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Input Tax Credit

Overview

GST Input Tax Credit Reconciliation

GST is an indirect tax levied on goods and services based on the principle of value addition. Hence, the levy of tax is based on the value added at each stage of the supply chain till the product or service reaches the ultimate consumer. In such a tax system, to negate the cascading effect of the tax, there exists a means to set of taxes paid on procurement of raw materials, consumables, plant and machinery, equipment, services, etc., that are used for the manufacturing or supply of goods and services. This element used to offset the tax liability is called input tax credit.

LEDGERS - Input Tax Credit Reconciliation

LEDGERS GST Software supports seamless matching and reconciliation of input tax credit at scale. The LEDGERS input tax credit reconciliation tool can sync with GST Portal through API to fetch GSTR-2A data, prepare the data for matching and reconcile with purchases data.

Purchases that are not matched with GSTR-2A data for flagged for further action like sending reminders to the supplier or updating purchase data and more.

With LEDGERS, you can be assured that your business has received all input tax credit due. A streamlined input tax credit reconciliation process will help you reduce your GST payable each month, streamline purchases and boost profitability.

Input Tax Credit

Under GST, each person having a GST registration in the supply chain takes part in the process of controlling, collecting GST tax and remitting the amount collected. However, to avoid double taxation and cascading effect of tax, input tax credit is provided as a means to set off tax paid on procurement of raw materials, consumables, goods or services that was used in the manufacturing and supply and sale of goods or services. By using the input tax credit mechanism, businesses are able to achieve neutrality in the incidence of tax and ensure that such input tax element does not enter into the cost of production or cost of supply of goods and services.

Eligibility for Claiming Input Tax Credit

Input tax credit can be claimed only by a person having GST registration and based on proper documentation and filing of 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.  A debit note issued by a supplier;
  •         3.  A bill of entry or any similar document;
  •         4.  An ISD invoice or ISD credit note or any document issued by an Input Service Distributor.
In addition, the following conditions are also applicable for claiming input tax credit:
  • The taxpayer is in possession of a tax invoice or debit note issued by a registered supplier or other tax paying documents.
  • The taxpayer has received the goods and/or services.
  • The tax charged in respect of the supply has been actually paid to the account of the appropriate Government, in cash or through utilisation of available input tax credit.
  • The taxpayer has filed the the necessary GST filings.

Goods & Services Not Eligible for Input Tax Credit

*Under GST, input tax credit is not available in respect of the following goods or services:*

1. Motor vehicles, except when they are supplied in the course of business or used for providing taxable services like:

         A. Transportation of passengers

         B. Transportation of goods

         C. Providing training on driving, fling, navigating such vehicles

         D.  Further supply of such vehicles or conveyance

2. Supply of goods and/or services in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of service

3. Membership of a club, health and fitness centre

4. Rent a cab, life insurance, health insurance, except where it is statutorily obligatory for an employer to provide such services

5. Travel benefits extended to employees on vacation such as leave or home travel concession

6. Goods and/or services received by the principal in the construction of immovable property, other than plant and machinery except where it is an input service for supply of works contract service

7. Goods and services received by a taxable person for construction of an immovable property on his own account, other than plant and machinery, even when used in the furtherance of business

8. Goods and services on which tax has been paid under composition scheme

9. Goods and services used for personal consumption

10. Goods lost, stolen, written off or disposed by way of gift or free samples

11. Tax paid after detection of fraud, wilful misstatement or suppression

12. Tax paid for release of detained or seized goods

13. Tax paid for release of confiscated goods

Types of Return under GST

GSTN has prescribed different types of forms for return filing return based on nature of transactions

Items Not Eligible
    List of goods and services not eligible for input tax credit under GST. Input tax credit is not available for conveyance, insurance and personal consumption.
Input Tax Credit Refund
    Procedure for claiming input tax credit refund due to inverted tax structure through the GST Portal. Inverted Tax Structure refers to a situation where the tax levied on inputs is higher than the tax levied on output supplies.
Input Tax Credit for Imports
    Input tax credit for imports is provided for importers having GST registration. IGST and GST compensation cess is applicable on goods imported into India.
Input Tax Credit Utilization
    The Central Goods and Service Tax (Amendment) Act, 2018 has been made effective from 1st February 2019 and has resulted in various changes in the utilization of input tax credit.
Transfer of Input Tax Credit
    Procedure for transfer of input tax credit from one business to another through the GST Portal. GST input tax credit can be transferred by filing Form GST ITC-02.
ITC Refund for Exports
    Procedure for claiming input tax credit refund for Exports through the GST Portal. GST RFD-01A form has to be filled at GST portal by the taxpayer to claim the refund of input tax credit on exports.
Rules 42 and 43 of CGST Rules
    Rule 42 and 43 of the CGST rules are applicable for claim of input tax credit wherein the supply is being partly used for the purposes of business and partly for other purposes. In such cases, input tax credit cannot be claimed fully by the taxpayer and part of the input tax credit claim must be reversed.
GST Registration
    File your GST registration application online through IndiaFilings. Get help with GST registration procedure, eligibility and documents required. Entities with an annual revenue of more than Rs.20 lakhs must obtain GST registration. Complete your GST registration online in less than 5 working days.
GST Return Filing
    File GST return online through IndiaFilings with GST Expert Support. You can prepare and file GSTR-1, GSTR-2, GSTR-3 and GSTR-4 return online through IndiaFilings. In addition to filing GST returns, you can also issue GST invoices and record purchases on LEDGERS to automatically file GST returns.

Frequently Asked Questions

Input Tax credit FAQ's

Input tax is the central tax (CGST), state tax (SGST), integrated tax (IGST) or cess paid by a person having GST registration on supply of goods or services. GST input tax also includes tax paid on reverse charge basis and IGST charged on import of goods. However, input tax does not include tax paid under composition levy.

Yes. The definition of input tax includes the tax payable under the reverse charge.

Following four conditions are to be satisfied by the registered taxable person for obtaining ITC: is in possession of tax invoice or debit note or such other tax paying documents as may be prescribed; he has received the goods or services or both; the supplier has actually paid the tax charged in respect of the supply to the

  • The taxpayer is in possession of tax invoice or debit note or such other tax paying documents as may be prescribed.
  • The taxpyaer has received the goods or services or both.
  • The supplier has actually paid the tax charged in respect of the supply to the government.
  • The taxpayer has filed the GST return

Yes, the recipient can take input tax credit. However, the taxpayer would be required to pay the consideration along with tax within 180 days from the date of issue of invoice. This condition is not applicable where tax is payable on reverse charge basis.

A registered person cannot take input tax credit in respect of any invoice or debit note for supply of goods or services after the due date for furnishing the GST annual return. If annual return is filed before the due date, then no change can be made after filing of GST annual return.

No, a person cannot take input tax credit with respect to goods lost, stolen, destroyed or written off. In addition, input tax credit with respect to goods given as gifts or free samples are also not allowed.

The input tax credit of goods or services attributable only to the purpose of business can be taken by registered person. The manner of calculation of eligible input tax credit is provided in GST rules.

In case of mismatch, the supplier and recipient would be updated about the mismatch. If the mismatch is not rectified, then the amount will be added to the output liability of recipient in the return for the month succeeding the month in which discrepancy is communicated.

No, input tax credit is allowed provisionally for two months. The supply details are matched by the system and discrepancies are communicated to concerned supplier and recipient. In case mismatch continues, the ITC taken would be reversed automatically.

No, provisionally allowed input tax credit can be used only for the payment of self-assessed output tax in the return.

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