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Short Term Course on GST- Input Tax Credit

This module deals with Input Tax Credit, an important element of GST. This module states the eligibility to avail ITC and events when ITC can not be availed.

Short Term Course on GST- Input Tax Credit

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Short Term Course on Goods & Services Tax Law
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Module 4: Input Tax Credit under GST
Input Tax Credit under GST
In Summary
Topic for next session
Contents
Recap
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Recapitulate- module 3
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Recap
 Mandatory registration for persons
 whose aggregate turnover exceeds
 Rs. 20 lakh for other states;
 Rs. 10 lakh for special category states.
 holding any license under existing law;
 persons making inter state supplies;
 persons required to pay tax on reverse charge;
 e-commerce operators;
 agents of registered taxable persons;
 input service distributor;
 persons who are required to deduct tax;
 persons who are required to collect tax.
www.sushrey.com 5
Recap
 Persons dealing in
 goods or services which have been kept out of GST ambit;
 goods or services at 0% GST rate (grains, pulses).
are not liable to be registered even if the aggregate turnover exceeds Rs. 20 lacs / Rs. 10
lacs (special category states).
 Persons not liable to be registered may take voluntary registration.
 Reverse charge mechanism is triggered if supply of goods and / or services is made by an
unregistered person to a registered person. Under reverse charge, tax on supply of goods
and / or services shall be paid by recipient of supply.
 PAN Card is mandatory for making an application for registration.
 Aggregate Turnover: Aggregate turnover means total turnover (all India) and does not
include value of inward supplies.
www.sushrey.com 6
Recap
Form No Form Details
REG-01 Application for registration
REG-02 Acknowledgment of application
REG-03 Notice for seeking additional information
REG-04 Reply to notice for seeking clarification / additional information
REG-05 Order of rejection of application for registration
REG-06 Registration Certificate
 Registration procedure is as follow
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Short Term Course on GST- Input Tax Credit

  • 1. www.sushrey.com Short Term Course on Goods & Services Tax Law
  • 2. www.sushrey.com 2 Module 4: Input Tax Credit under GST Input Tax Credit under GST In Summary Topic for next session Contents Recap
  • 4. www.sushrey.com 4 Recap  Mandatory registration for persons  whose aggregate turnover exceeds  Rs. 20 lakh for other states;  Rs. 10 lakh for special category states.  holding any license under existing law;  persons making inter state supplies;  persons required to pay tax on reverse charge;  e-commerce operators;  agents of registered taxable persons;  input service distributor;  persons who are required to deduct tax;  persons who are required to collect tax.
  • 5. www.sushrey.com 5 Recap  Persons dealing in  goods or services which have been kept out of GST ambit;  goods or services at 0% GST rate (grains, pulses). are not liable to be registered even if the aggregate turnover exceeds Rs. 20 lacs / Rs. 10 lacs (special category states).  Persons not liable to be registered may take voluntary registration.  Reverse charge mechanism is triggered if supply of goods and / or services is made by an unregistered person to a registered person. Under reverse charge, tax on supply of goods and / or services shall be paid by recipient of supply.  PAN Card is mandatory for making an application for registration.  Aggregate Turnover: Aggregate turnover means total turnover (all India) and does not include value of inward supplies.
  • 6. www.sushrey.com 6 Recap Form No Form Details REG-01 Application for registration REG-02 Acknowledgment of application REG-03 Notice for seeking additional information REG-04 Reply to notice for seeking clarification / additional information REG-05 Order of rejection of application for registration REG-06 Registration Certificate  Registration procedure is as follow
  • 7. www.sushrey.com 7 Input Tax Credit under Goods & Services Tax
  • 8. www.sushrey.com Retail to Customer 12,331 -1,881 10,450 1,000 1,150 2,268 14,868 387 Particulars Mfgr. to distr. Manufacturing cost / cost of sales 6,000 Input Tax Credit (ITC) Manufacturing cost / cost of sales 6,000 Selling, General & Admin exp. 1,500 Profit element @10% 750 Goods & Services tax @18% 1,485 Total sales value (incl. taxes) 9,735 Tax paid on each stage 1,485 Distr. To retail 9,735 -1,485 8,250 1,250 950 1,881 12,331 396 8 Input Tax Credit- an overview  Input Tax Credit (ITC) is the backbone of the GST. The basic shortcoming of the earlier indirect system was cascading effect of taxes. Under GST, tax is charged at all stages right from manufacturing up to end customer with availability of credit of taxes paid at previous stages. In other words, credit of taxes paid at previous stages is known as Inputs Tax Credit (ITC). The credit of taxes paid at previous stages can be understood with following illustration:  It is evident from the illustration that tax paid at previous stage is being availed as ITC. Thus, mitigating the cascading effect of taxes.  Important point: Input Tax Credit is cash equivalent. It reduces cash outflow for next stage seller. In the illustration, distributor, of the total tax liability of Rs. 1,881, pays Rs. 396 since tax amount of Rs. 1,485 has already been paid.
