GST Liability, ITC & GST

Procedures
Chapter 4
Rate of GST
Classification of GST Rates
Input Tax Credit (ITC) under GST

 Input Tax Credit refers to the tax already paid by a person at time  of purhase of goods ro
services and which is available as deduction from tax payable .
 For eg-  A trader purchases good worth rs 100 and pay tax of 10% on it. And now this
trader sold such goods at Rs. 150 and collect tax of Rs. 15 from buyer. Now the trader has
to pay Rs. 15 to government but he had already paid Rs. 10, so this Rs. 10 is ITC of the
trader and will be allowed as deduction from tax payable and he has to pay net Rs. 5 as tax.
Although availment of ITC is subject to certain conditions as covered in this article.
SGST, UTGST, CGST And IGST – How ITC Allowed

 Amount of Input Tax Credit on account of IGST shall first be utilized for the payment of IGST
then for payment of CGST and then for payment of SGST or UTGST.
 Amount of Input Tax Credit on account of CGST shall first be utilized for the payment of
CGST then for payment of IGST. Such amount can not be used for payment of SGST or
UTGST.
 Amount of Input Tax Credit on account of SGST or UTGST shall first be utilized for the
payment of SGST or UTGST then for payment of IGST. Such amount can not be used for
payment of CGST.
 SGST/UTGST payable or Input tax credit of SGST/UTGST will be calculated state wise i.e
ITC of SGST in one state can not be utilized for payment of SGST of another state.
 Input tax credit can not be used for payment of interest, penalty, fees or any amount payable
under the act other than the GST in manner mentioned above.
Persons Who Are Allowed To Take Input Tax Credit

• All registered person are allowed to take input tax credit other than person who are paying tax under composition
scheme.
• A person who has applied for registration within 30 days from the date on which he is liable for registration is
allowed to take input tax credit in respect of inputs held in stock and inputs contained in semi-finished or finished
goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax.
• A person who hast taken voluntarily registration is allowed to take input tax credit in respect of inputs held in stock
and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of
grant of registration.
• A person who has ceased to pay tax under composition scheme is entitled to take credit of input tax in respect of
inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day
immediately preceding the date from which he ceases to pay tax under composition scheme.
 Under the points 2, 3 and 4 above, the input tax credit is allowed only for the stock which is purchased in last one
year from the aforementioned date. Such person needs to file Form GST ITC-01 within 30 days of his becoming
eligible for availing input tax credit. Details furnished in the form is to be certified by a practicing chartered
accountant or cost accountant if the input tax credit claimed is more than Rs. 2 lakhs
 Persons NOT Allowed To Take Input Tax Credit
• Persons who are not registered in GST
• Persons who are registered under composition scheme
 Time Limit For Taking ITC
 ITC is not allowed after any of the following happens
• due date of return for month of September of next financial year
• annual return filed for relevant year (Filing date, not due date)
Conditions For Taking ITC

• he is in possession of a tax invoice or debit note issued by a supplier registered under GST
• he has received the goods and/or services
• the tax charged in respect of such supply has been actually paid to the account of the
appropriate Government
• he has furnished the return under section 39
• ITC is not allowed after any of the following
• due date of return for month of September of next financial year
• annual return filed for relevant year (Filing date, not due date)
Conditions For Taking ITC

• The person who obtains voluntary registration is entitled to take the input tax credit of input tax on inputs in
stock, inputs in semi finished goods and finished goods in stock, held on the day immediately preceding the
date of registration.
• Input tax credit is allowed only on purchases made for selling taxable or zero rated goods or services. ITC is
not allowed for purchases made for exempted supplies.
• The input tax credit of goods and / or service attributable to only taxable supplies can be taken by
registered taxable person. The amount of eligible credit would be calculated in a manner to be
prescribed in terms of section 16(7) of the MGL read with GST ITC Rules (yet to be issued). It is
important to note that credit on capital goods also would now be permitted on proportionate basis.
• Where the goods against an invoice are received in lots or instalments, the registered taxable person shall be
entitled to take credit upon receipt of the last lot or instalment.
• Input tax credit of GST component of capital goods is not allowed if the person has claimed depreciation
in income tax act for GST component. In other words ,a person can either take input tax credit of GST on
capital goods or claim depreciation on tax component.
Input Tax Credit Shall Not Be Available For


