Input tax credit (ITC) in GST is the limited credit waiver that businesses can claim on the taxes paid on taxable input goods and services used for making taxable supplies. These include zero-rated supplies and exports. The ITC entitlement is determined regularly, generally monthly or quarterly.
The ITC can be used to pay output GST payments, either in full or in part. If the amount of ITC exceeds the output GST payable for a particular tax period, the business can claim a refund from the government. Conversely, if the amount of ITC is less than the output GST payable, the business must pay the difference to the government. Here’s how to claim the ITC under GST.
Table of contents:
- What is Input Tax Credit Meaning?
- How does the Input Tax Credit work?
- When can you claim the Input Tax Credit?
- Types of GST in India where Input Tax Credit is applicable
- Input Tax Credit of CGST/ SGST/ UTGST/ IGST
- How to claim Input Tax Credits under GST returns?
- When can you claim an Input Tax Credit?
- Procedure to register & claim for Input Tax Credit
- Documents to claim ITC in GST
- Conditions to claim Input Tax Credit under GST
- Types of Input Tax Credit – ITC forms under GST
- ITC01–ITC for new GST Registration
- ITC02–Transfer of ITC in case of sale/merger, etc.
- ITC03–Reversal of ITC
- ITC04–ITC on goods sent to the job worker
- The Latest updates on ITC (2022)
What is Input tax credit meaning?
Input credit is the tax paid on inputs used in the manufacture of a good or provision of a service which can be set off against the tax payable on the output. It is one feature of the Goods and Services Tax (GST) which was implemented in India on 1 July 2017.
Under GST, input credit is available for both CGST and SGST. You can use this credit to pay either CGST or SGST, but not to pay Integrated GST (IGST).
How does the Input Tax Credit works?
>Assume yourself as a manufacturer known as Mr B
>You buy the raw materials(Inputs) worth Rs.200 from Mr A
>Using the inputs from Mr A, you have produced a product that has a tax payable on output.
⇒ Tax Payable on your FINAL PRODUCT = Rs. 500 tax paid
⇒ Taxes you paid on your PURCHASES from Mr A = Rs.200
Now, you can claim INPUT CREDIT of Rs.200 under the GST act.
⇒ Final tax payable by you = Rs.500 – Rs.200 = Rs.300
That’s how Input tax credits work . You can consider this as a GST refund for the good & service taxes you paid on your purchase.
When can you claim the Input Tax Credit?
You can claim the input tax credit on eligible inputs and input services used for business purposes. Inputs include goods used in business, whether acquired by purchase, barter or otherwise.
This is applicable only if the registered person has all the required invoices and other supporting documents issued by the supplier at the time of filing his GSTR-3B return. The registered person shall claim input tax credit through the GST Common Portal on or before the due date of filing the return.
Types of GST in India where Input Tax Credit is applicable:
The general GST meaning is that it is an Indirect tax payment used in India on the supply of goods and services. It is a comprehensive, multistage, destination-based tax: comprehensive because it has subsumed almost all the indirect taxes except a few state taxes.
- Central Goods and Services Tax (CGST): Tax levied on intra-state or intra-union territory on the supply of goods or services or both. Also known as Central Tax.
- State Goods and Services Tax (SGST): Tax levied on the supply of goods or services or both within the same state. Also known as State Tax.
- Union Territory Goods and Services Tax(UTGST): Tax levied on the supply of goods or services within the same union territory. Also known as Union Territory Tax.
- Integrated Goods & Services Tax (IGST): Tax levied on inter-state supply of goods or services for both.
Input Tax Credit of CGST/ SGST/ UTGST/ IGST
- Credit of CGST:
- 1st payment of CGST
- You may use the balance for the payment of IGST.
- Input Credit of CGST is not allowed for payment of SGST.
- Credit of SGST/ UTGST:
- 1st payment of SGST/UTGST
- You may use the balance for the payment of IGST.
- Input Credit of SGST/ UTGST is not allowed for payment of CGST.
- Credit of IGST:
- 1st payment of IGST,
- Then CGST,
- The balance for payment of SGST/ UTGST.
Input Credit of
To be utilized 1st for the Payment of
Then the balance can be utilized further for,
1. CGST,2. SGST/UTGST
How to claim Input Tax Credits under GST returns?
Input tax credit (ITC) is a mechanism in the Goods and Services Tax (GST) framework that allows businesses to set off the taxes paid on inputs against the GST payable on the output. This helps businesses to reduce the cost of doing business and encourages compliance. ITC is available for both taxable goods and taxable services.
Businesses can claim ITC on capital goods, raw materials, input services, and other expenses used in the course of business. ITC can claim up to 100% of the GST payments paid on inputs. However, there are some exceptions.
For example, alcoholic beverages and tobacco products are not eligible for ITC.
When can you claim an Input Tax Credit?
- You must have a tax invoice(of purchase)/ debit note issued by a registered dealer/supplier.
- You should have received the goods/services.
