Overview -Input Tax Credit Mechanism in GST
Input Tax Credit (ITC) – GST Ready Reckoner
GST
Introduction – Input Tax Credit Mechanism in GST
\nUninterrupted 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 earlier system of taxation, credit of taxes being levied by Central Government was 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.
\nLet us understand how 'cascading' of taxe<\/p>\n
= = = = = = = =<\/p>\n
Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n ect he actually pays duty on the 'value added' over and above the cost of the inputs. This mechanism eliminates cascading of taxes. However, when the pen was sold by the manufacturer to a trader he was required to levy VAT on such sale. But under the earlier system, the manufacturer could not use the credit of central excise duty paid on the pen for payment of VAT, as the two were being levied by Central and State government respectively with no statutory linkage between the two. Hence he was 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 was cascading of taxes or tax on tax as VAT was not only paid on the value of pen i.e. ₹ 20\/- but also on the central excise duty i.e. ₹ 2\/-. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n State Tax] on intra-state supply of goods or services or both. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n o included. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n rance, health insurance except where it is obligatory for an employer under any law; = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n le, the person making such supplies shall be entitled to take ITC in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) relatable to exempt supplies. He shall also be entitled to take credit on capital goods used exclusively for such exempt supply subject to reductions for the earlier usage as prescribed in the rules. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n f the available ITC in such cases has to be worked out as prescribed in the rules. = = = = = = = =<\/p>\n Plain text (Extract) only<\/strong> = = = = = = = =<\/p>\n","protected":false},"excerpt":{"rendered":" Overview -Input Tax Credit Mechanism in GSTInput Tax Credit (ITC) – GST Ready ReckonerGSTIntroduction – Input Tax Credit Mechanism 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 … Continue reading “Overview -Input Tax Credit Mechanism in GST”<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[],"tags":[],"class_list":["post-7028","post","type-post","status-publish","format-standard","hentry"],"_links":{"self":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/7028","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=7028"}],"version-history":[{"count":0,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=\/wp\/v2\/posts\/7028\/revisions"}],"wp:attachment":[{"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=7028"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=7028"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/goodsandservicetax.in\/GST\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=7028"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
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\nGoods and Services Tax (GST) has mitigated such cascading of taxes. Under the present system most of the indirect taxes levied by Central and the State Governments on supply of goods or services <\/p>\n
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\nc) Union Territory Goods and Services Tax (UTGST) [also known as Union territory Tax] on intra-union territory supply of goods or services or both.
\nd) Integrated Goods and Services Tax (IGST)[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.
\nThe protocol to avail and utilise the credit of these taxes is as follows:
\nCredit of
\nTo be utilised first for payment of
\nMay be utilised further for payment of
\nCGST
\nCGST
\nIGST
\nSGST\/UTGST
\nSGST\/UTGST
\nIGST
\nIGST
\nIGST
\nCGST, then SGST\/UTGST
\nWhat is the Input Tax Credit.
\nInput credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs and pay the balance amount.
\nHere's how:
\nWhen you buy a product\/service from a registered dealer you pay taxes on the pu<\/p>\n
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\n c) Tax is actually paid by the supplier.
\n d) He has furnished the return.
\n e) If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.
\n f) He should pay the supplier the value of the goods or services along with the tax within 180 days from the date of issue of invoice, failing which the amount of credit availed by the recipient would be added to his output tax liability, with interest [rule 2(1) & (2) of ITC Rules]. However, once the amount is paid, the recipient will be entitled to avail the credit again. In case part payment has been made, proportionate credit would be allowed.
\nC) Documents on the basis of which credit can be availed are:
\n a) Invoice issued by a supplier of goods or services or both
\n b) Invoice issued by recipient alongwith proof of payment of tax
\n c) A debit note issued by supplier
\n d) Bill of entry or similar document prescribed under Customs Act
\n e) Revised invoice
\n f) Do<\/p>\n
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\n iv. travel benefits extended to employees on vacation such as leave or home travel concession;
\n c) Works contract services when supplied for construction of immovable property, other than plant &machinery, except where it is an input service for further supply of works contract;
\n d) Goods or services received by a taxable person for construction of immovable property on his own account, other than plant & machinery, even when used in course or furtherance of business;
\n e) goods and\/or services on which tax has been paid under composition scheme;
\n f) goods and\/or services used for private or personal consumption, to the extent they are so consumed;
\n g) Goods lost, stolen, destroyed, written off, gifted, or free samples;
\n h) Any tax paid due to short payment on account of fraud, suppression, mis-declaration, seizure, detention.
\nG) Special circumstances under which ITC is available:
\n a) A person<\/p>\n
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\n e) ITC, in all the above cases, is to be availed within 1 year from the date of issue of invoice by the supplier.
\n f) In case of change of constitution of a registered person on account of sale, merger, demerger etc, the unutilised ITC shall be allowed to be transferred to the transferee.
\n g) A person switching over from composition scheme under section 10 to normal scheme or where a taxable supply become exempt, the ITC availed in respect of goods held in stock (inputs as such and inputs contained in semi-finished or finished goods) as well as capital goods will have to be paid.
\n h) In case of supply of capital go<\/p>\n
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\nI) Provisions Specifically applicable for Construction Service w.e.f. 01.04.2019, in case of supply of construction services, the input tax shall be calculated finally, for each on going project or project which commences on or after 1st April, 2019, which did not undergo or did not require transition of input tax credit consequent to change of rates of tax on 1st April, 2019 in accordance with notification No. 11\/2017- Central Tax (Rate), dated the 28th June, 2017, as amended, for the entire period from the commencement of the project or 1st July, 2017, whichever is later, to the completion or first occupation of the project, whichever is earlier, before the due date for furnishing of the return for the month of September following the end of financial year in which the completion certificate is issued or first occupation takes place of the project. This has to be calculated in the manner specifically <\/p>\n
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