You must have had gst explained to you many times – after all, it is one of the biggest tax reforms in India. The GST came in to effect on July 1, 2017, and since then the GST Council has implemented several regulations governing the administration of the GST and its services.
Although the GST has been a significant reform, there has been a lot of confusion regarding one of its key regulations, the Input Tax Credit. Through this article, you will come to understand how and where you can claim Input Tax Credit in GST.
What Is Input Tax Credit?
Input Tax Credit is the subtraction of the tax money you have paid on inputs on the final output bill. In simple terms, while paying the tax on the good (output), you can reduce the tax you have already paid on the input.
The concept is not entirely new. It has been there in place in the Indian Indirect Taxation System in the pre-GST era. But with the advent of GST, its scope has been widened as GST has brought in the ‘one nation, one tax’ regime.
The rules and regulations are very stringent and method-based in their approach. So, to run your business successfully, you must learn how to claim Input Tax Credit in GST.
How To Claim Input Tax Credit In GST?
Under the GST taxation system, you must fulfil the following conditions to be able to claim Input Tax Credit in GST on your purchases:
- You must be a registered taxable person (manufacturer or supplier or agent or e-commerce operator) under the GST Act.
- You can claim Input Tax Credit only if the good and services purchased by you have been used for the business purposes only.
- You must have all the tax invoices of your purchases.
- All your dealers and suppliers must be GST compliant as well.
- Your suppliers must have already filed their GST returns.
- Your supplier must have already paid the tax charged on your purchases to the govt.
- You need to provide all the supporting documents viz. tax invoice, supplementary invoice, debit note, etc.
- You must have received the said goods and services.
- In case the goods have been received by you in instalments, you can claim Input Tax Credit only after receiving the last lot.
- You must have filed all the GST returns – GST 1, GST 2, GST 3, GST 6, GST 7.
- You must report the amount of Input Tax Credit in your monthly GST returns of Form GSTR-3B.
There are certain points you need to consider when you cannot claim Input Tax Credit in GST. They are listed below:
- If you have claimed depreciation on the tax component of a capital good, then you cannot claim the Input Tax Credit.
- If you are registered under the compositions scheme in GST, then you cannot claim the Input Tax Credit.
- If you have used the goods and services for personal use, you cannot claim the Input Tax Credit.
Also, note that claiming of Input Tax Credit is not allowed beyond September of the following Financial Year to which the invoice pertains or the date of filing of GSTR-9, i.e., GST Annual Return, whichever is earlier.
Things You Must Know
As per Rule no. 69 of the Central Goods and Services Tax (CGST) Act, 2017, the matching of the following details is mandatory for you to be able to claim the Input Tax Credit:
- gst no of the supplier
- GSTIN of the receiver
- Invoice or debit note number
- Invoice or debit note date
- Tax amount
How And Where To Avail Input Tax Credit?
- To pay IGST, you have to take Input Tax Credit from IGST, CGST, SGST made on your purchases.
- To pay CGST, you have to take Input Tax Credit from IGST and CGST made on your purchases.
- To pay SGST, you have to take Input Tax Credit from IGST and SGST made on your purchases.
- For example,
- Mr X is a seller who sells goods to Mr Y.
- Now, Mr Y is the registered buyer under the GST Act. Mr Y will be able to claim the Input Tax Credit on his purchases based on the invoices.
- X files the details of his supply in GSTR 1. Y, on the other hand, files the details of his purchase in GSTR 2.
- The data automatically gets reflected from GSTR 2A of Y, and after Y accepts the purchase, the data goes from GSTR 2A to GSTR 2.
- Therefore, the amount of tax paid by Y on purchase gets credited to the ‘Electronic Credit Register’. Now Y can adjust it against the future output tax liability and get the refund.
Indeed, Input Tax Credit is intended to be a boon for businesses across India. You must ensure that all your suppliers are GST compliant and that you have all the documents before you claim the Input Tax Credit.