards payment of CGST or SGST in any ratio.
CGST shall be first utilized for the payment of CGST, SGST shall be first utilized for the payment of SGST, UTGST shall be first utilized for the payment of UTGST and any amount remaining thereafter may be utilized towards payment of IGST.
The above can be summarised using the below table:
Set off 1st
Set off 2nd
Set off 3rds
CGST/SGST in any ratio
Also, as per Rule 88A, input tax credit on account of IGST shall be first utilized towards payment of IGST, and the amount remaining if any shall be further utilized for the payment of CGST, SGST, or UTGST in any ratio.
For easy allocation of ITC, software at Webtel can be used since all the provisions relating to apportionment of ITC, any amendment in the law or any circular is timely updated in the software, and Webtel team also provides proper assistance, if required at any phase.
After the 39th GST council meeting, the interest on delayed GST payments would be applicable only on net cash tax liability after the deduction of the available Input tax credit, if any. The same has been made retrospectively effective from 1st July 2017 via Finance Act 2021.
By using the software of Webtel, which provides end-to-end assistance with easy query solutions, such delays can be reduced. Webtel is one roof for GST, as it enables GST filing, generation of E-Invoice, and E-way bil also. Performing all the compliance work under the same platform will not only save from compliance costs but will also reduce time and effort. For further information, you can now schedule a demo on Webtel.