Input Tax Credit under GST – Conditions to Claim

1. Such input tax credit is eligible for claims if the goods or services purchased are further used for
business purposes and not personal use.
2. Buyer must hold such tax invoice or debit note or document evidencing payment towards the
purchase.
3. Such tax invoice or debit note is filed by the supplier in Form GSTR-1 and it appears in the
buyer’s Form GSTR-2B.
4. From 1st January 2022, the benefit of provisional ITC claims is no longer available as per Section
16(2)(aa). It means the amount of ITC reported in GSTR-3B will be a total of actual ITC in GSTR-
2B. The provisional ITC of 5% of actual ITC in GSTR-2B will no longer be allowed.
5. The buyer has received the goods and/or services. The buyer must furnish the GST returns in
Form GSTR-3B.
6. Where the goods are received in lots or instalments, ITC will be allowed to be availed when the
last lot or instalment is received.
7. The buyer must pay towards the supply of goods and/or services within 180 days (about 6
months) from the invoice date. If they fail to, then the ITC already claimed will be added back to
output tax liability and interest must be paid on such tax. ITC claim will be reinstated once the
payment is made to the supplier.
8. No ITC will be allowed if depreciation has been claimed on the tax component of a capital good
purchased.

Items on which ITC is not allowed

The input tax credit is not available for claims in the following cases-

9. Motor vehicles, with a seating capacity of less than or equal to 13 persons (including the driver),
goods transport agencies, vessels and aircraft, except for a few cases. So as an exception, ITC is
allowed in the below cases:
• Such motor vehicles and conveyances are further supplied i.e. sold.
• Transport of passengers and goods.
• Conveyance is used for imparting training on driving, flying, and navigating such vehicles
or conveyances.
10. Services of general insurance, servicing, repair and maintenance relating to motor vehicles,
vessels or aircraft in Sl. no.1.
11. Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic
surgery.
But if the goods and/or services are taken to deliver the same category of services or as a part of
a composite supply, the input tax credit will be available
Example: Mr Dev purchases cosmetic creams to supply it to a customer, then ITC on purchases
will be allowed.
 12. Membership in a club, health, and fitness centre.
13. Rent-a-cab, health insurance and life insurance except in the following cases where it is
allowed:
• Government makes it obligatory for employers to provide it to their employees by law.
For example, the mandatory cab services for female staff in night shifts.
• Goods and/or services are taken to deliver the same category of services or as a part of
a composite supply, input tax credit will be available.
For example, if Mr Dev takes the service of rent-a-cab to supply to Mr Manoj, a
customer, then the ITC on purchases will be allowed.
• Leasing, renting or hiring motor vehicles, vessels or aircraft, except cases in Sl.no. 1.
14. Travel benefits are extended to employees on vacation such as leave or home travel
concessions.
15. Works contract service for construction of an immovable property (except plant & machinery or
for providing a further supply of works contract service).
16. Goods and/or services for the construction of an immovable property whether to be used for
personal or business use.
17. Goods and/or services where tax has been paid under the composition scheme.
18. Goods and/or services used for personal use.
19. Goods or services or both are received by a non-resident taxable person except for any of the
goods imported by him.
20. Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
21. ITC will not be available in the case of any tax paid due to non-payment or short tax payment,
excessive refund or ITC utilised or availed by the reason of fraud or willful misstatements or
suppression of facts or confiscation and seizure of goods.
22. Special cases: Standalone restaurants will charge only 5% GST but cannot enjoy any ITC on the
inputs.

Section 17 - Apportionment of credit and blocked credits.

(1) Where the goods or services or both are used by the registered person partly for the purpose of any

business and partly for other purposes, the amount of credit shall be restricted to so much of the input

tax as is attributable to the purposes of his business.

(2) Where the goods or services or both are used by the registered person partly for effecting taxable

supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act

and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to

so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.
(3) The value of exempt supply under sub-section (2) shall be such as may be prescribed,2 and shall

include supplies on which the recipient is liable to pay tax on reverse charge basis, transactions in

securities, sale of land and, subject to clause (b) of paragraph 5 of Schedule II, sale of building.

