The document provides information about input tax credit (ITC) under the Goods and Services Tax (GST) system in India. Some key points: 1. ITC allows businesses to offset taxes paid on inputs against output tax liability. It is claimed on goods, capital goods, and services used for business purposes. 2. There are conditions for claiming ITC, such as possessing valid documents and ensuring taxes are paid. ITC must also be adjusted if related outputs are exempt. 3. Not all purchases are eligible for ITC, such as most motor vehicles, food/beverages, health services, and property construction. Transition provisions allow ITC for stock under certain conditions.

1. ITC E-
Book

2. Input Tax Credit
Introduction
Understanding Input Tax Credit - TaxPerspective
1.Input Tax Credit
2.Definitions
3.Ineligible Credits
4.Conditions for Claiming Input Tax Credit
5.Proportionate Credit
6.Other Relevant Points
ITC on Stock - TransitionProvision
Conditions to be Fulfilled to Take Credit of Eligible Duties or Taxes
How Will Input Tax Credit Be Adjusted?
Process of Claiming Input Tax Credit

3. Introduction
Input Tax Credit (ITC) is the credit for tax paid on inputs. Every dealer is liable
for output tax on the taxable sale effected by him. The basic principle of GST is
that every business pays tax only on the value addition done by them. ITC is the
mechanism by which the business sets off their output tax against the input tax.
So, it becomes important to understand the list of items on which one can can
claim the ITC and the consequences of ITC that has been wrongly claimed. Also,
how the mechanism for the same can be automated.

4. Understanding Input Tax Credit - Tax Perspective
1.Input Tax Credit
Let’s assume that you are the owner of ABC
Garments. Now, you have purchased the goods
(garments) for selling, on which you pay the
freight for delivery. You also purchase a laptop
for recording all your business transactions, and
make the payments for all these transactions
along with the tax (GST) to your vendor.

5. So, for you, the purchase of garments is an input as you are using the same for the purpose of your
business.
The purchase of a laptop falls under ‘Capital Goods’ as the same will be capitalized in your books of
accounts and the payment for freight services is considered as ‘Input Services’ as the same is used
for the furtherance of business.
Let’s look at the definition of the same:
2. Definitions
Any goods other than capital goods used or intended to be used by a supplier in the
course of, or for the furtherance of business.
Goods, the value of which is capitalised in the books of account of theperson claiming
the ITC and which are used or intended to be used in the course or furtherance of business.
Any service used or intended to be used by a supplier in the course or furtherance of
business.

6. Input Tax in relation to a registered person, means the Central Tax, State Tax,
Integrated Tax or Union Territory Tax charged on any supply of goods or services or both
made to him and includes —
a. the integrated goods and services tax charged on import of goods;
b.the tax payable under RCM in certain supplies of goods/services and also when
registered dealer purchases more than Rs. 5,000 in a day from an unregistered dealer
Input tax comprises: all taxes paid – IGST, CGST,UGST and SGST - on forward charge or
reverse charge basis including imports of goods and/or services excluding taxes paid on
composition basis. Provision is silent on tax paid by e-commerce operator.

7. : Means credit of ‘InputTax’.
Means the liability to pay tax by the recipient of goods or services
instead of the supplier of such goods or services.
In relation to a taxable person, this refers to the tax chargeable under this Act
on taxable supply of goods or services or both made by a person or by his agent but
excludes tax payable by him on reverse charge basis.

8. There are some
inputs/input
services/capital goods on
which the input credit is
not allowed even if the
same is used for the
purpose of, or furtherance
of the business. They are
as follows:

11. i. and other conveyances, except when they are supplied in the usual course of
business or are used for providing taxable services of:
•Transportation of passengers
•Transportation of goods
•Imparting training or motor driving skills
•Further supply of such vehicle or conveyance.

12. iii.Works contract services when supplied for construction of immovable property,
other than plant and machinery, except where it is an input service for further supply
of works contract service;
iv.Goods or services received by a taxable person for construction of an immovable
property on his own account, other than plant and machinery, even when used in course
or furtherance of business;
v. Goods and/or services on which composition tax has been paid (u/s 9)
vi.Where the registered taxable person has claimed depreciation on the tax component
of the cost of capital goods under the provisions of the Income Tax Act, 1961

14. ii. Goods and/or services provided in relationto:
•Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic
surgery except where such inward supply of goods or services is used by a registered taxable
person for making an outward taxable supply of the same category of goods orservices;
•Membership of a club, health and fitness centre,
•Rent-a-cab, life insurance, health insurance except where the Government notifies the services which
are obligatory for an employer to provide to its employees under any law for the time being in force
or such inward supply of goods or services or both of a particular category is used by a registered
person for making an outward taxable supply of the same category of goods or services or both or
as part of a taxable composite or mixed supply;
•Travel benefits extended to employees on vacation such as leave or home travel concession.

15. t
A taxpayer can claim the Input Tax Credit only if they fulfill all the conditions mentioned below:
1.Taxpayer must be in possession of a tax invoice, debit note or such other taxpaying document as
may be prescribed.
2.Taxpayer has received the goods and/or services. The goods are deemed to be received by the
taxable person when goods are delivered by supplier to recipient or other person on direction of the
registered person whether an agent or otherwise before or during movement of goods by way of
transfer of documents of title of goods or otherwise.
3.Tax charged for such supply is actually paid to the credit of the appropriate Government, either
through cashor through utilisation of input tax credit admissible in respect of such supply.
4. Taxpayer has furnished GST returns.

