Input Tax Credit
Q 1. Whether capital goods can be considered as inputs
No. 'Inputs' are defined under Section 2(59) of the CGST Act to mean any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business. 'Capital goods' are defined under Section 2(19) of the CGST Act to mean goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.
Q 2. What is Input Tax credit.
Input tax credit means the credit of central tax, state/ union territory tax and integrated tax available to a registered person on the inward supply of goods or services or both, made to him excluding the tax paid on supplies liable to composite tax. It further includes the integrated tax applicable on import of goods and the tax payable under reverse charge mechanism.
Q 3. What are the conditions to be fulfilled for entitlement of input tax credit.
A registered person will be entitled to claim input tax credit only upon fulfillment of the following conditions:
- He is in possession of tax invoice/ debit note issued by a registered supplier or
- any other tax paying documents; He has received the goods and /or services or both;
- The tax charged on such supply is paid to the Government (by way of cash or by
- utilizing input tax credit) He has furnished a valid return.
Q 4. Whether Input tax credit on Inputs and Capital Goods is allowed in one installment.
Yes. Input tax credit will be available in full with respect to inputs and capital goods, subject to fulfillment of the prescribed conditions under Section 16(2) of the CGST Act.. The existing concept of partial credit on purchase of capital goods under the CENVAT Credit Rules, 2004 (i.e. 50% in the year of receipt and 50% in subsequent years) has been done away with.
Q 5. One of the conditions to claim credit is that the receiver is in possession of tax invoice or debit note or any other tax paying documents. What are the tax paying documents.
The tax paying documents have been prescribed under Rule 1 of the Input Tax Credit Rules, 2017 as under: An invoice issued by supplier of goods or services.
- Bill of Entry
- Invoice raised by the recipient in case of inward supplies from unregistered
- persons or reverse charge mechanism supplies ISD Invoice issued by an Input Service Distributor for distribution of credit
- A debit note issued by supplier of goods or services
Q 6. What is the time limit within which the recipient of supply is liable to pay the value of supply with taxes to the supplier of service to avail the input tax credit.
The time limit prescribed is one hundred and eighty days (180 days) from the date of issue of invoice by the supplier of service/goods. If the recipient fails to do pay the value of supply (with tax) within 180 days, such input tax credit would be payable by the recipient along with applicable interest. The above time limit is not applicable to supplies that are liable to tax under reverse charge mechanism.
Q 7. In case the amount is paid partly to the supplier of service, whether full taxes can be adjusted first? If No then whether it has to be calculated proportionately.
No. there is no provision under the GST law to allocate part payment of the invoice towards the taxes first so that the input tax credit can be allowed. Second proviso to Section 16(2) of the CGST Act clearly provides that the entire value of supply (with tax) is to be paid within 180 days from the date of issue of invoice. Therefore, as long as the entire payment is made within 180 days, the recipient would be entitled to claim the credit in full. Assuming that only part payment is made within 180 days, availing of proportionate credit based on such part payment is not provided for under the CGST law and thus, would be subject to litigation.
Q 8. One of the conditions to claim credit is that the receiver has received the goods. Is there any provision for deemed receipt of goods in case of transfer of document of title before or during the movement of goods? Input Tax Credit 37 Indirect Taxes Committee.
Yes. Explanation to Section 16(2)(b) of the CGST Act provides for deemed receipt of goods where the goods are delivered by the supplier to the recipient or any other person on the direction of the recipient, whether acting as agent or otherwise, before or during movement of goods.
Q 9. Whether the registered person can avail the benefits of input tax credit and depreciation on the tax component of capital goods and plant and machinery.
