Input Tax Credit (ITC) - Meaning, Eligibility, Conditions and Required Documents [GST Law & Practice B.Com Notes]

Meaning of Input Tax Credit

The word input tax credit is the combination of three words – Input, tax and credit.

Input Means (Sec. 2(59) of the CGST Act, 2017): It means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.

Input Tax Means (Sec. 2(62) of the CGST Act, 2017): In relation to a registered person, it means the Central tax, State tax, integrated tax or Union territory tax charged on any supply of goods or services or both made to him and includes:

(a) the integrated goods and services tax charged on import of goods;

(b) the tax payable under the provisions of Sec 9(3) and Sec. 9(4) of the CGST Act, 2017;

(c) the tax payable under Sec 5(3) and Sec. 5(4) of the IGST Act, 2017;

(d) the tax payable under SGST Act (i.e. person liable to pay GST under RCM);

(e) The tax payable under UTGST Act (i.e. person liable to pay GST under RCM),

But does not include the tax paid under the composition levy.

Input Tax Credit (Sec 2(63) of the CGST Act, 2017): It means the credit of input tax. It is deducted while calculating GST liability under regular scheme.

Eligibility for Claiming Input Tax Credit (ITC):

Eligibility for Claiming Input Tax Credit has been mentioned in Section 16(1) of the AGST Act, 2017. According to this section eligibility for claiming ITC is that:

(1)      The person must be registered under the GST Act; and

(2)      Purchase of goods or services or both made by him are used or intended to be used in the course of furtherance of his business and the said amount shall be credited to the Electronic Credit Ledger of such person.

It should be noted that ITC will not be allowed if depreciation has been claimed on tax component of a capital goods. However, the person must fulfill such conditions and restrictions as may be prescribed and in the manner specified in section 49 relating to payment of taxes, interest, penalty and other amount.

Conditions for Claiming Input Tax Credit (ITC):

As per Section 16 of the GST Act, 2017, following four conditions are stipulated for taking Input Tax Credit:

(a)Possession of a tax invoice: The registered taxable person is in possession of a tax invoice or debit note issued by a supplier registered under this Act, or such other taxpaying documents as may be prescribed issued by a supplier [Section 16(2)(a)];

(b) Receipt of Goods and/or Services: The taxable person must have received the goods and / or services; [Section 16(2)(b)];

(1)  Where goods are received in lots/installments, credit will be available against the tax invoice upon receipt of last lot or installment.

(2)  Goods deemed to be received by a registered person when the supplier delivers the goods to the recipient/any other person on the direction provided by the registered person.

(c) Payment of Tax to the Government: Subject to the provisions of section 41 or section 43A, the tax charged in respect of such supply has been actually paid to the Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply [Section 16(2)(c)]; and

Where a recipient fail to pay to the supplier of goods or services or both, other than supplies on which tax is payable on revenue charge basis, or tax thereon within 180 days of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.

(d) Furnishing of GST Return: GST return must be furnished in GSTR-3 under section 39 of the AGST Act.

Documents Required for claiming Input Tax Credit (ITC):

Input tax credit can be claimed only by a person having GST registration and based on proper documentation and filing of Form GSTR-2 returns. The following documentary requirements must be satisfied by a taxpayer for claiming input tax credit.

(1)  An invoice issued by the Supplier as per the GST Rules for Invoice;

(2)  An invoice issued by recipient under RCM (Reverse Charge Mechanism);

(3)  A debit note issued by a supplier;

(4)  A bill of entry or any similar document prescribed under Indian Customs Act, 1962; and

(5)  An Input Service Distributor invoice/Input Service Distributor credit note or any document issued by an Input Service Distributor.