2. INTRODUCTION
• The mechanism in which tax paid on inward supply is adjusted towards tax paid on outward supply is
known as Input Tax Credit (ITC).
• This ITC available reflects in the electronic credit ledger of the tax – payer maintained at the GST
common portal.
• Input Tax Credit includes the CGST, SGST, ITGST or UTGST charged on any supply of goods or services or
both made to a registered person but does not include the tax paid under the composition levy.
3. • Example –
• Mr. A is a registered wholesaler in Mumbai. He purchased goods worth Rs. 5,00,000 from Mumbai and paid GST
@12%. He sold these goods to Mr. B for Rs. 9,00,000 and charged GST @ 12% on it.
• Mr. A has input tax credit of CGST and SGST for Rs. 30,000 each. Now Mr. A will pay RS. 24,000 each as net GST.
GST paid on Inward Supply GST collected on Outward Supply
CGST 6% OF 5,00,000 = 30,000 6% OF 9,00,000 = 54,000
SGST 6% OF 5,00,000 = 30,000 6% OF 9,00,000 = 54,000
4. ELIGIBILITY FOR AVAILING ITC
(SECTION 16(1))
• Every registered person shall be entitled to take credit of input tax on goods or services or both supplied
to him intended to be used for business or furtherance of business.
5. CONDITIONS TO BE SATISFIED FOR AVAILING ITC
(SECTION 16(2))
Conditions required for taking ITC:
1. Proper tax invoice/Debit note/bill of entry.
2. Receipt of Goods or Services or Both.
• It will also include Bill to Ship to Model where it is clear that goods/services may be provided to a third party
by the supplier on the direction of the registered person. Though, the registered person does not receive the
goods or services but it is deemed that the registered person has received and accordingly ITC will be available
to the registered person (third party).
• In case goods are received in lots or installments against a single invoice then input tax credit shall be available
on receipt of last lot of instalment.
3. Tax should be paid/adjusted by supplier.
4. Return should be filed.
6. NISHANT LTD. IS A MANUFACTURER OF SURAT, GUJARAT. IT PROVIDES THE FOLLOWING INFO IN RESPECT OF
VARIOUS INPUTS PURCHASED DURING THE MONTH OF JULY, 2018.
PARTICULAR OF INWARD SUPPLIES GST (Rs.)
1. Goods purchased with valid tax paying invoice 18,000
2. Goods purchased without invoice 20,000
3. Goods purchased but not used for business purposes 7,000
4. Goods purchased and used for supplying exempted goods and services 6,000
5. Goods purchased from Vimal against which full payment is made by Nishant
Ltd. Vimal but tax has not been deposited by Vimal.
31,000
6. Purchase of goods from PQR Ltd. (Invoice of PQR Ltd. Is received in July 2018
but goods were received in the month of August, 2018).
11,000
7. Goods imported from China in respect of which Bill of Entry is available with
Nishant Limited.
6,000
8. Goods purchased against valid invoice in respect of which tax has been
deposited.
10,000
7. PARTICULAR OF INWARD SUPPLIES GST (Rs.)
1. Goods purchased with valid tax paying invoice 18,000
2. Goods purchased without invoice NA
3. Goods purchased but not used for business purposes NA
4. Goods purchased and used for supplying exempted goods and services NA
5. Goods purchased from Vimal against which full payment is made by Nishant
Ltd. Vimal but tax has not been deposited by Vimal.
Since, tax has not been deposited to the credit of Government, ITC cannot be
claimed.
NA
6. Purchase of goods from PQR Ltd. (Invoice of PQR Ltd. Is received in July 2018
but goods were received in the month of August, 2018).
The goods are received in the month of August, 2018. ITC cannot be claimed.
NA
7. Goods imported from China in respect of which Bill of Entry is available with
Nishant Limited.
6,000
8. Goods purchased against valid invoice in respect of which tax has been
deposited.
10,000
TOTAL ADMISSIBLE ITC FOR THE MONTH OF JULY 2018 34,000
8. NO ITC IF DEPRECIATION IS CLAIMED ON TAX
COMPONENT (SECTION 16(3))
• If depreciation being claimed under Income Tax Act on input tax credit. Then ITC shall
not be allowed under GST.
• For eg – Z limited purchased a machine for Rs. 15,00,000 plus GST @ 18%. The
machine has been capitalized in the books at Rs. 17,70,000 (i.e. inclusive of GST).
Accordingly, the depreciation was claimed for Rs. 2,65,500 (i.e. 15% of Rs. 17,70,000)
under the Income tax Act. Since, depreciation is claimed on tax (GST) component of cost
of machinery, the ITC shall not be allowed.
