GST Input Tax Credit Reconciliation

What is input tax credit?

The central tax (CGST), state tax (SGST), integrated tax (IGST), or cess that a person pays on the delivery of goods or services and who is registered for GST is referred to as the input tax credit. Reverse charge tax and the IGST levied on imports of products are both included in the GST input tax. The tax paid under the composite taxation system is not, however, included in the input tax.

The tax a company paid on a purchase is known as the input tax credit, and it is used to lower the tax owed after a sale. Until it reaches the consumer, the value added at each stage of the supply chain determines the taxation burden.

According to the value addition principle, the Goods and Service Tax Act applies to both goods and services. in order to counteract the cascading effect of the tax obligation that is paid when purchasing raw materials, consumables, plants, machinery, etc. Input tax credit is the name given to this portion of the tax liability offset.

Everybody in the supply chain who has registered for GST participates in management, collects GST, and remits the total collected. Input tax credits are available to offset tax paid on the acquisition of the raw materials, consumables, goods, or services used in the production, supply, and sale of goods or services in order to avoid double taxation and the cascading effect of taxation.

The business can achieve neutrality in the incidence of tax by employing the input tax credit method, which also ensures that the input tax component does not enter into the cost of production or the cost of providing goods and services.

Eligibility criteria for Input tax credit

Who can claim input tax credit?

Only those individuals who are GST-registered and who meet the requirements listed below may claim the input tax credit:

• Only those with a GST registration and who have submitted their GSTR 2 returns may claim the input tax credit.
• The tax invoice or debit note issued by the input or input service provider must be in the dealer's possession.
• Receiving the aforementioned products, services, or both is required.
• The GST payment due to the government for this supply has been made by the provider.
• The input tax credit can only be used when the final batch of goods is received when they are purchased in installments.
• If depreciation has been claimed on the tax component of a capital good, no input tax credit is permitted.

Documents required for claiming GST Input tax credit

What documents are required for claiming the GST input tax credit?

As a registered taxable person, you may claim an input tax credit based on the following records:

step:1 An invoice that is issued by the supplier of goods or services

step:2 An invoice that is issued by the recipient of the goods and services supplied by an unregistered dealer. Such supply comes under the reverse charge mechanism. This mechanism involves the supplies made by an unregistered person to a registered person.

step:3 A debit note that is issued by the supplier of the tax charged is less than the tax payable concerning such supply.

step:4 A bill of entry or similar documents is also required to document an integrated tax on imports.

step:5 An invoice or the credit note that is issued by an input service distributor as per the rules under GST.

step:6 A supply bill by a dealer that is opting for a composition scheme or an exporter or a supplier of the exempted goods.

Basic requisites for claiming the input tax credit

What are the conditions under which Input tax credit can be claimed?

The following requisites are mandatory for claiming the input tax credit under the GST:

• According to GST law, the Person must be registered.
• a tax invoice or debit note that is generated by the registered supplier and includes the tax amount.
• The product or service must be obtained.
• The vendor must submit the returns and pay the applicable taxes to the government.
• When receiving goods in lots or installments, the input tax credit may be claimed upon receiving the final lot or installment.
• If the cost of the capital goods includes the input tax credit and the tax's depreciation is claimed, no input tax credit is permitted.
• Input tax credits will not be granted if they are not claimed within the allotted time.

Claiming the Input tax credit

How to claim the Input tax credit?

The amount of the must be reported in the GSTR 3B by all ordinary taxpayers.

Up to 20% of the eligible ITC that the supplier reports in the automatically generated GSTR 2A return, the taxpayer may claim the input tax credit on a provisional basis in the GSTR 3B. Before completing the GSTR 3B, the taxpayer must verify the GSTR 2A data.

Any amount of the provisional input tax credit could be claimed by a taxpayer prior to October 9th, 2019. However, the CBIC has informed taxpayers that as of October 9, 2019, they can only claim 20% of the qualified ITC available in the GSTR 2A as a temporary input tax credit.

