1. presentation on input tax credit under gst

Narayan Lodha, Chartered AccountantPrivileged and Confidential
GOODS AND SERVICES TAX
(GST) IN INDIA
A Presentation
by
CA Narayan Lodha
Chartered Accountant
Flat No. 503, Tower Hibiscus,
Paramount Floraville, Sector 137,
Noida -201304 +91 9818156768
Email : lodhanarayan@hotmail.com
Input Tax Credit (ITC)

Executive Summary
Some important Definitions
Basic Concept and Principals
ITC-Eligibility Conditions and limitations
ITC Blocked Credit
Availability of ITC in Special cases
ITC- Input Service Distributor
Utilisation of Input Credit
Electronic Cash Ledger
Electronic Credit Ledger
Refund of Tax

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This presentation is confidential and must not be copied, reproduced, distributed, published, disclosed or passed (in whole or in
part) to any other person at any time without the prior written consent of the Company.
This presentation has been prepared for internal use. The contents of this document are solely for informational purpose. It does not
constitute professional advice or a formal recommendation. The presentation is made with utmost professional caution but in no
manner guarantees the content for use by any person. It is suggested to go through original statute / notification / circular /
pronouncements before relying on the matter given.
The presentation is meant for general guidance and no responsibility for loss arising to any person acting or refraining from acting as
a result of any material contained in this presentation will be accepted by us. Professional advice recommended to be sought before
any action or refrainment.
This publication contains information, which are personal view of the author and is intended for general guidance only. It is not an
opinion on the subject. The user should take independent opinion, advice, research or the exercise of professional judgement.
Neither author nor any other member of the author can accept any responsibility for loss occasioned to any person acting or
refraining from action as a result of any material in this publication. On any specific matter, reference should be made to the
appropriate advisor.
Disclaimer

 Input Tax Credit (ITC) is available in respect of taxes paid on any supply of goods or
services used or intended to be used in the course or furtherance of business (i.e. for
business purposes)
 Negative list approach for non-allowance of ITC
 ITC of tax paid on goods or services used for making taxable supplies by a taxable person
allowed subject to four conditions:
⁻ Possession of invoice;
⁻ Receipt of goods or services;
⁻ Tax actually paid by supplier to government;
⁻ Furnishing of return
 Credit of CGST paid on inputs may be used only for paying CGST on the output
 Credit of SGST/UTGST paid on inputs may be used only for paying SGST/UTGST on the
output
 Credit of CGST, SGST/UTGST paid on inputs may be used only for paying IGST and Vice
versa
 Full ITC allowed on capital goods in one go
 Proportionate credits allowed in case inputs, inputs services and capital goods are partly
used for business and partly for non-business purposes
 Proportionate credits allowed in case inputs, inputs services and capital goods are used
for taxable including zero rated and exempt (including non-taxable) supplies
Executive Summary

Input Tax Credit (ITC)
Manner of utilization of Credit
IGST
CGST
SGST
UTGST
1) IGST
2) CGST
3) SGST
1) CGST
2) IGST
1) SGST
2) IGST
1) UTGST
2) IGST

Input Tax Credit in GST
Detailed
Analysis

Input tax credit is concept is introduced to
levy tax on Value addition only.
ITC can be taken on the GST incurred for input
supply which can be used to make the
payment of tax liability on output supply.
To reduce the cascading of taxes.
Input Tax Credit (ITC) - Basic Concept
Input Tax Credit (ITC) to be broad based by making it available in respect of
taxes paid on any supply of goods or services or both used or intended to be
used in the course or furtherance of business.

Input Tax Credit- Major Principles
Allow credit of taxes paid on all business
expenses.
To allow credit of expenses incurred in relation
to taxable output / supply.
Specify the expenses for which credit is denied
or blocked
Personal expenses are not creditable
It should be used or intended to be used in
the course or furtherance of business.

Input Tax Credit – Deviation from the existing
practice
 Credit of Vat/ CST/ entry tax/ entertainment tax/luxury tax /
Octroi etc. collected by the state, which is subsumed in GST
will be allowed as GST credit to the manufacturer and
service provider.
 Similarly credit of central excise/service tax/CVD etc.
collected by center, which is subsumed in GST will be
allowed as GST credit to the Vat dealer
 Inter adjustment of CGST, SGST and IGST has been
provided.
 ITC has been linked to filing of return and payment of taxes
by the supplier.