9. • R agrees to Supply to G(a trader) certain goods worth Rs.1000000 in following lots:
• When and for what amount will G be able to take input credit? Assume the rate of GST is
10%.
• [ Answer Hint –R can take the ITC in the month of November for Rs. 10,00,000*10% =
1,00,000 in which last lot of goods are received.]
Date Lot Value of Goods
18 Sept. 2020 First 2,00,000
18 Oct 2020 Second 3,00,000
18 Nov. 2020 Third 5,00,000
10. TIME LIMIT FOR AVAILING THE INPUT TAX CREDIT
(SECTION 16(4))
Last date to take credit: -
• Annual Return
Or
• Last date of filing return of September i.e. 20 October.
Earlier of both.
11. • Example –
• The date of invoice for supply of goods is 24.10.2017 for which ITC available. Determine
the time limit for availing ITC if the annual return has been furnished:-
• (a) On the last date (31.12.2018)
• (b) On 5.10.2018
12. PARTICULARS CASE 1 CASE 2
Date of filing of return 31.12.2018 5.10.2018
Due date of filing return for the month of September
2018
20.10.2018 20.10.2018
Last date by which ITC can be claimed (Earlier of the
above two dates)
20.10.2018 5.10.2018
13. REVERSAL OF ITC IN CASE OF NON-PAYMENT OF
CONSIDERATION
• If recipient fails to pay the invoice amount to supplier of goods or services along with the tax amount
within 180 days of date of invoice. Then an amount equal to tax credit shall become output liability.
• Further provides that such person shall be liable to pay @18% p.a. for the period starting from date of
availing credit on such supplies till the date when the amount added to the output tax liability, is paid.
14. • M/s Saroj Traders is a registered dealer in GST. The firm deals in taxable goods covered under forward charge. It
has made the following inward supplies from five different wholesalers.
• (a) What is the date up to which payment should have been made by the recipient so that the reversal of ITC is
not attracted ?
• (b) Also calculate the amount of ITC that shall be added towards the output tax liability with interest
Date of Issue of
Invoice
Date of availing of
credit by recipient
ITC availed by the
recipient (in Rs.)
Date of payment by
recipient
A 12.11.2017 15.12.2017 18,250 17.08.2018
B 14.08.2017 15.09.2017 26,064 11.04.2018
C 17.10.2017 15.11.2017 29,000 08.02.2018
D 08.12.2017 15.01.2018 54,750 24.07.2018
E 10.01.2018 15.02.2018 16,000 10.05.2018
15. • (a) Determination of date upto which payment should be made:
Working showing calculation of 180 days from the date of invoice Last date upto
which payment
should be made
A 18 (Nov.) + 31 (Dec.) + 31 (Jan.) + 28 (Feb.) + 31 (March) + 30 (April) + 11 (May) 11.5.2018
B 17 (Aug.) + 30 (Sept.) + 31 (Oct.) + 30 (Nov.) + 31 (Dec.) + 31 (Jan.) + 10 (Feb.) 10.2.2018
C 14 (Oct.) + 30 (Nov.) + 31 (Dec.) + 31 (Jan.) + 28 (Feb.) + 31 (March) + 15 (April) 15.4.2018
D 23 (Dec.) + 31 (Jan.) + 28 (Feb.) + 31 (March) + 30 (April) + 31 (May) + 6 (June) 6.6.2018
E 21 (Jan.) + 28 (Feb.) + 31 (March) + 30 (April) + 31 (May) + 30 (June) + 9 (July) 9.7.2018
16. Date on which 180 days expires Date of payment by recipient
A 11.5.2018 17.08.2018 Paid after expiration of 180
days
B 10.2.2018 11.04.2018 Paid after expiration of 180
days
C 15.4.2018 08.02.2018 Paid before expiration of
180 days
D 6.6.2018 24.07.2018 Paid after expiration of 180
days
E 9.7.2018 10.05.2018 Paid before expiration of
180 days
17. ITC Availed Interest @18% p.a. from the date of
availing credit till the date it is added to
Output Tax Liability
Total Amount
A 18,250 18,250*18%*182/365 = Rs. 1,638 19,888
B 26,064 26,064*18%*181/365 = Rs. 2,326 28,390
D 54,750 54,750*18%*181/365 = Rs. 4,887 59,637
Date of availing of
credit by recipient
DETERMINATION OF THE PERIOD STARTING FROM
THE DATE OF AVAILING CREDIT TILL THE DATE
WHEN THE AMOUNT IS ADDED TO THE OUTPUT
TAX LIABILITY
TOTAL NO. OF DAYS
A 15.12.2017 16 (Dec.) + 31 (Jan.) + 28 (Feb.) + 31 (March) + 30
(April) + 31 (May) + 15(June)
182
B 15.09.2017 15 (Sept.) + 31 (Oct.) + 30 (Nov.) + 31 (Dec.) + 31
(Jan.) + 28 (Feb.) + 15 (March)
181
D 15.01.2018 16 (Jan.) + 28 (Feb.) + 31 (March) + 30 (April) + 31
(May) + 30 (June) + 15 (July)
181
18. APPORTIONMENT OF ITC/ELIGIBILTY OF ITC
(SECTION 17)
• SECTION 17(1) -
• In case of service/goods used for partly for business & partly for personal, then credit related to
business shall be allowed.
