The document discusses input tax credit (ITC) under the Goods and Services Tax (GST) regime in India. Some key points: 1. ITC aims to ensure tax is levied only on value addition at each stage of supply chain to eliminate cascading of taxes. Only registered taxpayers can claim ITC subject to certain conditions. 2. Eligible inputs/services include those used in business. Capital goods are eligible for ITC over multiple years. ITC must be claimed within prescribed time limits and supported by valid documents. 3. ITC is allowed for taxable and zero-rated supplies but not for exempt, non-taxable or personal consumption. Credit must be apportioned

1. - CA NEMISH J. SHAH

2. Index
Background
Important Definitions
Input Tax Credit – Eligibility
Who
What
When
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3. Restrictions on ITC before GST
 Manufacturers / Traders not eligible for input CST credit
 Service provider not eligible for input VAT credit
 Service provider not eligible for credit of SAD paid on
imports
 Traders not eligible for credit of input excise duty and
service tax
 Traders not eligible for credit of CVD paid on imports
Leading to cascading effect of taxes resulting in high prices of
goods / services to the end consumers.
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4. GST – ITC Mechanism
 To ensure levy of tax on value addition by respective
assesse in transaction chain
 To ensure efficient system of value added tax is in
place
 To eliminate or minimize possibilities of levy of tax on
tax
 To eliminate or minimize cascading effect of indirect
taxes
 To minimize tax incidence on ultimate consumer of
goods / services
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5. Important Definitions
 Input Tax [Section 2(55)]: Input tax means:
 IGST including that on import of goods
 CGST and SGST charged on any supply of goods or
services
 Including tax payable under reverse charge [Section
8(3)]
 Excluding tax paid under composition scheme
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6. Important Definitions
Input [Section 2(52)] Input Service [Section
2(53)]
• Any goods other than capital
goods
• Any service
• Used or intended to be used by
the supplier in the course or
furtherance of business
• Used or intended to be used by
the supplier in the course or
furtherance of business
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7. Important Definitions
 Capital Goods [Section 2(19)]: Goods which are
capitalized in the books of account of the person
claiming the credit and which are used or intended to
be used in the course or furtherance of business.
 Electronic Credit Ledger [Section 2(43)]: The input
tax credit as self-assessed in return of taxable person
shall be credited to his electronic credit ledger in
accordance with section 36 to be maintained.
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8. INPUT TAX CREDIT -
ELIGIBILITY
WHO
WHAT
WHEN
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9. 12/03/2017 9

10. Eligible persons and non-eligible persons
 Persons eligible to take ITC
 Registered Taxable persons [Section 16]
 Persons making Zero rated supplies [Section 16(3) of IGST
Act]
 Persons not eligible to take ITC
 Non-registered taxable person
 Persons not liable to registration eg Agriculturalist, supplier
below threshold limit etc.
 Supplier under Composition Scheme
 Supplier exclusively engaged in making exempt or non-
taxable supplies
 Government or local authority making supplies specified in
Schedule IV
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11. Eligibility and conditions for taking ITC
[Section 16(1)]
 Every registered taxable person shall be entitled to
take credit of input tax charged on supply of goods or
services
 which are used or intended to be used in the course or
furtherance of his business and
 such amount shall be credited to the electronic
credit ledger subject to conditions as prescribed.
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12. Conditions for Taking ITC [Section
16(2)]
he is in possession of Tax invoice / Debit Note issued by a
registered supplier, or other prescribed tax paying document
he has received Goods*/Services
Tax actually paid by the supplier to the credit of Govt., either
in cash or by utilization of ITC
Furnished monthly return under section 34
* Includes delivery to another person as directed by the taxable person before or
during the movement of goods either by way of transfer of documents of title to12/03/2017 12