Some Important Definition
Sec. 2 (63) – Input Tax Credit:- ITC means the credit of
input tax.
Sec. 2(62) – Input Tax is defined: It includes
 All taxes under CGST, SGST,UTGST and IGST
 IGST on import of goods and service
 Taxes paid under reverse charge under CGST, SGST,UTGST
and IGST.
 Taxes paid by the recipient of supply if such supply is
made by the unregistered person to registered person
under these ACT.
It does not include tax paid under composition levy
Sec. 2 (19) – Capital Goods - means goods, the value of
which is capitalised the books of Accounts.

ITC-Eligibility Conditions and limitations
Every Registered person is entitle to take the
credit of Tax paid on input.
Credit is allowed for input supply which are
used or intended to be used in the course or
furtherance of his business
Manner of credit is provide in section 49
The Input Credit is subject to some conditions
and restriction as me be prescribed in Rules

ITC- Conditions and limitations Contd.
 Tax Invoice :- One should possesses the tax invoice,
debit note or other tax paying documents
 Receipt of Good or services or both:- He has received
the goods or services or both.
 If goods are received in lots/installments then on receipt of last
installment/lot.
 It includes goods received by the agent or third person under his
direction before or during movement of goods i.e. if goods are
sold in transit
 Tax on the supply is paid by the supplier
 Furnished the return under the provision of the act

ITC- Conditions and limitations contd.
 He has paid to the supplier the value of the supply and tax
thereon within 180 days of the date of issuance of invoice.
– If no such payment then the entire credit taken on such supply shall be
added to output tax liability along with interest thereon.
– He can take the credit again on making the payment for the value of
supply and tax thereon.
 No credit with respect to the amount of tax (if tax is
capitalised ) on which depreciation is claimed.
 Credit of input tax can be taken till the last date of filing
Annual Return or actual date of filing annual return
whichever is earlier.

Apportionment of Input Credit
 If goods or services or both are used by the registered person
partly for business and partly for other purposes then credit is
restricted to input tax attributable to business purposes.
 If partly for taxable supply(including zero rated supply) and
partly for exempted supply then credit is restricted to
attributable to the taxable supply(including zero rated supply).
 Exempt supply includes non taxable supply. It also includes
supplies taxable under reverse charge, transaction in
securities, sale of land and sale of building.
 A banking Company, Financial institution, and NBFC have the
option to take proportionate credit as discussed above or can
take upto 50% credit.
 This restriction is not applicable with respect to tax paid on supplies
made within same PAN

ITC- Blocked credit
 Motor Vehicle and other conveyances.
– Except if used for:-
• Further Supply
• transport of passengers, transportation of goods,
• imparting training how to drive, navigate or fly them.
 Supply of following goods or services or both:
 Food Beverages, beauty treatment, cosmetic surgery, health
services, outdoor catering
 Membership of club/health and fitness centre
 Travel benefit to employees
 Rent a cab, life insurance and health insurance (unless govt.
makes it mandatory to provide such facilities to the employee)
ITC shall not be available in respect of the following:

ITC- Blocked credit
Works contract services for construction of
immovable property other than plant and
machinery.
Supply where tax is levied under composition
scheme
Supplies used for personal consumption
Goods lost/ stolen/ destroyed/ written off or
disposed of by way of gift/f ree sample
Any tax paid after issuance of SCN with respect to
such SCN, detention or confiscation

• Person who would like to take the credit of input
lying in stock or contained in finished goods or
semi finished goods at the time of registration-
– he should apply with in 30 days from the date he
becomes liable to take the registration and the credit
on such inputs held on the day immediately preceding
the date from which he becomes liable to pay tax
– In case of voluntary registration then the credit of
such inputs held in stock immediately preceding the
date of registration
Availability of ITC in special cases

If registered person ceases pay tax under
composition scheme or his exempt supply
becomes taxable supply-
– he can take credit tax paid on such inputs held in
stock on the day immediately preceding the date
from which he becomes liable to pay tax.
– He can take credit of tax paid on capital goods
exclusively used for such good or services
• Provided that credit shall be reduced such percentage
point prescribed in rules.