No. Section 16(3) provides that input tax credit will not be allowed on the tax component of cost of capital goods/ plant and machinery, if the depreciation on the said tax component is claimed under the provision of Income Tax Act, 1961 by the taxable person. Therefore, the registered person has an option to either claim depreciation (under the Income Tax Act, 1961) or claim credit under the GST law, on the said tax component. For example: Cost of Asset = Rs. 1000/- Tax = Rs. 100/- Total = Rs. 1100/- If depreciation is charged on Rs. 1000/-, then credit will be available under the GST law and if depreciation is charged on Rs. 1100/- then credit will not be available.
Q 10. What is the maximum time limit to claim the Input tax credit.
A registered person is not entitled to claim input tax credit in respect of any supply of goods or services after the earlier of following two events:
- Filing of the monthly return under Section 39 of the Act for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains;
- Furnishing of the annual return under Section 44 of the Act. However, in cases of credit in special circumstances like new registration, voluntary registration, etc. the credit will not be available after the expiry of one year from the date of issue of tax invoice. Apportionment of credit and blocked credits (Section 17) Section 17 of CGST Act, made applicable to IGST vide Section 20 of IGST Act and Section 21 of UTGST
Q 11. If certain goods/ services are used partly for business and partly for non-business purposes, will the credits be allowed in full or proportionately.
The credit on goods/ services used partly for business and partly for non-business purposes will be allowed proportionately to the extent it is attributable for business
Q 12. Credit attributable to exempt supplies is not available to a registered person. What are the supplies that are included in exempt supplies.
'Exempt Supplies' for this purposes means all supplies other than taxable and zero rated supplies and specifically include the following: Supplies liable to tax under reverse charge mechanism;
- Transactions in securities;
- Sale of land;
- Sale of building.
Q 13. Will compliance of the provisions of Section 17(2) regarding restriction of credits relatable to exempt supplies be mandatory to a Banking Company/ Financial Institution engaged in accepting deposits or extending loans or.
- No. A Banking Company/ Financial Institution engaged in supplying services by way of accepting deposits, extending loans or advances has the following options: Comply with the provisions of Section 17(2) regarding restriction of credits
- relatable to exempt supplies in the manner prescribed; or Avail 50% of the eligible input tax credit every month on inputs, capital goods and
- input services and the remaining 50% shall not be available. The option exercised cannot be withdrawn in the same year. The restriction of 50% will not apply to the tax paid on supplies made by one registered person to another registered person having the same PAN.
Q 14. Whether the above option can be withdrawn in between the financial year.
No. The option once exercised by the Banking Company/ Financial Institution cannot be withdrawn during the remaining part of the financial year.
Q 15. Whether input tax credit will be available on taxable goods which are given by way of gift or free samples under the sales promotion.
No. Section 17(5) (h) specifically restricts input tax credit on goods disposed of by way of gift or free samples.
Q 16. Whether input tax credit is allowed on inputs which become waste and is sold as scrap.
Section 17(5) (h) specifically restricts input tax credit on goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. Therefore, If the goods have been destroyed in full, input tax credit will not be available. However, if in the process of manufacture some inputs become waste and are sold as scrap, credit shall not be denied. Further, output tax shall be payable on sale of such waste/scrap. Input Tax Credit 39 Indirect Taxes Committee
Q 17. Whether Input destroyed/pilfered and shortage also is covered.
Yes. Section 17(5) (h) specifically restricts input tax credit on goods lost, stolen, destroyed, written off or disposed by way of gift or free samples. Therefore, input tax paid on goods which are destroyed/pilfered and shortage will not be eligible.
Q 18. Whether Input tax credit is available in respect of Input tax paid on use of mobile phones/laptops/as given to employees.
Yes. The mobile phones/ laptops would be covered under the definition of 'inputs' as they are used in the course/ furtherance of business and hence, the input tax paid on such goods will be available as input tax credit.
Q 19. Whether input tax paid on Motor vehicle and other conveyances which is used for courier agency, outdoor catering, pandal and shamiana and tour operator is eligible.
