Goods and Service Tax

Programme Bachelor of Commerce

Subject Goods and Service Tax

Semester V

University Kuvempu University

Session 43
 Input Tax Credit (ITC) (Section 16)

❖Eligibility
❖Registered person to take credit
❖conditions for a availment of credit by registered person
 Recap of Previous class

❖In the last session we discussed about the IGST Act, Inter state
supplies, Intra state supplies & Zero rated supply.
 Learning Objectives

❖To know the Input Tax Credit (ITC) (Section 16)

❖To know the Eligibility, Registered person to take credit and
conditions for a availment of credit by registered person.
 Session Outcome

❖By the end of the session the learner will be able to know the Input
Tax Credit (ITC), Eligibility, Registered person to take credit and
conditions for a availment of credit by registered person.
 Input Tax Credit (ITC) (Section 16)

Introduction:
Chapter V of CGST Act deals with input tax credit. The Credit of taxes paid
on inputs, capital goods or input services against the output tax payable,
forms the cornerstone in a GST regime.
GST can be understood as a system of value-added tax on goods and/ or
services. It is these provisions of Input Tax Credit that make GST a value-
added tax i.e., collection of tax at all points in the supply chain after
allowing for credit of taxes paid on inputs/input services and capital goods.
Eligibility and conditions for taking input tax credit

Statutory provisions:
(1)Every registered person shall, subject to such conditions and restrictions as
may be prescribed and in the manner specified in section 49, be entitled to
take credit of input tax charged on any supply of goods or services or both
to him which are used or intended to be used in the course or furtherance
of his business and the said amount shall be credited to the electronic
credit ledger of such person.
(2)Notwithstanding anything contained in this section, no registered person
shall be entitled to the credit of any input tax in respect of any supply of
goods or services or both to him unless, -
(a) he is in possession of a tax invoice or debit note issued by a supplier
registered under this Act, or such other tax paying documents as
may be prescribed;
(b) he has received the goods or services or both
(c) subject to the provisions of 2[section 41 or section 43A], the tax
charged in respect of such supply has been actually paid to the
Government, either in cash or through utilization of input tax credit
admissible in respect of the said supply; and
(d) he has furnished the return under section 39: Provided that where
the goods against an invoice are received in lots or instalments, the
registered person shall be entitled to take credit upon receipt of the
last lot or instalment.
(3) Where the registered person has claimed depreciation on the tax
component of the cost of capital goods and plant and machinery
under the provisions of the Income Tax Act, 1961, the input tax credit
on the said tax component shall not be allowed.
(4) A registered person shall not be entitled to take input tax credit in
respect of any invoice or debit note for supply of goods or services or
both after the due date of furnishing of the return under section 39
for the month of September following the end of financial year to
which such invoice or debit note pertains or furnishing of the
relevant annual return, whichever is earlier.
Relevant definitions:
a) “Capital goods” means goods, the value of which is capitalised in the
books of account of the person claiming the input tax credit and
which are used or intended to be used in the course or furtherance of
business [Section 2(19)].
b) Input: “Input” in terms of section 2(59) means: — any goods, — other
than capital goods, — used or intended to be used by a supplier — in
the course or furtherance of business
c) Input service: “Input service” in terms of section 2(60) means — any
service — used or intended to be used by a supplier — in the course
or furtherance of business.
Registered person to take credit:

Every registered person subject to Section 49 (payment of tax), shall be

entitled to take credit of input tax charged on any supply of goods or
services or both to him which are used or intended to be used in the
course or furtherance of his business.
The input tax credit is credited to the electronic credit ledger. Rule 36 of
the Central Goods and Service Tax Rules, 2017 provides that input tax
credit can be taken on the basis of any of the following documents:
(i) Invoice issued under section 31 by supplier of goods or services.
(ii)Debit note issued under section 34 by supplier of goods or services
(iii)
Bill of entry or any similar documents under Custom Act, 1962.
(iv)Invoice prepared in respect of supplies made under reverse charge
basis issued u/s 31(3) (f).
(v) Invoice/ Credit Note issued by ISD for distribution of credit in
accordance with Rule 54(1) of CGST Rules, 2017.
Conditions for availment of Input tax credit

(a) The claimant should be registered under the GST Law to avail the input
tax credit (except for certain exceptions covered under Section 18)
(b) The goods and/ or services must be used “by him” in the course or
furtherance “of his” business.
(c) Possession of original tax Invoice/Supplementary Invoice/ Debit note/
ISD invoice/ Bill of Entry and other related documents is a must.
(d) The said document must contain all the particulars prescribed /
specified in Rule 46 of Central Goods and Service Tax Rules, 2017
relating to a Tax Invoice.
e) Supplier of goods and/ or services must upload the details of such
documents in the common portal i.e GSTN.
f) Vesting condition for claiming input tax credit is filing return u/s 39
and not making supply out of such inward supplies.
g) The claimant should have received the goods / services. Input tax
credit in case of supplies in installment, would be on receipt of last
installment of goods.
h) The law casts an obligation on the recipient of supply availing credit
to effect payment to the supplier within a period of 180 days from
the date of invoice.
 Multiple choice question

1. Whether definition of Inputs includes capital goods.

(a) Yes
(b) No
(c) Certain capital goods only
(d) None of the above

Answer: (a) No
 MCQ

2. The term “used in the course or furtherance of business” means?

(a) It should be directly co-related to output supply
(b) It is planned to use in the course of business
(c) It is used or intended to be used in the course of business
(d) It is used in the course of business for making outward supply

Answer: (c) It is used or intended to be used in the course of business

 MCQ

3. The time limit to pay the value of supply with taxes to avail the input
tax credit?
(a) Three months
(b) Six Months
(c) One hundred and eighty days
(d) Till the date of filing of Annual Return

Answer: (c) One hundred and eighty days

 MCQ

4. The input tax credit is___________

a) credited to the electronic credit ledger.
b) Debited to the electronic credit ledger.
c) Either (a) or (b)
d) None of the above

Answer: a) credited to the electronic credit ledger.

 MCQ

5. What is the maximum time limit to claim the Input tax credit?
(a) Till the date of filing annual return
(b) Due date of September month which is following the financial year
(c) Earliest of (a) or (b)
(d) Later of (a) or (b)

Answer: (c) Earliest of (a) or (b)

Reference

▪ Bhaskara B.G. et al. (2019). Goods and Service Tax- Law and Practice.
Himalaya Publishing House (3rd revised edition).
▪ Vinod K Singhania., Monica Singhania. (2019). Income Tax Including
GST. TAXMANN Publication (62nd Edition).
▪ https://idtc.icai.org/gst.html