GST Input Tax Credit – Eligibility, Conditions, Apportionment and non-availability
A. Eligibility – Every registered person shall be eligible to take input tax credit in respect of input tax charges on any supply of goods or services or both, which are used or intended to be used in the course or furtherance of his business.
Inputs are defined under section 2(59) of the CGST Act. Inputs means any goods other than capital goods used or intended to be used by a supplier in course or furtherance of business.
B. Condition for entitlement of Input Tax Credit –
For availing of input Tax Credit, a registered person shall have satisfied following conditions.
- Registered person is in procession of a Tax Invoice or Debit Note issued by the registered supplier or any other tax paying documents.
- He has received the goods or services or both. If goods are delivered by the supplier to a recipient or any other person before or during the movement of goods on the direction of registered person then it shall be deemed that the registered person has received the goods. In case invoice are received in lots or instalment against goods then registered persons shall be entitled to take credit upon receipt of last lot or instalment.
- Tax charged in respect of said supply has been paid to Government either in cash or through utilisation of input tax credit.
- He has furnished the return under section 39.
- In case registered person fails to pay to the supplier the value of supply along with tax with in a period of 180 days from the date of invoice then an amount equal to input tax credit availed by the recipient shall be added to his output tax liability and persons shall pay the same along with interest.
- Input tax credit shall not be avail in respect of depreciation claimed on the tax component of the cost of capital good and plant and machinery under provision under the income tax act 196.
- Registered person shall not be entitled to take input tax credit after the date of furnishing the annual return or after the due date of furnishing the annual return under section 39, whichever is earlier.
C. Apportionment of Credit and Blocked credits.
- In case of goods or services or both are used partly for business purpose and partly for other than business purpose then the amount of credit shall be restricted to so much of the input tax as is attributable to the purpose of his business.
- In case of goods or services or both are used are partly for effecting taxable suppliers including Zero rated supplies and partly for effecting exempt supplies than the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including Zero rated supplies.
Zero rated supply mean supplies of goods or services or both for export or to a Special Economic Zone developer or a Special Economic Zone Unit.
Exempt supply means supply of any goods or services or both which attracts nil rate of tax or which may be wholly exempt from tax under section 11 (imported into or exported from India) or under section 6 (Power to grant exemption from tax) of the IGST Act and includes non-taxable supply.
For above purpose exempt supply include supplies on which the recipient is liable to pay tax on reverse charge basis, transaction in securities, sale of land and sale of building subject to clause (b) of paragraph 5 of Schedule II.
- A banking company or a financial institution including a non-banking financial company shall have option to either comply the above mention provision or avail an amount of fifty percent of the eligible input tax credit on inputs, Capital goods and input services in that month and the rest shall lapse.
Once an option exercised shall not be withdrawn during the remaining part of the financial year.
Restriction of fifty percent shall not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN.
D. Non-availability of input tax Credit
Input Tax Credit shall not be available in respect of following supply of goods or services or both: –
- Supply in respect of Motor Vehicle and other conveyance except when they are used for making further supply (trading purpose) or transportation of passengers or imparting training on driving, flying, navigating or for transportation of Goods.
- Food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery. If these inward supplies of services or goods are used by registered persons for making an outward taxable supply of same category of goods or services or both or as a part of a taxable composite or mixed supply then input credit for the same will be available.
- Membership of a club, health and fitness centre.
- Rent a cab, Life insurance and health insurance. If these inward supplies of services or goods are used by registered persons for making an outward taxable supply of same category of goods or services or both or as a part of a taxable composite or mixed supply then input credit for the same will be available. In respect of these services, government may notify the services which are obligatory for an employer to provide to its employees under any law for time in fore.
- Travel benefits extended to employees on vacation such as leave or home travel concession.
- Work contract services when used for construction of an immovable property other than plant and machinery. If work contract services are used an input services for further supply of work contract services then input credit for the same will be available.
- Goods or services or both received by a taxable person for construction of an immovable property other than plant and machinery on his own account. Construction includes re-construction, renovation, additions or alterations or repairs to the extent of capitalisation of the same.
- Goods or services or both on which tax has been tax under composition scheme.
- Goods or services or both received by a non-resident taxable person except on goods imported by him.
- Goods or services or both used for personal consumption.
- Goods lost, stolen, destroyed, written off or disposed by way of gift or free samples.
- Any tax paid in accordance with the provisions of sections 74, 129 and 130. No input tax credit shall be availed by a registered person in respect of any tax has been paid in pursuance of any order where any demand has been confirmed because of any fraud, wilful misstatement or suppression of facts.
E. Other important points: –
- Input Tax Credit will be available in one instalment with respect to inputs and Capital Goods.
- If registered person fails to pay the value of supply along with tax to supplier within 180 days from the day of issue of invoice then input tax credit availed by the recipient would be payable by the recipient along with applicable interest.
- Exempt supplies mean all suppliers other than taxable and Zero-rated supplies include supplies liable to tax under reverse change mechanism, Transactions in securities, Sale of Land and Sale of Building.
- Input Tax Credit will not be available on taxable goods which are given by way of gift or free samples under the sale promotion.
- During the process of manufacturing, if some inputs become waste and are sold as scrap then credit shall not be denied.
- Input tax credit shall be available in respect of input tax paid on use of mobile phone or laptops by employees since mobile phone and laptops shall be cover under the definition of inputs as they are used in course or furtherance of business.
- Tax paying documents has been prescribed under Rule 1 of input tax Credit Rules 2017 as under
- An Invoice issued by supplier of goods or services.
- Bill of Entry
- Invoice issued by the recipient in case of inward supplies from unregistered persons or reverse charges mechanism supplies.
- ISD Invoice issued by an Input Services Distributor for distribution of Credit
- A debit note issued by supplier of goods or services.
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