As a result, the amount of input tax credit recorded in the GSTR 3B will equal the sum of the actual ITC in the GSTR 2A and the provisional ITC, which is equal to 20% of the actual eligible ITC in the GSTR 2A. The matching of the purchase register and the GSTR 2A becomes crucial.

Reversal of Input Tax Credit

The input tax credit can be reversed certain circumstances which are mentioned below:

• not paying the provider within 180 days of the invoice's due date.
• The goods and services whether inputs or capital goods are used for personal purposes.
• services and goods used to produce or provide the exempt products or services.
• sale of capital goods or equipment for which an input tax credit was requested.
• The distributor of input services is the one who issues the credit notes.
• According to section 17(5) of the Act, the supply are not acceptable.
• the input tax credit is reversed when a registered regular dealer becomes a composite dealer.
• Interest must be paid from the day the credit is used until the date the amount is reversed and paid. The reversed amount may be added to the output tax liability in the month in which it is reversed.
• Reclaiming the reversed credit is not subject to any time restrictions.

Availing credit under Reverse Charge Mechanism

How to avail of the credit when the tax has been paid under the Reverse Charge Mechanism?

If the following requirements are met, an input tax credit may be claimed when tax is paid using the reverse charge mechanism in the same month that the payment is made.

• Cash has been used to pay off the debt.
• The products or services were utilised for commercial purposes.
• Since an unregistered provider cannot produce a tax invoice, the purchases are self-invoiced.

Reconciliation of Input tax credit

The information given by the supplier in the GST return must match the input tax credit that the individual is claiming. Once the GSTR 3B is filed, the supplier and the recipient will be made aware of any differences if there are any.

Special cases of Input tax credit

Input tax credit for Capital goods

Capital goods used solely to manufacture exempt goods and solely for personal use are not eligible for ITC.

In this case, ITC will only be accepted if depreciation has been claimed on the capital goods' tax component.

Input tax credit on the Job work

A job worker may receive commodities from the primary manufacturer for further processing. ITC will be permitted in such circumstances on the following items sent to the job worker:

from a primary business location

directly from the supplier of such goods' point of supply.

The main must receive the products back within a year to be eligible for the input tax credit.

The input tax credit that is provided by the Input Service Distributor

A GST-registered individual's head office, a branch office, or registered office might be an input service distributor. The distributor of input services collects the input tax credit from every purchase made and given to every recipient.

Input tax credit on the transfer of business

This is applicable to business transfers as well as mergers and amalgamations. The available input tax credit will belong to the transferor and be given to the transferee when the business is transferred.

Goods and Services not eligible for Input Tax Credit

Under GST, the input tax credit is not available in respect of the following goods or services:

1. Motor vehicles, except when they are supplied in the course of business or used for providing taxable services like:
   • Transportation of passengers
   • Transportation of goods
   • Providing training on driving, flying, navigating such vehicles
   • A further supply of such vehicles or conveyance
2. Supply of goods and services concerning food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where a registered taxable person uses such inward supply of goods or services of a particular category for making an outward taxable supply of the same category of service
3. Membership of a club, health, and fitness center
4. Rent a cab, life insurance, health insurance, except where it is statutorily obligatory for an employer to provide such services
5. Travel benefits extended to employees on vacation, such as leave or home travel concession.
6. Goods and services received by the principal in the construction of immovable property, other than plant and machinery except where it is an input service for the supply of works contract service
7. Goods and services received by a taxable person for constructing an immovable property on his account, other than plant and machinery, even when used in the furtherance of business.
8. Goods and services on which tax has been paid under composition scheme
9. Goods and services used for personal consumption
10. Goods lost, stolen, written off, or disposed of by way of gift or free samples.
11. Tax paid after detection of fraud, wilful misstatement, or suppression.
12. Tax paid for the release of detained or seized goods.
13. Tax paid for the release of confiscated goods.