13.  For banking companies and financial institutions:
 Normal Route – Avail Credit as per Section 17(2)
OR
 Yearly option to avail a standard rate of 50% of eligible
ITC on inputs, capital goods and input services on a
monthly basis.
Banking Companies and Financial
Institutions / NBFC’s [Section 17(3)]
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14. Mandatory
Registration
(Applied within
30 days)
Inputs, Semi-finished
Goods, Finished Goods
On the day
immediately preceding
the date from which he
becomes liable to pay
tax
Voluntary
Registration
Inputs, Semi-finished
Goods, Finished Goods
On the day
immediately preceding
the date of registration
Person ceases to
pay tax under
compounding
scheme
Inputs, Semi-finished
Goods, Finished Goods
Capital Goods –
Reduced % basis
On the day
immediately preceding
the date from which he
becomes liable to pay
tax
Availability of credit in special circumstances
[Section 18]
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15. Exempt Supply
becomes
taxable supply
Inputs, Semi-finished
Goods, Finished Goods
related to such exempt
supply
Capital Goods – Reduced %
basis and exclusively used for
exempt supply
On the day
immediately preceding
the date from which
such supply becomes
taxable
Availability of credit in special circumstances
[Section 18]
A taxable person shall not be entitled to ITC, with respect to above 4 items, in
respect of any supply after the expiry of one year from the date of issue of tax
invoice relating to such supply.
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16. ILLUSTRATION
Becomes liable to pay tax
on
Registrati
on Date
Eligible for
ITC of
inputs
held as on
Conditions
Mandatory on 01.08.2017 15.08.2017 31.07.2017 Cannot avail
credit of goods
/services after 1
year from date of
tax invoice.
* Capital Goods
Credit allowed on
reduced % basis.
Mandatory on 01.08.2017 03.09.2017 Not Eligible
Applied for Voluntary
Registration on 01.08.2017
22.08.2017 21.08.2017
Liable to tax under Regular
Scheme from Composition
Scheme on 01.08.2017 *
31.07.2017
Exempt Supply becomes
taxable w.e.f 01.08.2017 *
31.07.2017
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17. Availability of credit in special circumstances
[Section 18(7)]
Switch over from regular to composition scheme (Section 9) /
Goods become exclusively exempt (Section 11)
Pay by Debit to Electronic Credit / Cash Ledger
Amount = Credit in respect to input held in stock, semi-finished
goods, finished goods and on capital goods on reduced % basis
On the day immediately preceding the date of
switchover/exemption
After payment, balance in Electronic Credit Ledger shall lapse
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18. Change in constitution [Section 18(6)]
Change in
constitution of
Registered Taxable
Person
On account of:
• Sale,
• Merger,
• Demerger,
• Amalgamation,
• Lease or
• Transfer of business
(With specific provision
for transfer of
liabilities)
Transfer of unutilized
ITC in books allowed
to such
• Sold,
• Merged,
• Demerged,
• Amalgamated,
• Leased or
• Transferred Business
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19. Principal’s eligibility for ITC in respect of
inputs sent for job work [Section 20]
ITC available on inputs sent/capital goods to a job-worker
Subject to certain conditions
Sent out of his own place of
business OR
Directly sent to job-worker
without being first brought to
his place of business
Deemed supply to Job-worker
Input not received back /supplied
within 1 year of their being sent out
Capital Goods not received back
/supplied within 3 years of their
being sent out
(If direct supply to job-worker
period of 1 / 3 years is counted from
the date of receipt by job worker.
Moulds and dies, jigs and fixtures or tools sent to job-worker need not be returned
within 1 / 3 years for claiming the ITC.12/03/2017 19

