Input Tax Credit under GST

OBJECTIVE

Goods and Services Tax (GST) is an Indirect Tax levied in India introduced in July, 2017 which was one of the most important reforms in the Indian Economy. Unlike erstwhile indirect tax regime, GST promises seamless credit on goods and services across the entire supply chain with some exceptions. In this webinar, we shall understand and analyse the provisions related to Input Tax Credit under the GST law

1. Input Tax Credit under GST CA Jugal Gala

2. 2 Credits and Acknowledgments Harish Kumar R

3. Legends used in the Presentation 3 CGST Central Goods and Services Tax FY Financial Year GST Goods and Services Tax GSTIN Goods and Services Tax Identification Number IGST Integrated Goods and Services Tax ISD Input Service Distributor ITC Input Tax Credit PAN Permanent Account Number SGST State Goods and Services Tax UTGST Union Territory Goods and Services Tax

4. Presentation Schema 4

5. Introduction 5

6. 6 Eligibility and Conditions

7. Eligibility and Conditions for Taking Input Tax Credit – Sec 16 7

8. Conditions for Taking ITC 8 The registered person will be entitled to ITC on a supply only if all the following 4 conditions are fulfilled: Invoice issued by the supplier of goods and/or services Invoice issued by the recipient receiving goods and/or services from unregistered supplier along with proof of payment of tax, in case of reverse charge Document issued by the input service distributor Debit note issued by the supplier Bill of entry

9. Details to be Contained in the Tax Paying Documents 9 Goods received in lots In case the goods covered under an invoice are not received in a single consignment but are received in lots / instalments, ITC can be taken only upon receipt of the last lot / instalment -XYZ enters into a contract with ABC for supply of 10 MT of a chemical for Rs. 1,18,000 (inclusive of GST of Rs. 18,000) in August. The chemical is to be delivered in lots over a period of 3 months. ABC raises the invoice for the entire amount in August and receives the payment in the same month. -Though XYZ paid the full tax as early as August, it can take the ITC of the same only on receipt of last instalment of the chemical in the month of November Illustration

10. Time-limit for Payment of the Invoice 10 Exceptions The condition of payment of value of supply plus tax within 180 days does not apply in the following situations

11. Time Limit for Availing ITC 11 ITC on invoices pertaining to a FY or debit notes relating to invoices pertaining to a FY can be availed any time till the due date of filing of the return for the month of September of the succeeding FY or the date of filing of the relevant annual return, whichever is earlier Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax component shall not be allowed Depreciation claimed on tax component

12. 12 Apportionment of Credit and Blocked Credits

13. Apportionment of Credit and Blocked Credits – Sec 17 13 The situations requiring apportionment are as follows: ITC attributable only to business purposes can be taken by the registered person ITC attributable to taxable supplies and zero rated supplies can be taken by the registered person

14. Method of Apportionment of Credit of Capital Goods and Reversal thereof 14 Step 1 Determine common credit ‘T c ’ on capital goods as under: ITC on capital goods used exclusively for business purpose and taxable supply shall be fully allowed. The reversal of ineligible ITC shal l be as follows:-

15. Contd. 15 Change from exclusive use for non-business purpose/exempt supplies to common use: compute ‘A’ by reducing ITC @ 5% per quarter or part thereof. Such reduced amount will be credited to electronic credit ledger Change from exclusive use for taxable supply including zero rated supplies to common use: compute ‘A’ by reducing ITC @ 5% per quarter or part thereof and add such value to T c Add together the amounts of ‘A’ credited to electronic credit ledger to arrive at common credit ‘T c ’. Step 2 Determine common credit during the useful life of capital goods and denote the same as T m T m = T c / 60 Formula Step 3 Determine common credit at the beginning of a tax period for all capital goods whose useful life remains during the tax period as under: Formula T r = T m for such capital goods Step 4 Apportion common credit attributable to exempt supplies as under: Formula T e = (E/F) x T r E = Aggregate value of exempt supplies F = Total Turnover

16. Illustration 16

17. Solution 17 Capital Goods Eligible ITC Ineligible ITC Remarks A Rs. 20,000 - No disallowance as exclusively used for taxable supplies B - Rs. 30,000 Disallowed as fully used for exempt supply C – Apportionment of only Rs. 5000 Rs. 3500 (5000 * 70 lakhs/ 1 crore) – (proportion of taxable supplies to total t/o) Rs. 1,500 (5000 * 30 lakhs/ 1 crore) - (proportion of exempt supplies to total t/o) Apportionment of only Rs. 5000 as useful life shall be deemed to be 5 years D – (40,000/5 = 8000) (8000 less 5% every quarter * 3) = 6,200 Rs. 4340 (6200 * 70%) - (proportion of taxable supplies to total t/o) Rs. 1,860 (6200 * 30%) - (proportion of exempt supplies to total t/o) ITC of Rs. 40000 shall be apportioned amongst 5 years. 3 quarters from April 2019 to December 2019 would be reduced for the purpose of apportionment