The restriction of input tax credit on motor vehicles and conveyances provided under Section 17 (5) (a) is on such motor vehicles/ conveyances except when they are used for further supply of vehicles/ conveyances, transportation of passengers, imparting training or for transportation of goods only. Therefore, input tax credit will be available when it is used by courier agency, outdoor catering, pandal and shamiana and tour operator as it covers use of vehicles for transportation of goods/ transportation of passengers.
Q 20. Whether benefit of input tax credit would be available if the company procures health insurance services for benefit of its employees. Procurement of such services is mandatory under Factories Act .
Yes. Section 17(5) (b)(iii)(A) provides that tax paid w.r.t rent a cab services, life/ health insurance services will be eligible as input tax credit where the Government notifies that such services are obligatory for an employer to provide to its employees under any law for the time being in force.
Q 21. What are the conditions to avail the input tax credit on Rent a cab, life Insurance, Health Insurance
Tax paid w.r.t rent a cab services, life/ health insurance services will be eligible as input tax credit subject to the following conditions: If the Government notifies that such services are obligatory for an employer to
- provide to its employees under any law for the time being in force, or Such services are used by a registered person for making an outward taxable
- supply of the same category of goods or services or both or as part of a taxable composite or mixed supply.
Q 22. Whether input tax credit can be availed on input services and capital goods (lying in stock) when there is application for new registration or during voluntary registration under section 18.
No. In case of new registrations and voluntary registrations, input tax credit can be availed only on the stock held (inputs, semi-finished goods or finished goods) preceding the day when he is liable to pay tax or preceding to the date of grant of voluntary registration. Input service and capital goods lying in stock are not eligible for ITC.
Q 23. What is the difference between the availment of credit in case of Compulsory Registration and Voluntary Registration?
In case of compulsory registration, the input tax credit can be availed on the stocks held immediately preceding the date from which he becomes liable to pay tax (date of grant of registration may be later) and in case of voluntary registration, the input tax credit can be availed on the on stocks held immediately preceding the date of grant of registration.
Q 24. In case of change of scheme from composition scheme to Regular scheme whether input tax credit on capital goods is eligible.
Ans. Yes. In such a scenario, the registered person will be entitled to claim input tax credit on the stock held (inputs, semi-finished goods or finished goods) and on the capital Input Tax Credit 41 Indirect Taxes Committee goods preceding the day when he is liable to pay tax under the regular scheme. The credit of capital goods shall stand reduced by five percentage points for every quarter.
Q 25. When an exempt supply becomes taxable supply then in such case credit on inputs and capital goods exclusively used for such exempted supply is eligible? What about input tax credit pertaining to capital goods used for both taxable and exempt supply?
Ans. In terms of Section 18(1)(d) of the Act, where an exempt supply made by a person becomes taxable supply, such a person will be entitled to claim credit of tax paid on stock held (inputs, semi-finished goods or finished goods) relatable to exempt supply and on the capital goods exclusively used for exempt supply preceding the day when the supply becomes taxable. Tax paid on capital goods used for both, taxable and exempt supply will not be eligible as input tax credit.
Q 26. When there is change in the constitution of registered taxable person without specific provision of transfer of liabilities is it possible to transfer unutilized input tax credit?
Ans. No. In terms of Section 18(3) of the Act, transfer of unutilized input tax credit is permissible only when there is change in constitution of the business with the specific provision of transfer of liabilities.
Q 27. In case of switchover from taxable to exempt transactions or from Regular to composition whether input tax credit is fully restricted?
Ans. Yes. In terms of Section 18(4) of the CGST Act, an amount equal to the credit of tax paid on stock held (inputs, semi-finished goods or finished goods) and capital goods (reduced by percentage points) on the day preceding the date of opting for composition/ effecting exempt supplies will have to be paid. The same can be paid by utilization of credit/ cash payments.
Q 28. Whether Input tax credit availed on capital goods is to be reversed in case of supply of such capital goods?