 Input Credit can be taken within 1 year from the date of
issue of tax invoice with respect to special cases discussed
above.
 Unutilised credit can be transferred in case of sale/
amalgamation/ merger /demerger/lease/transfer of the
entity where there are specific provision for transfer of
liability
 If person opt for composition scheme or supply becomes
exempt-
– Amount equal to the credit of input held in stock or credit on
capital goods reduced by the percentage point shall be debited
either in the e-cash ledger or e-credit ledger.
– Balance credit will lapse

If capital goods are supplied on which credit
was taken- person shall pay an amount equal
to such credit reduced by percentage points or
transaction vale of such supply whichever is
higher.
– Person has the option in case of supply of
refractory bricks, mould and dies, jigs and fixtures

ITC in respect of inputs sent for Job-Work
 A registered taxable person shall be allowed to take credit of input tax on
input/capital goods sent to a job-worker for job-work;
 Credit is allowed even when inputs/capital goods are directly sent to a job
worker for job-work without their being first brought to his place of business
If the input/capital good
sent for job work are not
received back within a
specified period it shall be
deemed that such inputs
had been supplied by the
principal to the job-worker
on the day when the said
inputs/capital goods were
sent out
Inputs
• Specified period is
within 1 year of being
sent out
Capital Goods
Specified period is
within 3 years of being
sent out

 Principal can take credit on input sent for job work even if
input are directly sent to the job worker for job work
without being first brought to his place of business.
 Such goods are to be received back or supplied from the
place of the job worker with in one year of being sent out
or received by the job worker (in case of directly sent)- if
not then it will be deemed that such goods are supplied to
the job worker on the day when such goods are sent to job
worker either from the place of business of the principal or
directly by the supplier
 In case of capital Goods the time limit is 3 years in place of
1 year
Above provisions are not applicable to mould and
dies, jigs and fixtures and tools
ITC in respect of inputs sent for Job-Work

ITC – Input service Distributor
Central tax can be distributed as central tax or
integrated tax
Integrated tax can be distributed as integrated
tax or central tax
A document containing the amount being
distributed has to be issued
Manner of issuing such documents are
prescribed in the rules

ITC – Input service Distributor- Conditions for
distribution
 Distribution against a document containing prescribed details
 Distributed credit can not exceed the credit available for
distribution
 If ITC attributable to a recipient then it should be distributed to that
recipient only
 If ITC is attributable to more than one recipient of credit then to be
distributed among such recipients in the pro rata basis:
 Turnover of such recipient in the state or UT during to relevant
period / Aggregate turnover of all such recipient (which are
operation in the current year) during the relevant period
 Relevant period means financial year preceding the year during
which credit is to be distributed.
 If few recipient of credit do not have the turnover in the
preceding financial year then the last quarter for which turnover
details are available for all the recipient of credit previous to the
month credit is to be distributed

ITC – Input service Distributor- Conditions for
distribution
Credit can be distributed among the units
registered in different states under same PAN.
If there is any contravention in distribution of
credit leading to excess credit to one or more
of the recipient of credit then the same shall
be recovered from such recipient along with
interest

Utilisation of Input Tax Credit
 Integrated tax shall first be utilised towards payment of integrated tax and
the amount remaining, if any, may be utilised towards the payment of
central tax and State tax, or as the case may be, Union territory tax, in that
order;
 the central tax shall first be utilised towards payment of central tax and the
amount remaining, if any, may be utilised towards the payment of
integrated tax;
 the State tax shall first be utilised towards payment of State tax and the
amount remaining, if any, may be utilised towards payment of integrated
tax;
 the Union territory tax shall first be utilised towards payment of Union
territory tax and the amount remaining, if any, may be utilised towards
payment of integrated tax;
 the central tax shall not be utilised towards payment of State tax or Union
territory tax;
 the State tax or Union territory tax shall not be utilised towards payment of
central tax

System of electronic cash ledger and electronic ITC (Credit) ledger
Payment of Tax
• Amount deposited in Cash credited
• May be used for making payment
towards tax, interest, penalty, fees or any
amount
• Balance after payment may be refunded
Electronic
Cash Ledger
• Input tax credit shall be credited here
• May be used for making payment
towards tax payable
• Balance may be refunded only in case of
exports / rate of output is less than input
Electronic
Credit
Ledger

