Goods & Services Tax Vol.5 Input Tax Credit Under GST Regime

Input tax credit can be said to be one of the key element of the entire goods and services tax (GST) framework. In GST regime, credit of GST is expected to be available at every stage in the entire supply chain.

Certain important terms in this regard are :

  • Input – any goods other than capital goods used for furthernance of business.
  • Input services – any services used for furtherance of business
  • Input tax – IGST / CGST / SGST / UGST charged on supply of goods and services including IGST paid on imports and under reverse charge.
  • Capital goods – means goods, value of which is capitalized in books of accounts and to be used for business purpose.

Credits available – input tax charged on any inward supply of goods or services which are used for furtherance of business.

Conditions for credit allow ability

  • Availability of tax invoice, debit note, bill of entry or invoices
  • Prescribed particulars are mentioned on invoice
  • Recipients furnishes information in form GST R – 2
  • Goods / services have been received (no credit on advances)
  • Tax charged on such supplies has been actually paid by suppliers
  • Return has been furnished

Blocked credit – input credit shall not be available on :

  • Motor vehicles except when in business of re-selling / renting of motor vehicles / transportation.
  • Goods / services provided at restaurant, outdoor catering, beauty treatment, health services, cosmetic surgery except when in same kind of supplies.
  • Membership of club, health and fitness center
  • Rent a cab, life insurance, health insurance except when in same kind of business.
  • LTC to employees
  • Work contract services for construction of immovable property except when in same kind of business.
  • Goods on which tax has been paid under composition
  • Goods / services for personal consumption
  • Goods lost, stolen, written off or disposed off by way of gift or free samples.

Credit dis-allowance on non-payment – if a recipient (purchaser) fails to pay to the supplier (creditor) the amount towards value of supply along with tax payable within the period of 180 days from the date of invoice, input availed shall be added to the output tax liability.

Such credit can be re-availed on payment to creditor.

Credit on capital goods – input tax credit on capital goods used exclusively for effecting taxable / zero rated supplies shall be available in full.

Separate rules prescribed for credit on capital goods used partly for business or partly for other purposes are prescribed.

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