  • 9. www.sushrey.com 9 Input Tax Credit (ITC)- key highlights  As per section 16(1) of CGST Act, Input Tax Credit is available in respect of goods or services to be used or intended to be used in the course or furtherance of business. ITC will not be available for goods or services to be used for personal consumption.  Full input tax credit on capital goods (earlier input tax credit under central excise was allowed to the extent of 50% in the year of receipt and 50% in subsequent year). Capital goods include plant & machinery, leasehold improvements, furniture and fixtures etc.  Input Tax Credit will be allowed for zero rated supplies. Zero rated supplies include:  export of goods and / or services;  supply of goods and / or services to a Special Economic Zone (SEZ);
  • 10. www.sushrey.com 10 Input Tax Credit (ITC)-entitlement  As per section 16(2) of CGST act, Registered taxable person shall be entitled to input tax credit in respect of supply of goods or services on following conditions: i. possession of tax invoice / debit note or any taxpaying document as prescribed; ii. receipt of goods and / or services; iii. actual payment of tax to government by the supplier; iv. furnishing of return u/s 39 of CGST act i.e. filing of monthly return; v. payment of value of supply of goods or services along with the tax within 180 days from date of issue of invoice.
  • 11. www.sushrey.com 11 Input Tax Credit (ITC)- Job work: Section 19 Definition of Job Work and Job worker  Job Work: as per section 2(68) of CGST act, job work means any treatment or process undertaken by a person on goods belonging to another registered person and the expression “job worker” shall be construed accordingly.  Example: Mr. A sends office tables for polishing. Mr. B applies polish on tables and sends them back to Mr. A. The polishing of tables will be called “ job work” and Mr. B will be a “job worker.”  Input Tax Credit will be allowed on inputs sent for job work provided inputs are received back, after completion of job work, within 1 year of being sent out.
  • 12. www.sushrey.com 12 Input Tax Credit (ITC)- Job work: Section 19  Input Tax Credit will be allowed on capital goods sent for job work provided inputs are received back, after completion of job work, within 3 years of being sent out (other than moulds, jigs, dies, fixtures or tools).  Input Tax Credit will be allowed if the inputs / capital goods are directly sent to job workers without being received first at place of business.  If the inputs or capital goods are not received within stipulated timelines as stated above, the same shall be deemed to have been supplied by the principal to the job worker on the day when inputs or capital goods were sent out.
  • 13. www.sushrey.com 13 When Input Tax Credit cannot be availed Under following situations reversal of ITC, claimed earlier, would take place or recipient would not be entitled for Input Tax Credit-section 16(2): a. non possession of tax invoice / debit note / bill of entry / any taxpaying document; b. non receipt of goods or services; c. non payment of value of supply of goods or services along with the tax within 180 days from date of issue of invoice; d. non payment of tax to government by the supplier; e. non compliance to furnishing of return u/s 39 of CGST i.e. filing of monthly returns;
  • 14. www.sushrey.com 14 When Input Tax Credit cannot be availed Under following situations reversal of ITC claimed earlier would take place or recipient would not be entitled for Input Tax Credit. a. after the expiry of 1 year from the date of issue of tax invoice- section 18(2) of CGST act; b. receipt of invoice or debit note relating to previous financial year  after filing of return for the month of September of next financial year; or  filing of annual return for the previous financial year; whichever is earlier-section 16(4) of CGST act Illustration: XYZ Limited received steel panels from ABC Limited. State whether ITC can be availed or not under following situations. a. Date of tax invoice is 10th July, 2017 and date of receipt of invoice 9th June, 2018 b. Date of tax invoice is 10th July, 2017 and date of receipt of invoice 11th August, 2018 c. Date of tax invoice is 3rd December, 2017 and date of receipt of invoice 25th October, 2018
  • 15. www.sushrey.com 15 When ITC cannot be availed-illustration # Date of Invoice Date of receipt of invoice Remarks A 10.07.2017 09.06.2018 Section 18 (2) : ITC can be availed within 1 year from the date of tax invoice. In this case invoice received within time limit of 1 year. Therefore, XYZ can avail ITC. B 10.07.2017 11.08.2018 Section 18 (2) : ITC can be availed within 1 year from the date of tax invoice. In this case, time limit of 1 year has elapsed. Hence, XYZ can not avail ITC. C 03.12.2017 25.10.2018 Sec. 16(4): ITC cannot be availed for invoice relating to previous financial year received after due date of filing of monthly return for Sept. In this case, due date for monthly return for Sept’18 is 20th October 2018 and invoice received on 25th Oct’18. Hence, XYZ can not avail ITC.
