Input Tax Credit Under GST

1. INPUT TAX CREDIT UNDER GST

2. WHAT IS INPUT TAX CREDIT
Thus the Credit taken by Mr. Y for the tax paid on Raw Material purchased from Mr. X is called Input Tax Credit. ITC
can be in form of Input/Capital Goods/ Input Services.
Chapter V of GST Act deals with input tax credit. The chapter is divided into 4 sections:
(i) Section 16: Manner of taking input tax credit.
(ii) Section 16A: Taking input tax credit on inputs sent for job work.
(iii) Section 17: Manner of distribution of credit by ISD.
(iv) Section 18: Manner of recovery of credit distributed in excess.
R/m-------FP
Sales the
Dutiable FP
FACTORY
MR. Y
SELLER
Paid Tax on such R/M
purchased by Mr. Y from
Mr. X of say Rs. 10,000
Mr. X Removal of FP
@ Rs.100000
Mr. Z
Provides Raw
Material/
Capital
Goods/ Input
Services
GST 100000*12.5% ( @assumed rates) = 12500
Less: Tax allready paid on R/M =10000
GST to be Paid =2500

3. Input Tax Credit-General Provision
As per Section 16 of the Model GST Law,
 Every Registered Taxable person shall be entitled to take credit of Input Tax.
 The credit is available in the following manner:
Eligible persons Credit entitled As on Restriction/condition
Person applied for registration
within 30 days from the date of
liability to pay tax--register
and Registered
Inputs held in
stock & inputs
contained in Semi
finished or
finished goods
held in stock
The day immediately preceding
the date from which he becomes
liable to pay tax
•Cannot avail credit of
goods and / or services after
1 year from tax invoice date.
•The amount of credit
calculated as per GAAP
Person who is not required to
register, but obtains
Voluntary registration
The day immediately preceding
the date of registration
Person ceases to pay
composition tax
The day immediately
preceding the date from which
he becomes
liable to pay tax under regular
scheme

4. Proportionate Credit Concept
Proportionate Credit
Goods Used for:
For Business Purpose: 60% Non-Business Purpose: 40%
ITC Allowed: 60% ITC Disallowed: 40%
Goods Used for:
For Taxable supplies plus zero-
rated supplies : 60%
For Non-taxable supplies
plus exempted supplies:
40%
ITC Allowed: 60% ITC Disallowed: 40%
In case, goods and/or services are partly used in taxable supplies and partly in non-taxable supplies the amount of
credit shall be restricted to the taxable supplies. Taxable supplies include zero rated supplies and non-taxable
supplies shall include exempted supplies.

5. CHANGE IN THE CONSTITUTION
Change in constitution means the change of form of business in any style or way. There are different ways of
changing the constitution e.g. sale, demerger, merger, amalgamation, lease or transfer of business.
The registered taxable person is allowed to transfer the input tax credit remaining unutilized in the books of
account.
There is no condition in the model law that the stock should be completely transferred while change of any
constitution.
SWITCH OVER TO COMPOSITION SCHEME OR PRODUCT
BECOMES EXEMPT.
If any registered taxable person who has availed of input tax credit, switch over from regular scheme to
composition scheme or his product becomes exempt, he shall pay an amount, equivalent to the credit of input
tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock.
The amount should be paid on the day immediately preceding the date of such switch over or the date of
such exemption
After payment of such amount, the balance of input tax credit booked but remained un-availed if any, shall
lapse.
 NOTE: Please note that amount payable is the amount determined as per GAAP.

6. INELIGIBLE CREDIT
Motor vehicles except used for usual course of business or for providing taxable services of –Transportation of
passengers, goods or Imparting training or motor driving skills.
 Specified goods and / or services as are used primarily for personal use or consumption of employee
Goods and/or services acquired by principal in the execution of works contract which resulted in construction of
immovable property other than plant and machinery.
Goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form)
to any other person, which are used in the construction of immovable property, other than plant and machinery.
Goods and/or services on which tax has been paid under composition scheme.
 Goods and/or services used for private or personal consumption to the extent they are so consumed.
NOTE: Where the tax component has been capitalised to the asset and depreciation is claimed on it under Income-
Tax Act, then no input tax credit shall be allowed on such tax component.

7. CONDITIONS FOR AVAILING ITC
Registered taxable person is not entitled to input tax credit on supply of goods and/or services unless he:
is in possession of a tax invoice, debit note or such other taxpaying document
goods/services are received or has been taken on the direction of the receiver.
Tax on such goods are deposited with the Government or utilized as the Input-Tax Credit admissible in respect of
the said supply.
He has furnished return as per section 27 i.e. GSTR 3.
SUPPLY OF CAPITAL GOODS ON WHICH ITC IS TAKEN
If registered taxable person supply any of the capital goods on which Input-Tax credit is taken , then he should have
to pay such amount equal to:
ITC taken on such capital goods =xxxx
Less: % prescribed by the Govt =xxxx
Total (A) XXXX
Tax on the transaction value of such capital goods (B) xxxx
The taxable person shall pay an amount higher of A or B.

8. ITC ON GOODS SENT FOR JOB WORK
Eligible to take credit of Input or Capital Goods sent to Job Work provided:
Credit of Input: Input of Capital Goods:
If Inputs is received back
in 180 days
Inputs not received back
in 180 days
Eligible to take ITC
Pay the credit utilized
along with Interest
If Capital goods is received back
in 2 Years
If Capital goods is not received
back in 2 Years
Eligible to take ITC
Pay the credit utilized
along with Interest
If Inputs or Capital goods are received back after 180 days/ 2 years as the case may be
Book the credit along with interest on Receipt
Note: Credit is allowed even if the Inputs/Capital goods is directly received at Job Worker’s premises.