STUDY MATERIAL-B

INPUT TAX CREDIT

We have discussed meaning and relevance of Input Tax Credit (ITC) in general, while discussing
various other aspects concerning GST, in our earlier classes. In this Study Material I try give you
a brief idea about ITC under GST and also Standardased PPT on ITC published by the ICAI for
your clarification of the concept of ITC under GST. You are informed to study the material
(provided herewith as well as other materials in the form of books and online videos).

ITC is the crux of VAT based taxes. GST is an indirect tax based on vat principles. Vat based taxes
have two advantages –

1) cascading of tax is avoided, and,

2) double or multiple taxation is avoided.

The non-vat, conventional indirect taxes (for ex. State sales taxes in India) had two major draw
backs i.e. tax on tax (cascading) and double or multiple tax, apart from other draw backs. As the
GST is a vat based tax it uses the mechanism of ITC to overcome cascading and double or
multiple tax problem.

INPUT TAX CREDIT:

A taxable supplier is liable to pay tax on the value of his output supply at the prescribed rate
under GST.

There is generally a possibility that GST may already have been paid on input goods or input
services or both which have been used (in the form of component, ingredient, raw material
etc., including as capital goods) in providing the output supply of goods or services.

This happens because of the fact that the output supplier has procured the inputs from the
input supplier, who is subject to GST on his supply. [As the input of the output supplier is
output of the input supplier and when such input is a taxable good/service under GST the tax is
already paid by the input supplier and passed on to the output supplier]. If this tax paid on
input is not adjusted / deducted there will be double tax. Because the value of input is included
in the value of output. To avoid happening of such double tax the GST so paid on inputs is
treated as credit and given deduction from the tax payable on output by the output supplier.
Section 2 (62) of CGST Act defines input tax as under:

Input tax in relation to a registered person meansCGST,SGST,IGSTor UTGSTcharged on any

supply of goodsor services or both made to him and includes –

a) the IGST charged on import of goods

b) the tax payable under sub-section (3) and (4)of section 9 [reverse charge of CGST]
c) the tax payable under sub-section(3) and (4) of section 5 of IGST [reverse charge of
IGST]
d) the tax payable under sub-section (3) and (4) of section 9 of the respective SGST Act
[reverse charge of SGST]
e) the tax payable under sub-section (3)and (4) of section 7 of the UTGST [reverse charge
of UTGST]

but does not include the tax paid under the composite levy.

Aspects concerning ITC to be under stood

Following are the major aspects needed to be understood:

• Manner of utilizing credit

• Conditions for availing credit
• ITC on capital goods
• Use of inputs and ITC
• Eligibility and time limit for use of ITC
• ITC in special circumstances
• Reversal of ITC availed
• ITC in respect of goods sent for job work
• ITC in case of input service distributor

The aspects mentioned above are well explained in the STANDARDISED PPT of ICAI. I hope
that will serve the purpose in our case. Please go through the material.

Numerical Illustration-1

From the following information compute net GST payable for the month of March 2019.

Tax GST on Output Supply Input Tax Credit on 1-3-2019

CGST Rs. 2000 NIL

 SGST Rs. 15000 Rs. 1000

IGST Rs.24000 Rs.37000

Solution:

• Input tax credit of IGST is to be used in the order of IGST, CGST and SGST.
• Credit of CGST can be used for payment of CGST and balance if any for IGST.
• SGST credit can be used for payment of SGST and balance if any for IGST.

So, it works out as under:

___________________________________________________________________________

Particulars CGST (Rs.) SGST (Rs.) IGST (Rs.)

GST on outward supply 2000 15000 24000

Less: Input tax credit available

As on 1-3-2019 Nil 1000 37000

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Balance (shortfall) 2000 (shortfall) 14000 (Excess) 13000

Adjustment of IGST

Surplus 2000 11000 --

___________________________________________________________________________

Balance Nil (Shortfall) 3000 --

NOTE: After using all the available credit SGST of Rs. 3000 is yet to be paid. This is to be paid

by cash through electronic cash ledger.

Illustration-2

X Ltd. Is located in West Bengal. GST liability for the month of August 2018 is as follows

a) Output CGST payable Rs.24000

 b) Output SGST ayable Rs.9000
c) Output IGST payable Rs. 3000

Input tax credit is – CGST Rs. 7000, SGST Rs. 14000, and IGST Rs. 12000. Calculate the GST
liability for August 2018 and ITC to be carried forward.

Solution:

TAX GST on ITC- Utilisation Amount payable through

Output Aug. 2018 Of IGST Credit Electronic cash ledger

Rs. Rs. Rs. Rs.

-------------------------------------------------------------------------------------------------------------------------------

CGST 24000 7000 9000 8000

SGST 9000 14000 Nil

IGST 3000 12000 3000

NOTE: Credit of SGST carried forward is Rs. 5000.