Ans. Yes. In terms of Section 18(6) of CGST Act, in case of supply of capital goods or plant and machinery on which input tax credit has been taken, the registered person will have to pay an amount equal to: Input tax credit taken on the said capital goods/ plant and machinery reduced by
- the percentage points specified ; or the tax on the transaction value of such goods
- whichever is higher.
Q 29. Whether Input tax credit availed on refractory bricks, moulds and dies, jigs and fixtures is to be reversed in case of supply of such goods?
Ans. Yes. In terms of proviso to Section 18(6) of CGST Act, in case of supply of such goods as scrap, the registered person is required to pay the tax on the transaction value of such goods. Taking input tax credit in respect of inputs and capital goods sent for job work (Section 19) Section 19 of CGST Act, made applicable to IGST vide Section 20 of IGST Act and Section 21 of UTGST
Q 30. What is the time limit beyond which the inputs/capital goods sent for job work shall be treated as supply?
Ans. The time limit prescribed for return of goods sent to job work under the exemption route is 1 year of being sent out (for inputs) and 3 years of being sent out (for capital goods). Therefore, if the inputs/ capital goods are returned to the principal after 1 year/ 3 years (as applicable), then such return of goods to the principal after the said period would be treated as 'supply'. This time limit is not applicable to moulds and dies, jigs, fixtures, and tools.
Q 31. Whether the principal is entitled to take input tax credit even when the principal has not received the goods and directly sent to job worker by the vendor?
Ans. Yes. Section 19(2) and Section 19 (5) allows the principal to take input tax credit of goods not received by him, if the goods are sent directly to the job workers premises by the vendor.
Q 32. Whether time limit of one year or three years in case of goods sent for job work is applicable to moulds and dies, jigs and fixtures or tools sent out to job worker.
Ans. No. The time limit of one year and three years is not applicable to return of moulds and dies, jigs, fixtures, and tools by the job worker to the principal. Input Tax Credit 43 Indirect Taxes Committee Manner of distribution of credit by the Input service distributor (Section 20) Section 20 of CGST Act, made applicable to IGST vide Section 20 of IGST Act and Section 21 of UTGST
Q 33. Whether the distributor and the recipient situated in different states can have same PAN or different PAN number?
It is mandatory that the Input Service Distributor and the recipient of credit are persons having the same PAN, whether or not they are located in the same State.
Q 34. What is the manner in which Input Service Distributor should distribute the credit where distributor and recipient are located in different states?
- The Input Service Distributor is permitted to distribute the credit as follows:
- Central tax as central tax or integrated tax;
- Integrated tax as integrated tax or central tax.
Q 35. Whether CGST can be distributed as SGST and whether SGST can be distributed as CGST within the states and between the states?
No. Section 20(1) does not permit distribution of CGST as SGST and vice versa. This flows from the fundamentals of the GST law wherein the credit of CGST cannot be utilized against SGST and vice versa.
Q 36. What are the conditions applicable to Input service distributor to distribute the credit?
- In terms of Section 20(2) of CGST Act, an Input Service Distributor can distribute the credit subject to the following conditions: The credit should be distributed to recipient against a document containing such
- details as may be prescribed; The amount of credit distributed shall not exceed the amount of credit available
- for distribution; The credit of tax paid on input service attributable to a recipient of credit shall be
- distributed only to that recipient; If credit is applicable to more than one recipient, then it shall be distributed only
- among such recipient(s) to whom the input service is attributable on pro rata basis of the turnover in a State of such supplier during the relevant period, to the aggregate of the turnover of all such recipients If credit is applicable to all recipients, the above method of allocation on pro rata
- may be applied with reference to all recipients
Q 37. Whether recovery provisions can be initiated in case of wrong distribution of credit?
Yes. In terms of Section 21 of the Act, the recovery provisions can be initiated if the Input Service Distributor distributes credit in contravention of the law resulting in excess distribution of credit to one/ more recipients of credit. Such credit can be recovered from the recipients along with applicable interest