Input Tax Credit
GST FAQ 3rd Edition – December, 2018 – GST Frequently Asked Questions (FAQs)
GST
10. Input Tax Credit
Q 1. What is input tax?
Ans. Input tax means the central tax (CGST), State tax (SGST), integrated tax (IGST) or Union territory tax (UTGST) charged on supply of goods or services or both made to a registered person. It also includes tax paid on reverse charge basis and integrated tax charged on import of goods. It does not include tax paid under composition levy.
Q 2. What is Input Tax Credit?
Ans. Input Tax Credit means the credit of input tax on the supplies of goods or services or both received by a registered person.
Q 3. Can GST paid on reverse charge basis be considered as input tax?
Ans. Yes. The definition of input tax includes the tax payable under the reverse charge.
Q 4. Does input tax includes tax (CGST/IGST/SGST) paid on input goods, input services and capital goods?
Ans. Yes, it includes taxes paid on input goods, input services and capit
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turn under section 39.
Q 7. Whether all particulars necessary in the documents- tax invoice or debit note or such other tax paying documents for claiming ITC?
Ans. If the said document does not contain all the specified particulars but contains the details of the amount of tax charged, description of goods or services, total value of supply of goods or services or both, GSTIN of the supplier and recipient and place of supply in case of inter-State supply, input tax credit may be availed by such registered person. (Proviso to Rule 36(2) of CGST Rules, 2018 inserted vide Notfn no.39/2018-Central Tax issued dated 04.09.18)
Q 8. Where the goods against an invoice are received in lots or instalments, how will a registered person be entitled to ITC?
Ans. The registered person shall be entitled to the credit only upon receipt of the last lot or installment.
Q 9. Can a person take input tax credit without payment of consideration for the supply along with tax to the supplier?
Ans. Yes, t
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invoice?
Ans. No. The time limit specified in section 16(4) shall not apply to a claim for re-availing of any credit, in accordance with the provisions of the Act or these rules, that had been reversed earlier.
Q 13. Certain supplies mentioned in Schedule I of the Act are deemed to be supplies even if made without consideration. Will the payment within 180 days' rule for credit apply even to such cases?
Ans. No. The value of supplies made without consideration as specified in Schedule I shall be deemed to have been paid for the purposes of the second proviso to section 16(2). (Proviso to Rule 37 of the CGST Rules, 2017)
Q 14. As per section 15(2)(b) of the CGST Act, 2017, any amount that the supplier is liable to pay in relation to such supply but which has been incurred by the recipient of the supply and not included in the price actually paid or payable for the goods or services or both are added in the value of a supply. In such cases, no consideration is to be paid to the suppl
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the direction of and on account of such registered person. [Explanation clause to Section 16(2)(b) inserted vide CGST(Amendment) Act, 2018]
Q 17. What is the time limit for taking ITC and reasons therefor?
Ans. A registered person cannot take ITC in respect of any invoice or debit note for supply of goods or services after the due date for furnishing the return under section 39 for the month of September following the end of financial year to which such invoice/invoice relating to debit note pertains or furnishing of the relevant annual return, whichever is earlier. So, the upper time limit for taking ITC is 20th October of the next FY or the date of filing of annual return whichever is earlier.
The underlying reasoning for this restriction is that no change in return is permitted after September of next FY. If annual return is filed before the month of September, then no change can be made after filing of annual return.
However, in cases of new registration or where a person shif
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e factory premises, etc. and taxes paid as a result of detection of evasion of taxes.
Q 20. A taxable person is in the business of information technology. He buys a motor vehicle for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such motor vehicle?
Ans. No. ITC on motor vehicles can be availed only if the taxable person is in the business of transport of passengers or goods or is providing the services of imparting training on motor vehicle or further supply of such vehicles.
Q 21. Sometimes goods are destroyed or lost due to various reasons? Can a person take ITC to the extent of such goods?
Ans. No, a person cannot take ITC with respect to goods lost, stolen, destroyed or written off. In addition, ITC with respect of goods given as gifts or free samples are also not allowed. [Section 17(5)(h) of CGST Act]
Q 22. Can a registered person get ITC with respect of goods or services used for construction of a building for business purposes?
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ion that the invoices pertaining to such inward supplies should not be more than a year old.
Q 24. What is the eligibility of input tax credit on inputs in stock, input services and capital goods, lying in stock for a person who obtains voluntary registration?
Ans. 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. This is subject to further condition that the invoices pertaining to such inward supplies should not be more than a year old.
Input service and capital goods lying in stock shall not be eligible for ITC. (Section 18(1)(b) of CGST Act, 2017)
Q 25. Where goods or services or both received by a taxable person are used for effecting both taxable and non-taxable supplies, whether the input tax credit is available to the registered taxable person?
Ans. The input tax credit of goods or s
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y preceding the date from which he ceases to be eligible for composition scheme. The manner of calculation of eligible credit is provided in CGST Rules. This is subject to further condition that the invoices pertaining to such inward supplies should not be more than a year old.
Q 28. Mr. A, a registered person was paying tax under composition scheme upto 30th July, 2017. However, w.e.f 31st July, 2017, Mr. A becomes liable to pay tax under regular scheme. Is he eligible for ITC?