• If a registered person is using the goods or services or both; partly for the business purpose and partly
for any other purpose, in that case only proportionate ITC will be allowed for the goods or services or
both used only for business purpose.
19. SECTION 17 (2) –
ITC to different types of supplies
Taxable Supplies Zero rated Supplies Exempt supplies
Fully credit allowed Fully credit allowed No credit allowed
20. • SECTION 17(3)
• -----------------------https://www.youtube.com/watch?v=-w2MgrFSuKQ-------------------------------
• Exempt Supplies are:
1. Supply on which the recipient is liable to pay tax on RCM.
2. Transactions in securities.
3. Supply of exempted goods/services specified in list.
4. Sale of land and Building(except real estate)
5. Non taxable supplies
https://www.youtube.com/watch?v=UqZ615KrqHM
21. • Mr. X wants to avail ITC on goods received as inputs in the month of March 2018. He paid Rs.
2,52,000 as input tax on all goods purchased during the month. The following is the info regarding tax
paid on inputs and the turnover effected by him during the month of March 2018:
• Determine the amount of ITC that is available to Mr. X for the month of March,2018.
PARTICULARS AMOUNT
Value of exempted supplies 4,00,000
Value of supplies used for non-business purposes 2,00,000
Value of Supplies exported 3,00,000
Value of supplies used exclusively for business purposes 21,00,000
TOTAL 30,00,000
22. • Calculation of Taxable Supplies :
• CALCULATION OF TAXABLE SUPPLIES AS A PERCNTAGE OF TOTAL SUPPLIES:
= Taxable Supplies / Total Supplies * 100 = 24,00,000/30,00,000 * 100 = 80%
• ITC Available = 80% of 2,52,000 = Rs. 2,01,600
Value of supplies exported (termed as zero-rated supply) 3,00,000
Value of supplies used exclusively for business purposes 21,00,000
TOTAL TAXABLE SUPPLIES 24,00,000
23. • SECTION 17(4)
• Banking companies and Non Banking Financial Company have given below option for claiming input tax
credit.
1. Avail 50% of total input tax credit:- 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- (i) either Comply with the provisions of Section 17(2) or (ii) Avail of,
every month, an amount equal to 50% of the eligible input tax credit on inputs, capital goods and input
services in that month and the rest shall lapse.
2. Avail 100% of total input tax credit: - The restriction of 50% shall not apply to the tax paid on supplies
made by one registered person to another registered person having the same PAN. In such cases, 100%
tax credit shall be availed.
24. Example -
Mahalakshmi Bank provided the following information for the month of August, 2018.
The following is the status of eligible ITC available:
Determine the amount of Input Tax Credit available to Mahalaxmi Bank for the month of August, 2018:
Alternative 1: The bank has opted section 17(2)
Alternative 2: The bank has opted section 17(4)
PARTICULARS AMOUNT
A Value of taxable supply of services 8,00,000
B Value of exempted supply of services 12,00,000
CGST SGST
On Inputs received 16,740 16,740
On Input services availed 22,500 22,500
TOTAL 39,240 39,240
25. • Alternative 1: The bank has opted section 17(2)
Total Supplies =20,00,000
Total ITC = 39,240 (CGST) & 39,240 (SGST)
Net ITC Available = Taxable Supplies/Total Supplies * Total ITC (CGST)
= 8,00,000/20,00,000 * 39,240
= Rs. 15,696
CGST Available = Rs. 15,696
SGST Available = Rs. 15,696
Alternative 2: The bank has opted section 17(4)
Total ITC Available = 50% of Eligible ITC (Being different PAN)
CGST Available = 50% of 39,240 = Rs. 19,620
SGST Available = 50% of 39,240 s= Rs. 19,620
26. BLOCKED CREDITS I.E. INELIGIBLE INPUTS/CAPITAL
GOODS/SERVICES FOR ITC [SECTION 17(5)]
(A)Motor vehicles :-
• Motor vehicles (with seating capacity 13 or less; including driver) or other conveyance is not allowed and its
related expenses except:
• Transportation of goods and passengers.
