GST – GST Law and Procedure – 019 – Chapter Ninteen Input Tax Credit Mechanism in GST Electronic Way Bill in GST Uninterrupted and seamless chain of input tax credit (hereinafter referred to as, ITC ) is one of the key features of Goods and Services Tax. ITC is a mechanism to avoid cascading of taxes. Cascading of taxes, in simple language, is tax on tax . Under the present system of taxation, credit of taxes being levied by Central Government is not available as set-off for payment of taxes levied by State Governments, and vice versa. One of the most important features of the GST system is that the entire supply chain would be subject to GST to be levied by Central and State Government concurrently. As the tax charged by the Central or the State Governments would be part of the same tax regime, credit of tax paid at every stage would be available as set-off for payment of tax at every subsequent stage. Let us understand how cascading of taxes takes place in the present regime. Centra
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s. This mechanism eliminates cascading of taxes. However, when the pen is sold by the manufacturer to a trader he is required to levy VAT on such sale. But under the present system, the manufacturer cannot use the credit of central excise duty paid on the pen for payment of VAT, as the two levies are being levied by Central and State government respectively with no statutory linkage between the two. Hence he is required to pay VAT on the entire value of the pen, i.e. ₹ 22/-, which actually includes the central excise duty to the tune of ₹ 2/-. This is cascading of taxes or tax on tax as now VAT is not only paid on the value of pen i.e. ₹ 20/- but also on tax i.e. ₹ 2/-. Goods and Services Tax (GST) would mitigate such cascading of taxes. Under this new system most of the indirect taxes levied by Central and the State Governments on supply of goods or services or both would be combined together under a single levy. The major taxes/levies which are going to be clu
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)[also known as Integrated Tax] on inter-state supply of goods or services or both. In case of import of goods also the present levy of Countervailing Duty (CVD) and Special Additional Duty (SAD) would be replaced by Integrated tax. The protocol to avail and utilise the credit of these taxes is as follows: Credit of To be utilised first for payment of May be utilised further for payment of CGST CGST IGST SGST/UTGST SGST/UTGST IGST IGST IGST CGST, then SGST/UTGST Credit of CGST cannot be used for payment of SGST/ UTGST and credit of SGST / UTGST cannot be utilised for payment of CGST. Some of the technical aspects of the scheme of Input Tax Credit are as under: a) Any registered person can avail credit of tax paid on the inward supply of goods or services or both which is used or intended to be used in the course or furtherance of business. b) The pre-requisites for availing credit by registered person are: a) He is in possession of tax invoice or any other specified tax paying document
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prescribed under Customs Act e) Revised invoice f) Document issued by Input Service Distributor a) No ITC beyond September of the following FY to which invoice pertains or date of filing of annual return, whichever is earlier b) The Input Service Distributor (ISD) may distribute the credit available for distribution in the same month in which it is availed. The credit of CGST, SGST, UTGST and IGST shall be distributed as per the provisions of Rule 4(1)(d) of ITC Rules. ISD shall issue invoice in accordance with the provisions made under Rule 9(1) of Invoice Rules. c) ITC is not available in some cases as mentioned in section 17(5) of CGST Act, 2017. Some of them are as follows: a) motor vehicles and other conveyances except under specified circumstances. b) goods and / or services provided in relation to i. food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, except under specified circumstances; ii. membership of a club, health and fit
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ITC is available: a) A person who has applied for registration within 30 days of becoming liable for registration is entitled to ITC of input tax in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) on the day immediately preceding the date from which he becomes liable to pay tax. b) A person who has taken voluntary registration under section 23(3) of the CGST Act, 2017 is entitled to ITC of input tax in respect of goods held in stock(inputs as such and inputs contained in semi-finished or finished goods) on the day immediately preceding the date of registration. c) A person switching over to normal scheme from composition scheme under section10 is entitled to ITC in respect of goods held in stock(inputs as such and inputs contained in semi-finished or finished goods) and capital goods on the day immediately preceding the date from which he becomes liable to pay tax as normal taxpayer. d) Where an exempt supply of goods or services
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