What is Input Tax?
“Input Tax” means the GST Taxes (CGST, SGST, IGST) charged on any supply of goods or services or both made to a registered person in the course or furtherance of his business and includes such tax payable on reverse charge basis- but excludes tax paid under composition levy.
Who is Eligible to Take Input Tax Credit?
Every registered person shall be entitled to take credit of input tax charged on any supply of goods or services to him which are used or intended to be used in the course or furtherance of his business on the basis of any of the following tax-paying documents:
- Tax Invoice issued
- Debit note
- Bill of entry
- Invoice prepared in respect of reverse charge basis
- Document issued by Input Service Distributor for distribution of credit.
Eligibility of a Taxpayer to avail the Input Tax Credit:
As per Section 16 of CGST Act there are certain eligibility conditions which a taxpayer has to fulfill before becoming eligible to avail credit. The same are:
That supply of goods or services or both should be made to him which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.
> The taxpayer has to ensure that the goods or services purchased on which he wishes to claim credit should be used for business.
> In case, the same is neither used nor intended to be used for his business from where further supplies are offered, then such credit should not be claimed by the taxpayer.
Example:-
In-eligible credit can be the processing charges paid by taxpayer on the bank loan related to the Housing Loan on which GST was paid. (Non-Business Purposes)
In-eligible credit can be the processing charges paid by taxpayer on the bank loan related to the education of his son on which GST was paid.
Conditions u/s 16(2):-
I. Condition:-
He is in possession of a tax Invoice or debit note issued by the supplier registered under this Act, or such other tax paying documents as may be prescribed.
The availability of a valid tax invoice or tax paying document in the hand of recipient to claim credit.
Here two things are mentioned deliberately;
a) One is “Valid Invoice/document” and
b) Other is “Tax paying document”.
Now one needs to understand that what all documents are making some one eligible to claim credit.
As per legal jurisprudence, apart from Tax Invoice/Debit Note issued by supplier,
self invoice raised for supply falling under reverse charge mechanism (subject to payment of tax),
- bill of entry,
- invoice issued by input service distributor,
- invoice issued to transfer common input services to the Input Service Distributor
- are also the documents on which one can claim the credit but
it is important to see the “validity” of such document before we proceed to avail credit.
As per Notification No 39/2018-CT,
- the invoice number,
- name and address of supplier and recipient along with GST Number,
- description of goods/services,
- rate of tax,
- amount of tax and
- place of supply are the necessary ingredients without which the document will become invalid to claim credit.
II. Conditon
He has received the goods or services or both.
the goods/services mentioned on the invoice should also be received by the recipient who wishes to claim such credit.
At times, we can have practical situations when goods are received in lots or installments, but as clarified through Section 16, the taxpayer will be eligible to claim credit once the final installment or lot will be received.
Conditions for Availment of Input Tax Credit:
The said goods or services or both are used or intended to be used in the course or in the furtherance of his business;
He is in possession of tax invoice/ debit note / tax-paying document issued by a supplier registered under this Act.
He has received the said goods or services or both subject to job-work facilities and restrictions relating to input tax credit
The supplier has uploaded the relevant invoice on the GSTN (online GST portal);
The supplier has paid the said amount of tax (as charged in the invoice) to appropriate Government in cash or by way of utilization of input tax credit, as admissible;
He – claimant of input tax credit – has furnished GST return in FORM-GSTR 2;
In case all the above conditions are met except for the fact that the supplier has not uploaded the invoice in his GSTR-1, provisional ITC can be taken up to 5% of the credits that are eligible and uploaded by the supplier in his GSTR-1. The provisional ITC cannot exceed the amount of ITC not uploaded by the supplier in his Form GSTR-1.