• Business of driving or training.
• Further supply of such motor vehicles.
27. • Example-
• Where ITC is not allowed [ITC is blocked]
1. X purchased one motor car, having seating capacity of 5 passengers, to be used by him for going to
factory.
2. Car purchased by a marketing company for official use of its employees.
• Where ITC is allowed [Exception to Section 17(5)
1. Mr. X purchased motor car for running as taxi.
2. A car dealer has purchased cars for resale.
3. A driving school has purchased cars for use in imparting driving skills.
4. Buses purchased by a company for transportation of employees from their residence to office and
back.
28. (B) ITC on transaction with composition dealer: -
• Goods or services or both on which tax has been paid under Section 10 of CGST Act, 2017.
• A supplier registered under Composition Scheme does not collect tax from its customers but pays a lump sum tax
at a specified rate on its quarterly turnover out of his own pocket. This tax paid by Composition dealer is not
available to him as ITC.
• Example – Dev, a composition dealer, has supplied goods to Aarushi. Aarushi used the goods in furtherance of
business but she cannot claim ITC on such inward supplies. In fact, in this case, no GST has been paid by Arushi as
composition dealer cannot charge tax from recipient.
29. (C) Inputs in case of NRTP: -
• Supply received by non resident is blocked.
(D) Tax paid on goods lost, stolen goods, destroyed, goods written off and goods distributed by
way of sample: -
• Example –
1. Goods destroyed due to natural calamities.
2. Inputs stolen from the factory store.
3. Free samples of medicines by medicinal company to the medical practiotioner.
30. (E) ITC on works contract service for construction of immovable property. (Except subcontracting): -
• Works Contract means a contract for building, construction, installation, improvement, repair etc. of any
immovable property wherein transfer of property in goods is involved in the execution of such contracts.
• The input service relating to construction activity (like office building, factory, building etc.) is blocked. So, ITC
in respect of construction service is not available when expenses are capitalized in the books of accounts. It
means ITC is available for routine construction related services like repairs, maintenance etc.
• But the ITC is not blocked
1. where the construction work is undertaken for other by persons like builders, developers, contractors, etc.
2. For construction of Plant and Machinery.
• Example –
1. Works contract services for installation of P&M. (ITC Allowed).
2. Works contract services for construction of office building. (ITC Not Allowed).
3. Goods used for setting up telecommunication towers being immovable property. (ITC Not Allowed).
31. • (F) Specified supply of Goods or Services or Both by employer to its employee:-
1) Food & Beverages
2) Beauty Treatment
3) Health Services
4) Plastic surgery except used in normal course of business.
5) Membership of health club or fitness gym.
6) Rent a Cab
7) Life insurance/Health insurance premium
8) Travel benefits by employee (LTC).
• Example-
1. A Ltd., a manufacturing firm, purchased food packets for its employees from outside caterer. (ITC not allowed).
2. A is engaged in providing outdoor catering services and the company has used inputs for the same. (ITC
allowed)
32.
33.
34.
35. TREATMENT OF INPUT TAX CREDIT, WHEN STATUS OF TAX
PAYER CHANGES [SECTION 18]
• Unregistered Registered
• Composition Dealer Normal dealer
• Exempt Supply Taxable Supply
• Raw Material - You can take input tax credit on stock held on day immediately preceding the date
on which status is liable to change.
• Capital Goods - 5% per quarter or part thereof shall be reduce & balance credit shall be taken.
Available only to composition and exempt supply.
• If registration is not taken within 30 days from liable date, in that case registered person is not
eligible to avail input tax credit held in stock.
36. • SECTION 18(2)
• It provides that in such circumstance, the registered person shall not be entitled to take
ITC after the expiry of one year from the date of issue of tax invoice relating to such
supply.
37.
38.
39.
40.
41.
42.
43. • Registered Unregistered
• Normal Dealer Composition dealer
• Taxable Supply Exempt Supply
• Raw Material - You can take input tax credit on stock held on day immediately preceding the date
on which status is liable to change.
• Capital Goods - 5% per quarter or part thereof shall be reduce & balance credit shall be taken.
Available only to composition and exempt supply.
44. TREATMENT OF CREDIT WHEN INPUT GOODS OR
CAPITAL GOODS SENT TO JOB WORKER [SECTION 19]
• Job work means any treatment or process undertaken by a person on goods belonging to
another registered person.