- The tax payments charged on your purchases will get deposited/paid to the government by the supplier in cash or via claiming input credit
- The dealer/ Supplier has filed GST returns for the goods & services he supplied to you.
- The dealer/ Supplier has uploaded the invoice in their GSTR-1 and it appears in GSTR-2B of the recipient or buyer.
- For goods received in cumulative lots, the credit will be available upon the receipt of the last lot or instalment.
Note: You can apply for ITC only when your supplier has already filed the tax he collected from you. Through this method, you will be certain of your entitled credits.
Procedure to register & claim Input Tax Credit:
Action to perform
Login to the GST portal using the Username & password (If you are not a registered entity under GST, you’ve to do GST filing by registering under the GST act first before claiming for ITC)
Go to Dashboard -> Services -> Returns ->ITC Forms
Under ITC forms, choose the appropriate type of input tax credit which you want to claim & choose the respective ITC form. (Find the ITC form details below)
Under the appropriate ITC form, choose a mode of application preparation – Prepare online/Prepare offline
>>If you opt for offline services, make sure to follow the instruction mentioned on the page. (Download the ITC form -> Check for corruption using the tool given on the page ->Fill the form offline -> Save in the prescribed format (JSON) -> Upload in the ITC section under GST portal)
>>If you opt for online service, then fill out the form online using the next steps of instructions below.
Choose the appropriate option from the drop-down for “Claim made under”
Enter the details of GSTIN, Invoice details(Bill no, Date, etc)
Select the type of goods from the dropdown
Enter the details of the goods description, unit quantity code, quantity consumed, invoice value & ITC Amount
Click the ‘Add’ button at the bottom to upload the GST invoices on input purchases
Press ‘Preview’ & check the details furnished in the form.
Once you confirm the details, press ‘Submit’ /’Proceed’
Now, refresh the page & see if the updated status “Submit status – Submitted” under your GSTIN number
If the ITC claimed is more than 2 Lakhs, then proceed to update ‘Chartered accountant/ cost accountant’s details.
Authorize, sign & complete the process.
Documents to claim ITC in GST:
- Invoice issued by the supplier of goods or services or both.
- Invoice issued by Recipient along with proof of payment of Tax.
- A Debit note issued by the supplier/ A proper GST invoicing
- Bill of entry or similar document prescribed under the Customs Act.
- Revised Invoice.
- Document issued by the Input Service Distributor.
Conditions to claim Input Tax Credit under GST
Only a Registered Person would be able to claim the input tax credit of GST. In addition, a registered person would be eligible to claim the input tax credit on fulfilment of the following conditions – it would entitle him to the benefit of the Input Tax Credit by the law.
- He/she has received an Original Type-1 Tax Invoice or any other tax-paid document.
- He/she received the goods or services from the supplier. Adding the prices of shipping charges.
- Your supplier has filed the taxes.
- He/she has furnished the GST Return.
- If you are yet to receive the inputs, you might be eligible for the ITC only after the complete receival of goods.
- Payments are made within 180 days from the date of issuing the invoice. If payment isn’t made within 180 days, the recipient’s tax liability may increase.
Types of Input Tax Credit – ITC forms under GST:
There are 4 types of ITC Forms, which are as follows:-
ITC01–ITC for new GST registration
- Under this category, the ITC given is in light of inputs held in inventory, inputs included in semi-finished and finished goods, and capital goods on the expiration date.
- To supplement the invoice, the description of these purchases as of the cutoff date should be available.
ITC02–Transfer of ITC in case of sale/merger, etc.
- The Input Tax Credit listed in the Electronic Credit Ledger can be transferred to another business entity in case of the transfer or merger of the business by way of a sale of principal assets (de-merger) by submitting a Form ITC-02 and a Form ITC-01.
- The acquiring entity (transferee) and acquired entity (transferor), both should be registered under the GST regime.
ITC03–Reversal of ITC
It should be filed under two situations in GST services:
- If opting for Composition Scheme
- If any taxable supply becomes exempt
ITC04–ITC on goods sent to the job worker
- ITC-04 is a quarterly form that must be filed on or before the 25th of the month following the quarter. For example, for the fourth quarter of October-December, the form must be filed on January 25.
- It can be availed for Goods dispatched to a job worker / Received from a job worker / Sent from one job worker to another
The Latest updates on ITC (2022):
- ITC claim is not valid if it is under restriction to Section 38 of GSTR-2B.
- Sections 42, 43, and 43A on provisional ITC claim process, matching, and reversal are invalid.
- The revised purpose of Section 41 was to promote the use of self-directed claims.
- Redesigned section 38-communication of details of inward supplies and input tax credit has subscribed to the custom Interim Constitution, Section 38. It lays down the conditions and period for ITC claims and removes the two-way communication procedure when filing the GST return in Form GSTR-2. The agency also specifies that taxpayers will receive info related to ITC claims.
- The maximum time to gain ITC accrual or credit on business invoices or debit notes of the financial year is now re-designated as one of the two dates from November 30 up to the date of a completed annual return.