20. 12/03/2017 20

21. Non-eligible Transactions [Section 16]
ITC not allowed to registered taxable person:
 Where the recipient of service fails to pay the amount of
supply plus tax payable thereon to the supplier within 3
months of date of issue of invoice - an amount equal to
ITC availed shall be added to the output tax liability with
interest. [Second proviso to Section 16(2)]
 Depreciation is claimed on the tax component of the cost
of capital goods – ITC shall not be allowed on the said tax
component. [Section 16(3)]
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22. Important Definitions
 Taxable Supply [Section 2(99)]: Means
 A supply of goods and/or services
 which is chargeable to tax under this act
 Exempt Supply [Section 2(44)]: Means
 Supply of any goods and/or services which are not
taxable under this Act; and
 Includes:
 Such supply of goods and/or services which attract NIL rate;
or
 which may be exempt from tax u/s. 11
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23. Important Definitions
 Non-taxable Supply [Section 2(100): Means
 A supply of goods and/or services
 which is not chargeable to tax under this act
 Zero rated Supply [Section 16 of IGST Act]: Means
 Export of goods and/or services; or
 Supply of goods and/or services to a SEZ developer or a
SEZ unit.
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24. Apportionment of credit and blocked credit
[Section 17(1) and 17(2)]Other important points:
 ITC shall not be available for the inputs used for other than business
purposes.
 Use of ITC for supply of taxable as well as non-taxable
goods/services:
Use of ITC
Taxable
supplies
ITC available
Zero rated
supplies
ITC available
Non-taxable
supplies
ITC not
available
Exempt
Supplies*
ITC not
available
Nil-rated
supplies
ITC not
available
* Includes supplies under reverse charge mechanism u/s. 8(3).12/03/2017 24

25. Summary
Credit allowed Credit not allowed Proportionate
Credit allowed
Wholly Taxable
Supplies
Wholly Non-taxable
supply
Partly for Business
and Non-business
purpose
Wholly Zero-rated
supplies
Wholly Exempt
supply
Partly Taxable and
Non-taxable Supply
Both Taxable and
Zero-rated Supplies
Wholly for Non-
business purpose
Supplies for Business
purpose
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26. Apportionment of credit and blocked credit
[Section 17(4)]
(a) ITC for motor vehicles will not be allowed,
Except:
• when used for making following taxable supplies:
• Further supply of such vehicles
• Transportation of passengers
• Training for driving/flying/navigating such
vehicles
• When used for Transportation of Goods
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27. Apportionment of credit and blocked credit
[Section 17(4)]
(b) ITC not allowed in Supply of following
goods and services:
ITC allowed in exceptional
situations
Food and Beverages, Outdoor Catering, Beauty
Treatment, Health Services, Cosmetic and Plastic
Surgery
When inward supply of goods in
a category are used for making
outward supply of the same
category
Membership of a club, Health and Fitness Center Not allowed at all
Rent-a-cab, Life Insurance, Health Insurance Notified services which are
obligatory for an employer to
provide to its employees under
any law
Travel benefits extended to employees on
vacation such as leave or home travel concession
Not allowed at all
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28. Apportionment of credit and blocked credit
[Section 17(4)]
Construction of immovable property
other than PLANT AND MACHINERY
ITC allowed in exceptional
situations
(c) Works contract services for construction
of immovable property
If it is an input service for further
SUPPLY OF WORKS CONTRACT
SERVICE, then allowed
(d) Goods and services received for
construction of immovable property on his
own account, even in course of business
Not allowed at all
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29. Apportionment of credit and blocked credit
[Section 17(4)]
Goods and/or service on which the tax paid under
composition scheme (Section 9)
Goods and/or service used for personal
consumption
Goods lost, stolen, destroyed, written off or
disposed of by way of gift or free Samples
Tax paid in terms of sections 67, 89 or 90
(e)
(f)
(g)
(h)
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30. 12/03/2017 30

31. 12/03/2017 31
Invoice
Date
F.Y. September
Return
filing date
Annual
Return
Filing
date
ITC
allowed
to claim
till
01.12.2017 2017-18 20.10.2018 01.12.2018 20.10.2018
01.12.2017 2017-18 20.10.2018 01.09.2018 01.09.2018
ITC not allowed after:
• Furnishing of return u/s. 34 for the month of September of next
Financial Year OR
• Furnishing of Annual Return, whichever is earlier.
Time limit for availing ITC

32. Time limit for availing ITC in certain
cases [Section 16]
 If goods are received in lots/installments against a single
invoice, credit can be taken upon receipt of last
lot/installment.
 Pipelines and Telecommunication Tower fixed to earth by
foundation or structural support shall not exceed:
 1/3 of total input tax in the F.Y. in which the said goods are
received;
 2/3 of total input tax including the credit availed in 1st year,
in the 2nd year;
 balance in any subsequent F.Y.
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33. 12/03/2017 33

34. 12/03/2017 34