Input tax is the central tax (CGST), state tax (SGST), integrated tax (IGST) or cess paid by a person having GST registration on supply of goods or services. GST input tax also includes tax paid on reverse charge basis and IGST charged on import of goods. However, input tax does not include tax paid under composition levy.
Input tax credit or the ITC is a tax that a business pays on a purchase and can use to reduce the tax liability when it makes a sale. The levy of taxation is based on the value-added at each stage of the supply chain until it reaches the consumer.
Goods and Service Tax Act was levied on goods and services based on the principle of value addition. In such a tax system to negate the cascading effect of the tax liability paid on procurement of raw materials, consumables, plants, and machinery, etc. This element used to offset the tax liability is called an input tax credit.
Under GST, every person having GST registration in the supply chain takes part in controlling, collecting the GST tax, and remitting the collected amount.
To avoid double taxation and the cascading effect of tax input, the tax credit is provided to set off tax paid on the procurement of raw materials, consumables, goods, or services used in the manufacturing, supply, and sale of goods or services.
Using the input tax credit mechanism, the business can achieve neutrality in the incidence of tax and ensure that such input tax element does not enter into the cost of production or the cost of supply of goods and services.
LEDGERS GST Software supports seamless matching and reconciliation of input tax credit at scale. The LEDGERS input tax credit reconciliation tool can be synced with the GST Portal to fetch GSTR-2A data through API.
Purchases that are not matched with the GSTR-2A data for flagged for further action like sending reminders to the supplier or updating purchase data, and more.
With LEDGERS, an individual can be assured that your business has received all the input tax credit due. A streamlined input tax credit reconciliation process will reduce the payable GST each month, streamline purchases and boost profitability.
As a registered taxable person, the input tax credit can be claimed based on the following documents:
An invoice issued by the supplier of goods or services
Invoice issued by the recipient of goods and services supplied by an unregistered dealer. Such supply comes under the reverse charge mechanism. This mechanism involves supplies made by an unregistered person to a registered person.
A debit note issued by the supplier if the tax charged is less than the tax payable in respect of such a supply.
A bill of entry or any similar documents is required to document an integrated tax on imports.
An invoice or credit note issued by an input service distributor as per the rules under GST.
A supply bill by a dealer opting for a composition scheme or an exporter or supplier of exempted goods.
The taxpayers can claim GST refund for input tax, the CGST, SGST, or IGST, or tax paid by a person registered under GST on the supply of goods or services.
GST RFD-01 A form must be filed at the GST portal by the taxpayer to claim the refunds of input tax credit accumulated due to the inverted tax structure.
This was when the tax levied on the inputs is higher than the tax levied on output supplies.
Any person has an aggregate turnover of up to Rs.1.5 crore in the previous financial year or the current financial year opting to file Form GSTR-1 quarterly. Such individuals can apply for a refund every quarter.
Note: Refund on account of inverted tax structure is not available if exempted from tax or nil-rated supplies.(i.e) Supply of goods or services, on which GST rate of 0% is applicable, are called nil rated.
A registered taxpayer can apply for the transfer of matched input tax credit available in the Electronic Ledger to another business organization in case of transfer of the business by way of sale of business/ merger/ demerger by the filing of ITC declaration in Form GST ITC-02.
Given below are the ITC that can be transferred by filling the form GST ITC – 02.
Under GST, the input tax credit is not available in respect of the following goods or services:
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Yes. The definition of input tax includes the tax payable under the reverse charge.
Following four conditions are to be satisfied by the registered taxable person for obtaining ITC: is in possession of tax invoice or debit note or such other tax paying documents as may be prescribed; he has received the goods or services or both; the supplier has actually paid the tax charged in respect of the supply to the
Yes, the recipient can take input tax credit. However, the taxpayer would be required to pay the consideration along with tax within 180 days from the date of issue of invoice. This condition is not applicable where tax is payable on reverse charge basis.
A registered person cannot take input tax credit in respect of any invoice or debit note for supply of goods or services after the due date for furnishing the GST annual return. If annual return is filed before the due date, then no change can be made after filing of GST annual return.
No, a person cannot take input tax credit with respect to goods lost, stolen, destroyed or written off. In addition, input tax credit with respect to goods given as gifts or free samples are also not allowed.
The input tax credit of goods or services attributable only to the purpose of business can be taken by registered person. The manner of calculation of eligible input tax credit is provided in GST rules.
In case of mismatch, the supplier and recipient would be updated about the mismatch. If the mismatch is not rectified, then the amount will be added to the output liability of recipient in the return for the month succeeding the month in which discrepancy is communicated.
No, input tax credit is allowed provisionally for two months. The supply details are matched by the system and discrepancies are communicated to concerned supplier and recipient. In case mismatch continues, the ITC taken would be reversed automatically.
No, provisionally allowed input tax credit can be used only for the payment of self-assessed output tax in the return.
Last updated: May 19, 2021