What is Input Tax Credit under GST?

As GST has been discussed across the country, the Input Tax Credit has been discussed at the same time. One of the main benefits of implementing GST across the country is the continuous flow of incoming credits along the chain (from the production of goods to the final consumer) and between countries, which was not the case before. 

Under the GST laws, all taxpayers are permitted to use the ITC on all inputs used or intended to be used in the course of business or for corporate promotion. This applies to both goods and services and also to capital goods (although there are some exceptions).

What are the conditions for applying for the GST Entry Tax Credit? 

To qualify for the GST Entry Tax Credit, a Concessionaire must meet the following conditions: 

• The distributor must be in possession of a valid tax invoice, a valid debit/credit note, or a complementary invoice issued by the supplier. 
• You must have received the goods/services for which the invoice was generated.
• Must have filed returns (GSTR-3) 
• You must ensure that the supplier has paid the tax charged to the government. This can be difficult to track manually, so GST accounting software can be of great help here.
• You must have completed invoice matching and reached the final ITC posting reversals. If there is even a slight discrepancy in the numbers due to an incorrect entry in the GST portal, the full ITC amount cannot be claimed. Therefore, getting this right is an absolute must.

When do I become eligible for the reduced GST input tax credit? 

The following are the situations in which a taxable person becomes eligible to benefit from ITC under GST: 

If registration is required, becoming obligated to register under the GST regime 

When applying for GST registration under GST only when you become responsible for registering, can you take advantage of the ITC on inputs and inputs contained in work in progress or finished goods in stock, the day before the date on which you become responsible for paying the tax, However, this can only happen if you request registration within 30 days of the date you became a registration manager and were granted registration.

If one voluntarily requests registration 

When you voluntarily request GST, even when you are not required to do so by law, you can take advantage of the ITC on inputs and inputs contained in semi-finished or finished products in stock the day before the registration is granted.

Modification of the composition regime to the usual concessionaire 

The capitalization scheme is valid only as long as the turnover is less than Rs. 50 lakhs. Beyond this threshold, a company must switch to the regular scheme. When this happens, you can avail yourself of the ITC on inputs, inputs contained in semi-finished or finished products in stock, and capital goods the day before the date on which you become liable for the tax. Capital goods credit will be reduced in percentage points, which will be communicated.

Exempt goods or services become taxable 

When goods or services declared exempt from GST become taxable, the ITC can be used the day before the taxable supply: 

• Supplies in stock and supplies contained in semi-finished or finished products in stock, refer to the exempt supply.
• Capital goods intended exclusively for exempt supply. Capital goods credit will be reduced in percentage points, which will be communicated.

There is a sale/merger/demerger/merger/lease/transfer of the company 

In each of these cases, if there is a specific provision for the transfer of liabilities, the unused ITC can be transferred to the sold, merged, split, merged, leased, or transferred business.

The goods and/or services are used partly for the company and partly for other purposes 

When the goods and/or services are used partly for commercial purposes and partly for non-commercial purposes, ICT can be used, but only in the part used for commercial purposes.

The goods and/or services are used partly for taxable supplies and partly for exempt supplies 

When the goods and/or services are used in part for taxable supplies and in part for exempt supplies, the ITC can only be used for the part intended to carry out taxable and zero-rated supplies. ITC is not permitted on the part used to make exempt supplies and supplies where the consignee pays the tax on a collection basis.

When the goods are received in batches or in installments 

When goods are received in lots or installments, the ITC can be used, but only upon receipt of the last lot or installment.

Purchase of pipelines and telecommunications towers 

The ITC on pipelines and telecommunication towers purchased can be paid in installments: 1/3 of the total tax paid can be used in the year of purchase, 2/3 of the total tax paid (including the credit used in the financial year of purchase).