The document provides a comprehensive guide to Input Tax Credit (ITC) under the Goods and Services Tax (GST) framework, outlining its importance in preventing cascading taxes. It details the general rules for availment, eligibility conditions, and restrictions on certain credits, emphasizing the necessity of maintaining compliance with GST regulations. Key points include the stipulation that ITC is only available for goods and services utilized in the course of business and the requirement for proper documentation and timely payment to retain credit.

1. Guide to
INPUT TAX CREDIT
under GST

2. Introduction
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Input Tax credit under GST
One of the most important pillars of an effective GST is the availability of Input Tax Credit (ITC) to remove the cascading effect of taxes on
transactions. In the enactment these important provisions have been mentioned in Sec 16 to 18 of the CGST Act and the respective State
Acts.
Input Tax Credit (ITC) is the backbone of the GST regime. GST is nothing but a value added tax on goods & services combined. It is these
provisions of Input Tax Credit that make GST a value added tax i.e., collection of tax at all points after allowing credit for the inputs. The
procedures and restrictions laid down in these provisions are important to make sure that there is seamless flow of credit in the whole
scheme of transition without any misuse. Thus, the clarity of rules of availment and utilization will have significant impact on making GST a
taxpayer-friendly tax.
Therefore to act as a ready reckoner we have devised this presentation wherein we would be guiding you about the available ITC
A. General rule with regard to availability of credit
B. Conditions for availment of ITC
C. Credits barred by the law from being availed
D. Analysis of the Input Tax Rules and Reversal of ITC

3. GENERAL RULE
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4. GENERAL CONDITIONS
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Sec 16 of the CGST and SGST Act
Every registered person can subject to certain limitations and conditions can avail ITC of the goods and services
which have been received during the year. Certain pertinent points with regard to the general availability are as follows
:-
A. The intention of utilize the goods or services for providing output services is of utmost importance. It is not
necessary that all the goods and services which have been procured have to be utilized. Even if goods have been
procured and kept in stock then also the credit of the tax paid on such goods shall be available to us.
B. The credit shall only be available if the goods or services so procured are to be used “in the course OR
furtherance of his business”. Thus if any goods or services have been used which are not in the course of or for
the expansion of the business shall not be available. Therefore there needs to be at least an indirect nexus
between the procurement and utilization.
C. Such Input credit is available in the electronic ledger of the assessee.

5. GENERAL CONDITIONS
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• IGST
• CGST
• SGST
IGST
• CGST
• IGST
CGST
• SGST
• IGST
SGST
NOTES
A. In terms of the act the credit of IGST can be used against tax liability of all acts. However, the set
off hierarchy would be as mentioned above.
B. Credit available in the ledger of CGST cannot be set off against tax liability under SGST and vice
versa. However both can be set off against IGST.

6. CONDITIONS for ELIGIBILITY
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7. CONDITIONS for ELIGIBILITY
 You are in possession of a tax invoice or debit note; AND
 The goods or services have been actually received; AND
 The tax on such goods and services has been actually paid to the government by
the supplier of goods or services; AND
 You have filed your return; AND
 Such Inputs have not been used for exempt supply (excluding export); AND
 In case of receipt of goods or services in tranches, the last tranche has been
actually received
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8. Restricted ITC
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9. RESTRICTED CREDITS
Any ITC available on purchase of Motor
Vehicle or availing Rent-a-cab services
Caveat – If any vehicles are bought for goods
transportation then that would be available.
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10. RESTRICTED CREDITS
1. Foods and Beverages
2. Outdoor Catering
3. Beauty Treatment
4. Health Services
5. Cosmetic
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6. Membership of a Club
7. Life and Health Insurance
8. Travel benefits extended to
employees on vacation
NOTES
A. Items 1-5 credit shall be available to those who are providing similar output services.
B. Item 7 – Credit shall be available if mandated by Government as mandatory OR while
providing output taxable services

11. RESTRICTED CREDITS
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NOTES
A. In case any goods or services are used in an immovable property and such expenses
are NOT capitalised then the credit of such goods and services shall be available.
 Works contract services for creation of an
immovable property unless the same is intended
to be sold.
 Goods and services used for construction of an
immovable property for self use such as office.

12. RESTRICTED CREDITS
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NOTES
A. The act does not have any definition of the words “personal consumption”. It can be said to
include those expenses wherein the company is NOT the beneficiary of such goods or services.
 Purchase from a dealer covered under composition scheme
 Goods or services used for personal consumption
 Goods lost, stolen, destroyed, written or disposed off

13. Other IMPORTANT points
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14. IMPORTANT Points
 The vendor should be paid towards the services within 180 days of date of invoice
else the credit is liable to be reversed. Proportionate credit would be available if part
of the money is retained in terms of performance obligations.
 Input shall be availed (not necessarily utilised) within 1 year from date of issue of
invoice or before the 20th October of the following financial year whichever is earlier.
 In case the assessee is providing some exempt services (not export sales) then
partial reversal of the Input tax credit would be required.
 In case of any discrepancy between returns filed by supplier and claim by us, we
would be allowed 2 months to rectify else it would be reversed.
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15. GUIDELINES
 Ensure correct GSTIN of the company is used and the same is informed to all the
vendors of the company
 In case of employee reimbursements the employees should ensure they give the
GSTIN of the company before generation of the bills.
 Ensure company has a bill capturing mechanism so that credit on any bill is not
missed.
 The vendors charge correct GST (IGST or CG+SG) to avoid any issues later on.
 Since tax is to be paid by the recipient upon supply from unregistered dealer hence it
needs to be taken care that it is availed in the subsequent month
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