Ans. Mr. A is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock and capital goods (reduced by such percentage points as has been prescribed by the ITC Rules) as on 30th July, 2017. The Input Tax Credit on capital goods shall be claimed after reducing the tax paid on such capital goods by five percentage points per quarter of a year or part thereof from the date of invoice or such other documents on which the capital goods were received
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in semi-finished or finished goods held in stock on the day immediately preceding the date of exercise of option or date of exemption. The ITC on inputs shall be calculated proportionately on the basis of corresponding invoices on which credit had been availed by the registered person on such input. In respect of capital goods held in stock the input tax credit involved in the remaining useful life in months shall be computed on pro-rata basis, taking the useful life as 5 years. Assume capital goods have been in use for 4 years, 6 months and 15 days. The useful remaining life in months will be 5 months ignoring the part of the month. If ITC on such capital goods is taken as C, ITC attributable to the remaining useful life will be C multiplied by 5/60. This would be the amount payable on capital goods. The ITC amount shall be determined separately for integrated tax, central tax and state tax. The payment can be made by debiting electronic credit ledger, if there is sufficient balance
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In case of supply of capital goods or plant and machinery on which input tax credit has been taken, the registered person shall pay an amount equal to the input tax credit taken on the said capital goods or plant and machinery, as reduced in the manner prescribed under sub-rule 6 of rule 44 of the CGST Rules, 2017, or the tax on the transaction value of such capital goods or plant and machinery, whichever is higher. But in case of refractory bricks, molds and dies, jigs and fixtures when these are supplied as scrap, the person can pay tax on the transaction value.
Q 34. Whether input tax credit can be taken on payment of tax after adjudication?
Ans. Input tax credit cannot be availed by a registered person in respect of any tax that has been paid in pursuance of any order where any demand has been confirmed in cases of evasion by reason of any fraud, willful misstatement or suppression of facts. (Rule 36(3) of the CGST Rules, 2017)
Q 35. How can Input Tax Credit be utilized?
Ans. T
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(b) the central/ State/ UT tax shall first be utilised towards payment of central/ State/ UT tax and the amount remaining, if any, may be utilised towards the payment of integrated tax;
The input tax credit on account of State/UT tax shall be utilised towards payment of integrated tax only where the balance of the input tax credit on account of central tax is not available for payment of integrated tax; (The CGST (Amendment) Act, 2018)
The input tax credit on account of central tax, State tax or Union territory tax shall be utilised towards payment of integrated tax, central tax, State tax or Union territory tax, as the case may be, only after the input tax credit available on account of integrated tax has first been utilised fully towards such payment. (Section 49A of CGST Act, 2017 inserted vide the CGST(Amendment) Act, 2018)
(c) the central/ State tax shall not be utilised towards payment of State/ Central tax.
Q 36. What are the supplies included in exempt supplies?
Ans. 'Ex
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isions in respect of banking companies?
Ans. A banking company or a financial institution including a non-banking financial company engaged in supply of specified services would either avail proportionate credit or avail 50% of the eligible input tax credit.
The option once exercised cannot be withdrawn in the same year. The restriction of 50% will not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN.
Q 39. A banking company or a financial institution including a non-banking financial company engaged in in supply of specified services supplies non-business supplies and exempted supplies. How should it avail credit in case it choses the 50% option?
Ans. 50% of the eligible credit only can be taken. Thus, the credit of tax paid on inputs and input services used for non-business purposes should not be availed. Besides, ITC that are not eligible in terms of Section 17(5) should also not be availed. 50% of the remaining cre
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and insurance of motor vehicles for transportation of goods is admissible with no restrictions.
Motor Vehicles for transportation of persons: Thus, ITC on repairing, maintenance and insurance of motor vehicles for transportation of persons carrying more than 13 persons will be admissible. However, for motor vehicles for transportation of persons carrying up to 13 persons will be admissible only if it is used for transportation of passengers, further supply of such motor vehicles and imparting training on driving. [Section 17(5) (ab) as substituted vide the CGST (Amendment) Act, 2018]
Q 42. What would be input tax eligibility in cases where there is a change in the constitution of a registered person?
Ans. The registered person shall be allowed to transfer the input tax credit that remains unutilized in its electronic credit ledger to the new entity, provided that there is a specific provision for transfer of liabilities. (Section 18(3) of the CGST Act, 2017)
Q 43. What are the con
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cified in the demerger scheme.
Q 44. How to determine the credit attributable to exempt supplies in cases where the inputs/ input services are used for effecting exempt as well as taxable supplies?
Ans. The credit attributable to exempt supplies is to be determined as under:
D1 = (E/F) x C2
Where D1 = Credit attributable to exempt supplies
E = aggregate value of exempt supplies (all supplies other than taxable and zero-rated supplies)
F = total turnover of the person during the tax period
C2 = Common Credit i.e. Total input tax in a period reduced by:
T1 – Tax attributable exclusively for non-business purpose
T2- Tax attributable exclusively for exempt supplies
T3- Ineligible credits as per Section 17(5)
T4- Tax attributable exclusively for other than exempted supplies but including zero rated supplies
(Section 17(2) & (3) read with Rule 42 of the CGST Rules, 2017)
Q 45. Whether Schedule III activities (Activities considered as neither supply of goods nor supply of service
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such construction of immovable property is not capitalised. [Explanation to section 17(5)(d) of CGST Act]
Q 48. Whether a non-resident taxable person can take input tax credit of tax paid on goods and services, procured by him locally?
Ans. No. He can take input tax credit of tax paid only on goods and services imported by him.
Q 49. Whether the principal can take input tax credit of tax paid on input goods or capital goods, which are not received by him but sent directly to his Job-worker?
Ans. Yes, subject to some conditions and restrictions. In such cases the condition of receipt of goods, prescribed under Section 16(2)(b) of CGST ACT, shall not apply.
Q 50. What are the conditions/restrictions in cases where the inputs or capital goods are sent directly to Job-worker?
Ans. When the Principal sent the inputs or capital goods directly to Job-worker and take input tax credit in respect of the same, then the inputs (after completion of Job-work or otherwise) are required to be b
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