• INPUT GOODS
• Principal can take credit on input goods sent directly to job worker.
• Input tax credit can be taken by principal without receiving goods at his place.
• If material not received back after job within 1 year from the date of receipt by job worker
then, it will be treated as supply & tax shall be paid along with interest.
45.
46. • CAPITAL GOODS
• Principal can take credit on capital goods sent to job worker.
• Input tax credit on capital goods can be taken by principal without receiving goods at his place.
• If material not received back after job within 3 years from the date of receipt by job worker
then, it will be treated as supply & tax shall be paid along with interest.
47. • Geet Limited procured inputs from Preet Limited for cash on 18-10-2017. The Geet Limited
availed ITC of CGST/SGST paid on these inputs in the return under section 39 for the month of
October, 2017. On 25-11-2017, the company sent the inputs to a job worker outside the factory
(within the same city) for carrying out manufacturing operations on inputs. These inputs were
received by the job worker on 28-11-2017.
• Discuss the reversal of ITC if the job worker returned the inputs on 7-10-2018.
• What would be your answer be if such inputs were received back on 19-12-2018?
48. • Solution
Goods received back on 7-10-2018
Since, the inputs have been received back from the job worker within 1 year (from the date
of sending of goods); the Geet Limited is not required to pay any amount in this regard.
• Goods received back on 19-12-2018
The goods sent on 25-11-2017 should have been received back latest by 25-11-2018. In the
given case, the Inputs have not been received within 1 year of their being sent out.
Therefore, it will be deemed that input have been supplied by manufacturer to job worker
on the day when they were sent to such job worker ie. On 25-11-2017. Hence, Geet Limited
shall pay an amount equivalent to the ITC attributable to the inputs by debiting the
electronic credit ledger. It may be noted that the manufacturer can take the credit again
when the inputs are received back in his factory.
49. MANNER OF UTILIZATION OF INPUT TAX CREDIT
Sequence-1 Sequence -2 Sequence -3
Input tax credit of IGST Input Tax credit on account of CGST Input tax credit of SGST/UTGST
First for payment of IGST First for payment of CGST First for payment of SGST
Then for payment of CGST Then for payment of IGST Then for payment of IGST
And then if balance left to be used for payment of
SGST/UTGST
- -
50. • Anubha Limited in Delhi is a registered under GST Act. Anubha
Limited shared following particulars:
• It Purchased Goods A from Haryana Rs. 6,00,000 and paid IGST@ 20%.
sold Goods in Delhi at a profit of 20% on the purchase price along with CGST
@ 10% and SGST@ 10%
• It also purchased Goods B from Delhi Rs. 5,00,000 and paid CGST@ 10%
and SGST @ 10%. It sold goods in Delhi at the profit of 30% of cost price and
charged CGST @10% and SGST @ 10% on selling price.
• It also purchased Goods C from Delhi for Rs. 7,00,000 and paid CGST @ 10%
and SGST @ 10%. These goods were sold in inter-state sale and thus Anubha
Limited charged IGST@ 20% after taking profit of 40% on cost.
Discuss tax treatment and Compute Net Tax Payable.
51. • Goods A purchased – 6,00,000
Add: IGST @ 20% - 1,20,000
Total 7,20,000
Purchase Price – 6,00,000
Add: Profit @20% on the purchase price Rs. 6,00,000 – 1,20,000
Selling Price - 7,20,000
Add: CGST @10% - 72,000
Add: SGST @10% - 72,000
Total 8,64,000
53. • Goods C purchased – 7,00,000
Add: CGST @ 10% - 70,000
Add: SGST @ 10% - 70,000
Total 8,40,000
Purchase Price – 7,00,000
Add: Profit @40% on the purchase price Rs. 7,00,000 – 2,80,000
Selling Price - 9,80,000
Add: IGST @20% - 1,96,000
Total 11,76,000
54. • COMPUTATION OF NET TAX LIABILITY AFTER SETTING OFF ITC
PARTICULARS IGST CGST SGST
OUTPUT TAX
Goods A
Goods B
Goods C 1,96,000
72,000
65,000
72,000
65,000
TOTAL OUTPUT TAX 1,96,000 1,37,000 1,37,000
LESS: Input Tax Credit of IGST of
Goods
(1,20,000)
LESS: Input Tax Credit of CGST of
Goods B
Goods C (50,000)
(70,000)
LESS: Input Tax Credit of SGST of
Goods B
Goods C (50,000)
(70,000)
NET TAX LIABILITY 76,000 17,000 17,000