(a) motor vehicles and other conveyances except when they are used
 (i) for making the following taxable supplies, namely
 (A) further supply of such vehicles or conveyances ; or
(B) transportation of passengers; or
(C) imparting training on driving, flying, navigating such vehicles or conveyances;
 (ii) for transportation of goods.
 (b) supply of goods and services, namely,
Input Tax Credit Shall Not Be Available For

 (i) food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic
surgery except where such inward supply of goods or services of a particular category is used by
a registered taxable person for making an outward taxable supply of the same category of goods or
services;
(ii) membership of a club, health and fitness centre,
(iii) rent-a-cab, life insurance, health insurance except where the Government notifies the services
which are obligatory for an employer to provide to its employees under any law for the time being
in force or such inward supply of goods or services or both of a particular category is used by a
registered person for making an outward taxable supply of the same category of goods or services
or both or as part of a taxable composite or mixed supply
(iv) travel benefits extended to employees on vacation such as leave or home travel concession.
 (c) works contract services when supplied for construction of immovable property, other than plant
and machinery, except where it is an input service for further supply of works contract service;
Input Tax Credit Shall Not Be Available For

 (d) goods or services received by a taxable person for construction of an immovable property on his own
account, other than plant and machinery, even when used in course or furtherance of business;
 Explanation 1.- For the purpose of this clause, the word “construction” includes re-construction, renovation,
additions or alterations or repairs, to the extent of capitalization, to the said immovable property.
 Explanation 2.- ‘Plant and Machinery’ means apparatus, equipment, machinery, pipelines,
telecommunication tower fixed to earth by foundation or structural support that are used for making outward
supply and includes such foundation and structural supports but excludes land, building or any other civil
structures.
 (e) goods and/or services on which tax has been paid under composition scheme;
 (f) goods and/or services used for personal consumption;
 (g) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
 (h) any tax paid in terms of sections 74, 129 or 130.
ITC in special circumstances in GST

 Section 18 of the CGST Act provides for credit of input tax in respect of transitional stock. Transitional stock for this purpose would
mean inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the specified day. Transitional
credit has been allowed in case of a new registrant under four different circumstances as follows:
 i) New Registration: A person who has applied for registration under the Act within thirty days from the date on which he becomes
liable to registration and has been granted such registration. Transitional stock in this case would refer to the stock as on the day
immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act.
 ii) Voluntary Registration: A person, who takes a voluntary registration under sub-section (3) of section 25. Transitional stock in this
case would refer to the stock as on the day immediately preceding the date of grant of registration.
 iii) Person Exceeding the Turnover Limit for Composition Levy: Any registered taxable person who ceases to pay tax under
composition levy as provided in section 10. Transitional stock in this case would refer to the stock as on the day immediately
preceding the date from which he becomes liable to pay tax under section 9. In this case, even the capital goods are eligible for
transitional credit as reduced by such percentage points as may be prescribed in this behalf.
 iv) Withdrawal of Exemption: An exempt supply of goods or services by a registered taxable person becoming a taxable supply, may
be due to withdrawal of the exemption. Transitional stock in this case would refer to the stock relatable to such exempt supply and
capital goods exclusively used for such exempt supply, on the day immediately preceding the date from which such supply becomes
taxable. The credit on capital goods shall be reduced by such percentage points as may be prescribed in this behalf. The transitional
credit as above would be allowed subject to such conditions and restrictions as may be prescribed. In any case, the input tax credit
as above in respect of any supply forming part of the transitional stock shall be restricted to tax invoices issued not more than one
year prior to the transitional stock date. Report this ad Change in Constitution Report this ad Where there is a change in the
constitution of a registered taxable person on account of sale, merger, demerger, amalgamation, lease or transfer of the business
with the specific provision for transfer of liabilities, the said registered taxable person shall be allowed to transfer the input tax credit
that remains unutilized in its books of accounts. The amount of credit under the above four circumstances shall be calculated in such
manner as may be prescribed.
 ITC in special circumstances in GST
 Availability of Input tax credit in case of Compulsory Registration When a person becomes liable to registration and he has applied for
registration within 30 days from the date he becomes liable to registration, he can avail input tax credit of – 1. Inputs held in stock 2.
Inputs contained in semi-finished and finished goods held in stock on the day immediately preceding the date from which he becomes
liable to pay tax. Example: ABC, a company, crosses the turnover limit of Rs.20 Lacs for registration on 01/06/2018 and applies for
registration on 20/06/2018 and is granted registration on 01/07/2018 – It can take input tax credit of inputs held in
stock/semi-finished/finished goods held in stock as on 31/05/2018.