Explanation. For the purposes of this sub-section, the expression value of exempt supply shall not

include the value of activities or transactions specified in Schedule III, except those specified in

paragraph 5 of the said Schedule.3

(4) 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 provisions of sub-section (2), 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 and the

rest shall lapse: Provided that the option once exercised shall not be withdrawn during the remaining

part of the financial year: Provided further that the restriction of fifty per cent. shall not apply to the tax

paid on supplies made by one registered person to another registered person having the same

Permanent Account Number.

specific conditions for ITC reversal

The ITC is required to be reversed under various scenarios defined in the Act. Some of those scenarios
are summarized below:

Circumstances When is ITC reversal required

The recipient fails to pay consideration to the Within 180 days (about 6 months) from the date
supplier (whether fully or partly) for a particular of issue of the invoice.
supply

Depreciation under the Income Tax Act has been Reversal is required at the time of closing the
claimed on the GST component of capital goods books of accounts for that financial year.
purchased

Inputs have been used to make an exempt supply On a periodic basis (monthly/yearly) using a
formula given below for common credits if inputs
are exclusively used for making exempt supply,
 then reverse it as and when identified to have
been claimed.

Inputs have been used for manufacturing
supplies some of which were used for non-
business or personal purposes
On a periodic basis (monthly/yearly) using a
formula given below for common credits (if
inputs used are exclusively attributable to a
supply used for consumption, reverse such ITC
upon identifying as having been claimed).

Cancellation of GST registration While filing form REG-16 under various situations
explained in detail in our article on the
cancellation of GST registration.

Reversal of 50% of ITC by banking and other At the time of filing regular returns.
financial companies under special rules

Reversal of 5/6th of the ITC taken on gold Dores At the time of supply of either the gold dore bar
in stock as on 1st July 2017 or the gold/gold jewellery.

ITC has been availed on ‘blocked credits’ At the time of filing regular returns up to the
date of filing annual returns.

Inputs used in goods that were lost, destroyed, At the time of filing the regular returns in relation
stolen, etc. to the month in which such loss had occurred.

Inputs used in goods that were given out as free At the time of filing the regular returns in relation
samples to the month in which such free samples were
given out.

The aim of this rule is to reverse all the ITC that has been availed by a registered
person in the event that he chooses to pay tax under the composition scheme, or his
registration gets cancelled for any reason.

Reversal of ITC FOR NON-PAYMENT OF CONSIDERATION:

• Furnish details of supply and amount failed to pay in form gstr-2

• Withing 180 days from the date of issue of invoice.
• Pay interest as may be specified from the date of claiming itc till the date the itc on such goods
is added to output tax liability.
Common credit for partly personal/ exempted and partly normal sales

• The ITC paid for the capital goods will be credited to electronic credit ledger

• Useful life of such capital asset will be taken as 5 years from the date of purchase

• Now the total amount of input tax credited to electronic credit ledger for the whole useful life

will be distributed over the useful life.

E-Ledgers under GST: Electronic Cash, Credit and Liability Ledger

e-Ledger is an electronic form of passbook for GST. These e-ledgers are available to all GST registrants

on the GST portal. The e-ledgers contains details of the following:

• Amount of GST deposited in cash to government in electronic cash ledger

• Balance of Input Tax Credit available (ITC) in electronic credit ledger

• Manner of Setoff of GST liability and balance liability (if any) electronic liability ledger
What is an Electronic Cash Ledger?
This is like an e-wallet. Any GST payment made in cash or through a bank reflects in the Electronic Cash
Ledger. After deduction of Input Tax Credit (ITC) any balance tax liability has to be paid using balance in
Electronic Cash Ledger. For example- Mr. A has a GST on sales of Rs 50,000. He also has an Input Tax
Credit on purchases of Rs 35,000. The balance of his Electronic Cash Ledger is Nil.

What is an Electronic Credit Ledger?