18. Options for Banks/NBFCs 18

19. Blocked Credits 19 The various goods and/or services on which credit is blocked are as follows: 1. Motor vehicles and other conveyances and related services (insurance, servicing and repair and maintenance) S.No. Goods and/ or services on which credit is blocked Exceptions i.e. when ITC is allowed 1 Motor vehicles for transportation of persons with seating capacity ≤ 13 persons (including the driver) Motor vehicles when used for any of the following eligible purposes - •making further taxable supply of such motor vehicles; •making taxable supply of transportation of passengers (common public); •making taxable supply of imparting training on driving such motor vehicles Motor vehicles shall not include vehicle running upon fixed rails, special purpose vehicles used in factory and vehicles with less than 4 wheels fitted with engine capacity of upto 25cc

20. Contd. 20 S.No. Goods and/ or services on which credit is blocked Exceptions i.e. when ITC is allowed 2 Vessels and aircrafts Vessels and aircraft when used for any of the following eligible purposes- •making further taxable supply of such vessels or aircraft; •making taxable supply of transportation of passengers; •making taxable supply of imparting training on navigating such vessels; •making taxable supply of imparting training on flying such aircrafts; •transportation of goods 3 General Insurance, servicing, repair and maintenance relating to motor vehicles, vessels and aircrafts mentioned above •Such services when used for eligible purposes mentioned in Point 1 and 2 •Such services when received by- Manufacturer of motor vehicles, vessels or aircraft; or Supplier of general insurance services in respect of motor vehicles, vessels or aircraft insured by him 4 Leasing, renting or hiring of motor vehicles, vessels or aircraft on which ITC is not allowed •Such services when used for eligible purposes mentioned in Point 1 and 2 • Such services when used for making an outward taxable supply of the same category of services or as an element of a taxable composite or mixed supply •Such goods and/or services when provided by an employer to its employees under a statutory obligation

21. Contd. 21 2. Food & beverages, outdoor catering, health services and other services S.No. Goods and/or services on which credit is blocked Exceptions i.e. when ITC is allowed 1 •Food and beverages •Outdoor catering •Beauty treatment •Health services •Cosmetic and plastic surgery •Life insurance and health insurance •Such goods and/or services when used by a registered person for making an outward taxable supply of the same category of goods and/or services or as an element of a taxable composite or mixed supply •Such goods and/or services when provided by an employer to its employees under a statutory obligation 2 Membership of a club, health and fitness centre or travel benefits provided to employees Such services when provided by an employer to its employees under a statutory obligation

22. Other Cases of Blocked Credits 22

23. 23 Credit in Special Circumstances

24. Credit in Special Circumstances – Sec 18 24 Entitlement of ITC at the time of registration/voluntary registration or switching to regular tax paying status or getting the tax-paying status A person who has applied for registration within 30 days from the date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input tax in respect of inputs held in stock, on semi-finished or finished goods on the day immediately preceding the date from which he becomes liable to pay tax A person who has taken voluntary registration is entitled to take credit of input tax in respect of inputs held in stock, on semi-finished or finished goods on the day immediately preceding the date of grant of registration Registered person who ceases to pay composition tax and switches to regular scheme shall be entitled to take credit of input tax on the day immediately preceding the date from which he becomes liable to pay tax Where an exempt supply of goods or services or both by a registered person becomes a taxable supply , such person shall be entitled to take credit of input tax in respect of inputs held in stock, on semi-finished or finished goods on the day immediately preceding the date from which such supply becomes taxable Note: ITC to be availed within 1 year from the date of the issue of the tax invoice by the supplier

25. Reversal of ITC on Switching to Composition Levy or Exit from Tax-paying Status 25

26. Supply of Capital Goods or Plant and Machinery on which ITC has been taken 26 If capital goods or plant and machinery on which ITC has been taken are supplied outward by the registered person, he must pay an amount that is the higher of the following ITC pertaining to remaining useful life of the capital goods should be computed separately for ITC of CGST, SGST/UTGST and IGST Where the amount so determined exceeds the tax payable on the transaction value of the capital goods, such amount need to be paid and thus, should be added to the output tax liability

27. Transfer of ITC on Account of Change in Constitution of Registered Person 27 In case of sale, merger, demerger, amalgamation, transfer or change in ownership of business (including change due to death of sole proprietor), etc., the ITC that remains unutilized in the electronic credit ledger of the registered person can be transferred to the new entity In case of separate registrations for multiple businesses, ITC can be transferred to any or all of the newly registered place(s) of business in the ratio of the value of assets held by them at the time of registration

28. 28 Distribution of Credit by Input Service Distributor

29. Distribution of Credit by Input Service Distributor (ISD) – Sec 20 and 21 29 Manner of distribution of credit by an ISD Following principles needs to be adhered at the time of distribution

30. Procedural aspects 30

31. Other Relevant Points 31

32. Issue of Debit Note and Credit Note 32 Issue of a debit note The additional ITC on account of issue of a debit note to the ISD needs to be distributed by the ISD in the month in which such debit note is issued Issue of a credit note Recovery of Excess Credit Distributed to a Recipient If the ISD has distributed excess credit to any recipient, the excess will be recovered from the recipient (not ISD) with interest as if it was tax not paid

33. Manner of ITC Utilisation 33

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