How to claim Input tax credit under GST?

Type of Taxes and ITC under GST

There are 3 types of taxes under GST

1. State Goods and services tax [SGST/UGST]
2. Centre Goods and services tax [CGST]
3. Integrated Goods and services tax [IGST]

Now let’s understand How input tax Credit works under GST

Input Tax credit means usage of tax paid on purchase or inward supply of goods/services.

It also includes tax paid on a reverse charge basis (RCM) and IGST (integrated GST) charged on an import of goods.

Composite dealers will never issue “Tax invoice”, so Input tax credit on such inward supplies does not arise. A Composite dealer is himself not eligible to take input credit on their purchases. Read more about composite Scheme- Here.

Example:

A Cloth Trader Purchases a shirt for Rs.1,050/- (1000+50 GST) and sales the shirt for Rs.1,260/-(1200+60 GST).

GST payable = 60 (output GST) – 50 (input GST) = Rs.10/- only.

How to claim input credit under GST?

To claim input credit under GST –

You should have received the goods/services

However, where recipient/buyer does not pay the value of supplies or tax thereon within 180 days of issue of invoice and he has already availed input credit based on the invoice, the said input credit will be added to the output tax liability with interest.

Have Tax Invoice of Purchase or Debit note

You must have a tax invoice or debit note issued by the seller/registered person.

However, where goods are received in installments/lots, input tax credit will available after the receipt of last installment/lot.

Seller Should Deposit GST [not in your control]

The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit

Seller/Supplier has filed GST returns [not in your control]

Recommended to Read: Ineligible ITC and Transitional Provision for Input

Under GST, every supplier is required to submit GSTR 1 (supply/sales details) and the information provided by the supplier is used to provide input credit to buyer/recipient, so the question of taking wrong credit does not arise under GST.

So every input credit you are claiming shall be matched and validated before you can claim it.

In order to claim input credit, all your suppliers must be regular in GST Return filing. Few important rules about input credit under GST, every registered person should know:

1. Excess of Input credit (tax on purchase) can either be carry forwarded or be refunded. [Tax refund or carry forward happens when output tax(on sale) is less than input tax(on purchase)].
2. Input tax credit cannot be taken on purchase invoices whose amount along with tax remain unpaid for 180 days from the date of issue of the invoice. The period is calculated from the date of the tax invoice.
3. Input credit can be availed on both goods and services (except those which are on the exempted/negative list).
4. Input tax credit is also allowed on capital goods.
5. Tax paid on reverse charge basis is also eligible for Input credit.
   The last date to take input tax credit of any financial year is 20th October of the next financial year. For example, a normal registered person can take input tax credit of invoice issued during 2017-18 up to 20th October 2018.

Example:

Suppose there is a seller Mr. Ram and he sells his goods to Mr. Shyam. Here Mr. Shyam i.e the buyer will be eligible to claim the credit on purchases based on the invoices. Let’s understand how:

Step #1:

Mr. Ram will upload the details of all tax invoices issued in GSTR 1.

Step #2:

The details with respect to sales to Mr. Shyam will auto-populate/ get reflected in GSTR 2A, the same data will be pulled when Mr. Shyam will file GSTR 2 (i.e details of inward supply).

Step #3:

Mr. Shyam will then accept the details that the purchase has been made and reported by the seller correctly and subsequently the tax on purchases will be credited to ‘Electronic Credit Ledger’ of Mr. Shyam and he can adjust it against future output tax liability and get the refund.

Every time you record any transaction under GST, you must keep in mind the information given in below picture. Period!

Happy Learning!