Payment of GST
 Under GST 3 types of taxes are to be paid : CGST, SGST/ UTGST, IGST.
 Four Modes of Payment :
 Internet Banking;
 Electronic including Credit Card/Debit Card
 Over the Counter Payment (for Payments up to Rs. 10,000/-)
 Payment through RTGS/NEFT
 Every deposit made towards tax, interest, penalty, fees or any other
amount, shall be credited to the electronic cash ledger of such taxable
person.
 The date of credit to the account of the Government in the authorized
bank shall be deemed to be the date of deposit .
 The ITC as self-assessed in the return of a person to be credited to his
electronic credit ledger.
 The amount available in the electronic credit ledger to be used only for the
payment of tax, under this Act.
 The amount available in the electronic cash ledger to be used for payment
of tax, interest, penalty, fees or any other amount payable under this Act.

 The electronic Cash ledger shall be maintained by every persons.
 All amounts payable by a taxable person under this Act shall be debited
to the said register.
 The electronic Cash ledger shall be debited by: -
 The amount payable towards tax, interest, late fee or any other
amount payable as per the return filed by the said person;
 The amount of tax, interest, penalty or any other amount payable
as determined by a proper officer in pursuance of any proceeding
under the Act;
 The amount of tax and interest payable as a result of mismatch; or
 Any amount of interest that may accrue from time to time.

 The electronic cash ledger should be maintained in FORM GST PMT – 3.
 It shall be credited by the amount deposited and debited for the
payment therefrom towards tax, interest, penalty, fee or any other
amount.
 A challan in FORM GST PMT – 4 shall be generated to enter the details
of the amount to be deposited.
 The deposit can be made from any of the following modes :
 Internet Banking through authorized banks;
 Credit card or Debit card after registering the same with the
Common Portal through the authorised bank;
 National Electronic Fund Transfer (NEFT) or Real Time Gross
Settlement (RTGS) from any bank;
 Over the Counter payment (OTC) through authorized banks for
deposits up to Rs. 10,000 per challan per tax period, by cash,
cheque or demand draft.
 The challan in FORM GST PMT - 4 shall be valid for a period of 15 days.

Electronic Credit Ledger
The electronic credit ledger shall be maintained by registered
taxable person and every claim of input tax credit under the Act
shall be credited to the said Ledger.
The electronic credit ledger shall be debited to the extent of
discharge of any liability under this Act.
Where a registered taxable person has claimed refund of any
unutilized amount from the electronic credit ledger , the amount to
the extent of the claim shall be debited in the said ledger.

Refund of Tax
 Any person claiming refund of any tax or interest, paid on such tax
shall make an application in FORM GST RFD-01.
 The application shall be accompanied by:-
 Documentary evidence that a refund is due,
 When refund claimed is more than 5 lac rupees, document or other
evidence claiming incidence of tax has not fallen on any other person
 A taxable person may claim refund of any unutilized input tax credit
only in the following cases:
 Where credit has accumulated on account of tax rate on inputs being
higher than tax rate on outputs;
 Exports which are not subjected to export duty.
 Exports of services.
 The order sanctioning the refund shall be issued within 60 days from
the date of filing the application.
 No refund shall be granted if the amount is less than Rs. 1000/-

Input Tax Credit Rules
Under Draft Rules

No. of the Rule Particulars
Rule No.1 Documentary requirements and conditions for Claiming
Input Tax Credit
Rule No. 2 Reversal of input tax credit in case of non-payment of
consideration
Rule No.3 Claim of credit by banking company or a financial
institution
Rule No. 4 Procedure for distribution of input tax credit by Input
Service Distributor (ISD)
Rule No. 5 Manner of claiming credit in special circumstances
(Registrations, ceases to composite dealer, supplies
becomes taxable etc.)
Rule No. 6 Transfer of credit on sale, merger, amalgamation, lease
or transfer of a business
Table of Input Tax Credit Rules

No. of the Rule Particulars
Rule No. 7 Manner of determination of input tax credit in certain
cases and reversal thereof (exempt/ non-business
supplies )
Rule No. 8 Manner of determination of input tax credit in respect
of capital goods and reversal thereof in certain cases
Rule No.9 Manner of reversal of credit under special
circumstances
Rule No. 10 Conditions and restriction in respect of inputs and
capital goods sent to the job worker
Table of Input Tax Credit Rules

Thank you

1. presentation on input tax credit under gst

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