17. i.The goods and/or services are used by a registered taxable person partly for business and partly for
non-business; he is eligible to input tax credit of goods and/or services attributable to the purposes
of business.
ii.The goods and/or services are used partly for effecting taxable supplies (plus zero rated supplies)
and partly for effecting exempt supplies then he will be eligible for credit attributable to the
taxable supplies includingzero-rated supplies only.
For this purpose, exempted supply shall include supplies on which the recipient is liable to pay tax
on reverse charge basis.
iii.A banking company or a financial institution including a non-banking financial company, engaged
in supplying services by way of accepting deposits, extending loans or advances shall have the
option to either comply with the the above provision or avail of, every month, an amount equal to
fifty per cent of the eligible input tax credit on inputs, capital goods and input services in that month.
Explanation.- The option once exercised shall not be withdrawn during the remaining part of the
financial year.

19. 1.Where a recipient fails to pay to the supplier of goods or services or both, other than the supplies on which tax is
pay- able on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a
period of one hundred and eighty days from the date of issue of invoice by the supplier, an amount equal to the input
tax credit availed by the recipient shall be added to his output tax liability, along with interest thereon, in such manner
as may be prescribed.
Provided also that the recipient shall be entitled to avail of the credit of input tax on payment made by him of the
amount towards the value of supply of goods or services or both along with tax payable thereon.
2.Where the registered taxable person has claimed depreciation as per Income Tax Act on cost of capital goods, ITC
shall be denied.
3.Where the goods are received in installment or lots, ITC shall be available at the time receiving of final installment or
lot.
4.Input Tax Credit for pipe line and telephone tower fixed to earth by foundation and structural support shall be avail-
able as follows:
•1/3in the first year when goods received

20. •1/3 in the next year
•the balance in subsequent financial year
5. ITC shall not be allowed after filing of the GST return (GSTR-3) for the
month of September following the end of financial year to which the invoice
relates or furnishing of the annual return whichever is earlier.

21. ITC on Stock - Transition Provision
Under GST, input tax credit of eligible duties and taxes held in stock and input w.r.t. semi-finished goods
and finished goods will be available to eligible taxpayers on the fulfilment of certain conditions as
discussed.
Following are the categories of registered taxable person entitled to take credit of inputs subject to
certain conditions:
1. Being not liable to be registered under current law, dealing in exempted goods or services
2. Providing works contract service or availing benefit of exemption notification forservices
3. First stage dealer or second stage dealer, registeredimporter

22. 1.Being not liable to be registered under current law
Under Central Excise Law every manufacturer whose first aggregate turnover does not exceed Rs 1.5crores is
not required to be registered or discharge the liability to pay taxes. Similarly, under VAT Act, a taxpayer is not
required to be registered in case the turnover does not exceed the prescribed limit in a financial year which
differs state to state.
Under GST a taxpayer is liable to register in case aggregate turnover in a financial year exceeds Rs 40 lakhs or
Rs 20 lakhs for the Special Category States. Hence, here persons who were not required to be registered will not
be liable for same on transition to GST which will lead to discharge of duties and taxes under GST.
2.Providing works contract service or availing benefit of exemption notification for services or
dealing in exempted goods or services
In case a person is engaged in providing services which are exempted due to an exemption notification or
dealing supply of goods on which tax is not levied, is not liable to pay duties. However, under GST the person
who was not required to pay taxes or duties earlier will be liable to discharge the same.

23. Under Central Excise Law every First stage dealer or
second stage dealer is required to be registered as a
dealer and the not eligible to take credit of excise duty
paid. The excise duty involved is allowed as a credit to
the registered manufacturer of dutiable goods. Similarly,
an importer of goods is required to be registered and
discharge import duties.
The categories of registered taxable person mentioned
above will be entitled to take credit ofinputs.

24. Conditions to be Fulfilled to Take Credit of Eligible Duties or Taxes
•The goods used for making taxable supplies
•Under the current tax regime, input tax credit is not allowed which leads to increased prices of goods or services. Un-
der GST, the credit of such input taxes or duties will be allowed will lead to decreased prices of such goods or services.
This benefit must be passed to the recipients of such goods or services through reduced prices
•The taxable person must be eligible for such input tax creditunder GST
•Taxable person must be in possession of invoice and/ or other documents evidencing payment of dutyunder current
law
•The date of invoice and/ or other documents must be issued is within 12months from the date of transition to GST i.e.
appointed date
•The supplier of services is not eligible for any abatement under GST. In the case where the registered taxable person is
not in possession of invoice and/ or other documents evidencing payment of duty under the current law, the credit of
input tax will be allowed subject to such limitations, conditions and safeguard as may be prescribed by the law

25. How Will Input Tax Credit Be Adjusted?

26. Process of Claiming Input TaxCredit
IGST Input Tax Credit: First against
IGST then balance against CGST
and SGST

27. Process of Claiming Input Tax Credit (Contd.)
CGST: CGST ITC availed against CGST but cannot be used to pay SGST liability
SGST: SGST ITC availed against SGST but cannot be used to pay CGST liability
CGST & SGST ITC Can be used to pay IGST

28. Thank You