All eligible Input Tax Credit that is claimed by a registered dealer in the GST returns (GSTR-2 or GSTR-3B)
reflects in Electronic Cash Ledger. Credit in Electronic Cash Ledger can be used only for payment of tax.
This means that the balance of Electronic Credit Ledger cannot be utilised for payment of interest,
penalty or late fees. Interest and Penalty can be paid only through actual cash payment. Specific order
and restrictions for utilizing ITC (IGST, CGST, SGST) for payment of GST liability:

• Credit of IGST can be utilised against all any tax liability in this order – IGST, CGST or
SGST/UTGST.
• Credit of CGST cannot be utilised for payment of SGST. It can be set-off in the following order –
CGST, IGST.
• Credit of SGST/UTGST cannot be utilised for payment of CGST. SGST can be set-off in the
following order – SGST/UTGST, IGST.

ELECTRONIC CREDIT LEDGER -This ledger has details of GST liability. The ledger contains the total GST
liability and the manner in which it has been paid – in cash or through credit

E-commerce Operator As Per Sec. 2(45) of the CGST Act, 2017

• A person who manages digital or electronic facility through which suppliers can
sell their goods online.
• A person selling his own goods on an e commerce website will not be
considered as an ECO.
• Example- amazon is an eco, titan website is not an eco because it only lists its
own products.
• Registration for an ECO is mandatory irrespective of the threshold limits.
• Eco must file gstr-7 for application of registration
• Supplier also must register mandatorily irrespective of threshold limit only if the
eco collects tcs.
• The tcs collected by eco shall reflect in gstr-2b of the supplier, if operator has
filed return under gstr-8 then only supplier can claim itc.
Who is an Input service distributor (ISD) under GST?

An Input Service Distributor (ISD) is a taxpayer that receives invoices for services used by its

branches. It distributes the tax paid known as the Input Tax Credit (ITC), to such branches on a

proportional basis by issuing ISD invoices. The branches can have different GSTINs but must

have the same PAN as that of ISD.

Let’s understand with an example. The head office of M/s ABC Limited is located in Bangalore

having branches in Chennai, Mumbai and Kolkata. The head office incurred annual software

maintenance expense (service received) on behalf of all its branches and received the invoice

for the same. Since the software is used by all its branches, the input tax credit of entire

services cannot be claimed in Bangalore. The same has to be distributed to all three locations.

Here, the head office at Bangalore is the Input Service Distributor.

Situations where ISD is not applicable

ISD cannot distribute the input tax credit in the following cases:

• Where ITC is paid on inputs and capital goods. For instance, raw materials and

machinery purchased.

• ITC cannot be distributed to outsourced manufacturers or service providers.

Types of GST Invoices

A GST invoice evidences the supply/sale of goods and services and is a requisite to avail the
eligible Input Tax Credit (ITC), transport goods and generate IRN.

Different Types Of GST Invoices

1. GST - Tax Invoice
The most commonly issued invoice is the GST - Tax Invoice as there are various types of invoices
under GST. This invoice has to be mandatorily issued by every GST registered person supplying
taxable goods and services (B2B or B2C). 2. Bill of Supply
A Bill of Supply is similar to the GST- Tax Invoice. However, this is to be issued when GST does
not apply to the transaction. In other words, a Bill of Supply is issued when types of GST in India
can not be recovered from the customers. For example, if a GST-registered person is dealing only
in exempted supplies or is availing of the benefits of the composition scheme (composition
dealer), then such a person should issue a bill of supply and not a tax invoice.

3. Invoice-cum-Bill of Supply
A single Invoice-cum-bill of supply can be issued when both taxable and not-taxable/exempted
goods/services or both are supplied to an unregistered person.

4. Revised Invoice/Supplementary Tax Invoice

Revised Invoice/Supplementary Tax Invoice can be issued by a taxable person when there is any
deficiency noticed in the original tax invoice already issued. It can be in the form of a debit note
or a credit note.

5. Credit Note
If a tax invoice has already been issued for a supply and then subsequently it is found that the
value or tax charged in that invoice is more than what it is supposed to be or when the purchaser
has returned the goods, the supplier can issue a Credit Note to the purchaser.

6. Debit Note
If a tax invoice has already been issued for a supply and then subsequently found that the value
or tax charged in that invoice is less than what it is supposed to be, the supplier can issue a Debit
Note to the purchaser.