 (b) Availability of Input tax credit in case of Voluntary Registration When a person takes voluntary registration under sub-section (3) of
section 25 of CGST Act, he is eligible to take input tax credit of – Report this ad 1. Inputs held in stock 2. Inputs contained in semi-
finished and finished goods held in stock on the day immediately preceding the date of grant of registration. Example: XYZ applies for
registration on 15/06/2018 and is granted registration on 01/07/2018, it can take input tax credit of inputs held in
stock/semi-finished/finished goods held in stock as on 30/06/2018.

 (c) Availability of Input tax credit in case of Composition Scheme ceases The registered person who pays tax under composition
scheme as per section 10, ceases to pay tax under this section, he can take input tax credit in respect of – Report this ad 1. Inputs held
in stock 2. Inputs contained in semi-finished and finished goods held in stock 3. Capital goods on the day immediately preceding the
date from which he becomes liable to pay tax as regular tax payer under section 9. Example: EFG, a composition tax payer ceases to
pay tax under section 10 on 01/04/2018, it can take input tax credit of inputs held in stock/semi-finished/finished goods held in stock
and input tax credit on capital goods available as on 31/03/2018.

 (d) Availability of Input tax credit in case of exempted supply becomes taxable supply Where any goods or services or both supplied by
a registered person become taxable supply, such person can take input tax credit in respect of –

1. Inputs held in stock – related to such exempt supply

2. 2. Inputs contained in semi-finished and finished goods held in stock – related to such exempt supply

3. 3. Capital goods – used exclusively for effecting exempt supply on the day immediately preceding the date from which such supply
becomes taxable.
 ITC in special circumstances in GST
 Specific Conditions:
1. Input tax credit is available for the above said cases only in respect of goods and not in respect of services
2. Input tax credit on the tax invoices older than one year from the date of tax invoice are not eligible
3. Input tax credit in respect of capital goods is available only after reducing the tax paid on such capital goods
by 5% per quarter from the date of the invoice
4. The registered person shall make a declaration in Form GST ITC-01 containing the details of stock or
inputs or capital goods within 30 days from the date of becoming eligible to avail input tax credit
5. The declaration in Form GST ITC-01 should be duly certified by either a practising chartered accountant or
a cost accountant if the aggregate value of the claim exceeds Rs.2 Lacs
6. The input tax credit claim should be verified with the corresponding details furnished by the corresponding
suppliers in GSTR 1/GSTR 4 Availability of Input tax credit in case of change in the constitution A registered
person can transfer the remaining balance of input tax credit available in his electronic credit ledger, where
there is a change in the constitution of a registered person on account of sale, merger, demerger,
amalgamation, lease or transfer of the business with the specific provisions for transfer of liabilities to such
sold, merged, demerged, amalgamated, leased or transferred business.
 ITC in special circumstances in GST
Reversal of Input tax credit in special circumstances
1. Where any registered person who is availing input tax credit and later opts for
composition scheme under section 10 or where the goods or services or both supplied
by him become wholly exempt supply, he shall pay an amount equal to the input tax
credit in respect of inputs held in stock and inputs contained in semi-finished or
finished goods held in stock and on capital goods reduced by 5% per quarter from the
date of invoice, on the day immediately preceding the date of exercising of such
option, by way of debit in his electronic credit ledger or electronic cash ledger. Any
remaining credit, after payment, in the electronic ledger will lapse.
2. Where the capital goods or plant and machinery is supplied, the registered person
has to pay an amount equal to input tax credit taken on such capital goods or plant
and machinery, reduced by 5% per quarter from the date of invoice or the tax on the
transaction value determined under section 15, whichever is higher. The taxable
person may pay tax on the transaction value of refractory bricks, moulds, dies, jigs
and fixtures when supplied as scrap.