  • 16. www.sushrey.com 16 Utilisation of Input Tax Credit Input Tax credit (ITC) of To be utilised first for payment of May be utilised further for payment of IGST IGST CGST and then SGST CGST CGST IGST SGST SGST IGST  ITC in respect of  IGST will be utilised, first for payment of IGST output tax liability and then be utilised to pay CGST output tax liability and remaining balance (if any) be utilised to pay SGST output tax liability.  CGST will be utilised, first for payment of CGST output tax liability and then be utilised to pay IGST output tax liability.
  • 17. www.sushrey.com 17 Utilisation of Input Tax Credit  Similarly, ITC in respect of SGST will be utilised, first for payment of SGST output tax liability and then be utilised to pay IGST output tax liability.  Important points:  GST law does not allow ITC in respect of CGST for payment of SGST output tax liability.  Similarly, GST law does not allow ITC in respect SGST for payment of CGST output tax liability.
  • 18. www.sushrey.com 18 Utilisation of Input Tax Credit-illustration (1/3) IGST CGST SGST Total Input Tax Credit available 5,000 3,500 3,500 12,000 Output tax liability 3,000 5,000 5,000 13,000  Illustration: Mr. X is a consumer durables distributor. Information in relation to input tax credit and output tax liability is as follow:  As per utilisation matrix  IGST Input tax credit will, first, be utilised to meet IGST output tax liability;  Similarly, CGST input tax credit will be utilised to meet CGST output tax liability; and  SGST input tax credit be utilised to offset the SGST output tax liability.
  • 19. www.sushrey.com 19 Utilisation of Input Tax Credit-illustration (2/3) IGST CGST SGST Total Input Tax Credit available 5,000 3,500 3,500 12,000 Output tax liability 3,000 5,000 5,000 13,000 First preference application of ITC against output tax liability IGST 3,000 CGST 5,000 SGST 5,000 Balance tax liability 1,500 1,500 3,000 Balance Input Tax credit 2,000  CGST and SGST output tax liability for Rs. 1,500 and Rs. 1,500 respectively to be paid off. Also, ITC in respect of IGST for Rs. 2,000 is available.
  • 20. www.sushrey.com 20 Utilisation of Input Tax Credit-illustration (3/3) IGST CGST SGST Total Input Tax Credit available 5,000 3,500 3,500 12,000 Output tax liability 3,000 5,000 5,000 13,000 First preference application of ITC against output tax liability IGST 3,000 CGST 5,000 SGST 5,000 Balance tax liability 1,500 1,500 3,000 Balance Input Tax credit 2,000 IGST ITC utilization for payment of CGST tax 1,500 1,500 IGST ITC utilization for payment of SGST tax 500 500 Net payment through electronic cash ledger 1,000 1,000
  • 21. www.sushrey.com 21 Utilisation of Input Tax Credit-key points  SGST ITC can be used for payment of IGST liability under the same GSTIN.  The CGST and SGST ITC for a state can be utilized for payment of their respective CGST/SGST liabilities within that state for the same GSTIN only.  SGST credit of one state cannot be utilized for discharging of output tax liability of another state e.g. SGST credit of Haryana cannot be utilised to pay output tax liability of Rajasthan. Sl. No Location of Plant Location of Branch office GSTIN Utilisation of Credit 1 Neemrana- Rajasthan Jaipur- Rajasthan Same GSTIN SGST / CGST ITC relating to plant and branch office can be utilised for payment of output tax liability. 2 Neemrana- Rajasthan Jaipur- Rajasthan Separate GSTIN for Plant and branch office SGST / CGST ITC relating to plant cannot be utilised to pay output tax liability of branch office though location of plant & branch is same state.
  • 22. www.sushrey.com 22 Input Tax Credit (ITC)- Ineligibility: section 17(5)  Input Tax Credit shall not be available for following  Food & Beverages;  Outdoor catering;  Beauty treatment;  Health services;  Cosmetic and plastic surgery;  Membership of a club;  Health & fitness centre (other than obligatory under Government notification);  Life insurance, health insurance (other than obligatory under Government notification);  Rent-a-cab (other than obligatory under Government notification);  Travel benefits extended to employees on vacation such as leave or home travel concession.
  • 23. www.sushrey.com 23 Input Tax Credit (ITC)- Ineligibility: section 17(5)  Goods or services are used in construction of immovable property (other than plant & machinery) even when used in furtherance of business.  Goods / services used for personal consumption purpose.  Goods lost, stolen or disposed off by way of gift or free samples.
  • 24. www.sushrey.com 24 Input Tax Credit (ITC)- matching, reversal  As per section 42(1), the detail of every inward supply furnished by recipient shall match  with the corresponding detail of outward supply as furnished by supplier;  with the additional custom duty; or  for duplication of claims of ITC.  The amount in respect of any discrepancy not rectified by the supplier, in the monthly tax return, will be added back to the output tax liability of the recipient along with the applicable interest.  The amount in respect of any discrepancy rectified by the supplier in the return (details of the invoice and / or debit notes), the recipient shall be entitled to reduce the output tax liability to that extent. Also, interest paid shall be credited in the electronic cash ledger.  The amount claimed as input tax credit in excess on account of duplication of claims shall be added to the output tax liability along with the applicable interest.
  • 26. www.sushrey.com 26 In Summary  Input Tax Credit is defined as availability of credit of taxes paid at previous stages available as set off.  ITC is equivalent to cash. ITC is utilized to pay output tax liability.  Input Tax Credit is available in respect of goods or services to be used or intended to be used in the course or furtherance of business.  ITC will not be available for goods or services to be used for personal consumption.  Input Tax Credit will be allowed for zero rated supplies. Zero rated supplies include: i. export of goods and / or services; ii. supply of goods and / or services to a Special Economic Zone (SEZ);
  • 27. www.sushrey.com 27 In Summary  Registered taxable person shall be entitled to Input Tax Credit(ITC) in respect of supply of goods or services on following conditions i. possession of tax invoice / debit note or any taxpaying document as prescribed; ii. receipt of goods and / or services; iii. actual payment of tax to government by the supplier; iv. furnishing of return u/s 39 of CGST Act i.e. filing of monthly return; and v. payment of value of supply along with the tax within 180 days from date of issue of invoice Non compliance to any of the conditions stated above may result in reversal or non-availment of ITC  Input Tax Credit will be allowed on i. inputs sent for job work provided inputs are received back, after completion of job work, within 1 year of being sent out. ii. capital goods sent for job work provided inputs are received back, after completion of job work, within 3 years of being sent out. Non receipt of input or capital goods within stipulated time, the same shall be deemed to have been supplied on the day when inputs or capital goods were sent out.
  • 28. www.sushrey.com 28 In Summary  Utilization of Input Tax Credit to pay output tax liability  SGST credit can be used for payment of IGST liability under the same GSTIN.  The CGST and SGST credit for a state can be utilized for payment of their respective CGST/SGST liabilities within that state for the same GSTIN only.  SGST credit of one state cannot be utilized for discharging of output tax liability of another state e.g. SGST credit of Haryana cannot be utilised to pay output tax liability of Rajasthan. Input Tax credit (ITC) of To be utilised first for payment of May be utilised further for payment of IGST IGST CGST and then SGST CGST CGST IGST SGST SGST IGST
  • 29. www.sushrey.com 29 Next session topic Module 5: Meaning and Time of Supply
  • 30. www.sushrey.com Thank you 30 Contact us: mail@sushrey.com Visit us: www.sushrey.com