Input Tax Credit
1. Scenarios where you cannot Avail Input Tax Credit.
In the event that you have not enrollment inside 30 days from the date on which you wind up at risk to enlist, you will lose the qualified ITC on information sources and data sources contained in semi-completed or completed merchandise in stock, on the day preceding the date on which you end up subject to pay charge.
2. After as far as possible for benefiting Input Tax Credit is crossed
ITC must be benefited inside the most punctual of the accompanying dates-
- 1 year of date of the receipt Or on the other hand
- The date of filing of the return for September of the next financial year
- The date of filing of the annual return (due date is 31st December of the next financial year)
Let us understand this with an illustration.
Example: ABC is a dealer in men’s apparel. It purchases apparel for Rs.1,00,000 from the manufacturer on 15th July, 2017. GST paid on the purchase is Rs.18,000 (18%). They have filed their annual return for the year ‘17-’18 on 31st July 2018, and the return for September 2018 is filed on 20th October 2018.
Here, the three dates to be checked are-
|1 year from date of invoice||14th July 2018|
|Date of filing of return for September of the next financial year||20th October 2018|
|Date of filing of annual return||31st July 2018|
As 1 year from the date of invoice, i.e. 14th July 2018 is the earliest among the three dates above, ITC on the invoice must be availed before 14th July 2018.
3. On goods and/or services used as inputs by a composition tax payer
A composition taxpayer cannot avail ITC on goods and/or services used as inputs.
Example: Laxmi Kirana Stores is registered as a composition taxpayer under GST. It purchases grocery items from the manufacturer for Rs.20,000 and GST is charged @ 12% amounting to Rs.2,400. As Laxmi Kirana Stores is registered as a composition tax payer, it cannot avail ITC of Rs.2,400 on the purchase. This GST paid will become part of their material cost.
4. On goods and/or services used for personal consumption
Example: Rajesh Apparel Pvt Ltd purchased apparel for Rs.50,000 from the manufacturer. GST paid on the purchase is Rs.9,000. Out of the apparel purchased, apparel worth Rs.2,000 is taken by the owner for his personal use. The remaining apparel are sold to customers. Here, the ITC to be availed on the purchase is Rs.8,640 (48,000 *18%).
5. On goods and/or services used for making exempt supplies
ITC cannot be availed on goods and services used for making exempt supplies and items where the acceptor pays tax on reverse charge basis.
Example: You manufacture an exempt good. You purchase the following inputs (used to manufacture the exempt good) on 4th September 2017-
|Inward supplies- 4.9.2017|
|Inputs||Value (Rs.)||GST paid on inputs @ 18% (Rs.)|
|Raw material A||3,00,000||54,000|
|Raw material B||30,000||5,400|
Here, you cannot avail the ITC of Rs.59,400 as these inputs have been used for manufacturing an exempt good.
6. On services received for which payment has not been made within 3 months from the date of invoice
If the recipient of a service has not made payment for the receipt of the service along with the tax payable within 3 months from the date of invoice, the ITC availed will be added to the recipient’s liability, along with interest due.
Example: You have taken auditing and consultancy services from a Chartered Accountant. The value of the service is Rs.50,000 and the GST charged is Rs.9,000 (@18%). If you do not make the payment of Rs.59,000 within 3 months of the invoice date, the ITC of Rs.9,000 availed by you will be added to your liability, along with the interest due. If you are searching best tally training in chandigarh. CBitss technologies is best place to learn best Accounting Software training in Chandigarh
7. On goods lost, stolen, destroyed, written off or disposed as gift or free samples
Example: You are an electronic goods dealer. On 1st Nov, 2017, you purchase 20 computers @ Rs. 25,000 each from the manufacturer. GST charged is Rs.90,000 (@18%). On 2nd Nov, 2017, 1 of the computers gets destroyed completely and cannot be used any more. You cannot avail the ITC on that computer, i.e., Rs. 4,500.
8. On motor vehicles and other conveyance
ITC is not allowed on motor vehicles and other conveyance unless they are:
- Further supplied OR
- Used for transporting passengers or goods OR
- Used for imparting training on driving, flying, or navigating such vehicles or conveyances
Example: XYZ Pvt Ltd, a car manufacturer, purchased a Tempo Traveler for the transport of employees within the factory premises. Super Cars Pvt Ltd cannot avail ITC on the Tempo Traveler as it has not been used for the above activities.
Let us look at another scenario. ABC Travels, a tour operator, purchased a Tempo Traveler for the purpose of transporting tourists during their package tours. Here, ABC Travels can avail ITC on the Tempo Traveler, as it is used for transporting passengers – a business activity for ABC Travels.
9. On food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
ITC cannot be availed on food and beverages, outdoor catering, beauty treatment, health services and cosmetic and plastic surgery, except where they have been used for making outward supply of the same category of goods or services.
Example 1: XYZ Pvt Ltd take the services of a caterer, Rakesh Caterers, for Diwali Celebration event for its employees. ABC Pvt Ltd cannot avail ITC on the catering service, as their business activity is not catering service.
Example 2: Rakesh Caterers take the services of a Shamiana provider while providing the catering service to ABC Pvt Ltd. Here, Rakesh Caterers can avail ITC on the Shamiana services, as they have been used for making outward supplies of the same category of services.
10. On membership of clubs and health & fitness centres, rent-a-cab services and life & health insurance taken for employees, except notified services which are obligatory to be provided to employees
Example: Mukesh Travels, a tour operator, takes an annual membership of a fitness centre, Pratham Fitness Centre, for the use of its employees. Here, Mukesh Travels cannot avail ITC on the GST paid on membership charges
11. On travel benefits to employees on vacation, such as leave or home travel concession
Example: Super Cars Pvt Ltd reimburses its senior employees on travel expenses as part of LTA (Leave Travel Allowance). XYZ Pvt Ltd cannot avail ITC on the GST component of the travel fare reimbursed
12. On tax component of cost of capital goods, if depreciation has been claimed on the tax component.
ITC cannot be availed on the tax component of cost of capital goods, if depreciation has been claimed on the tax component in Income Tax return.
Example: Super Cars Pvt Ltd purchases machinery for Rs.50,00,000 to be used for the manufacture of cars. The GST paid on the machinery is Rs.9,00,000. Super Cars Pvt Ltd claims depreciation of Rs.59,00,000 on the machinery under Income Tax, which is including the GST component. In this case, XYZ Pvt Ltd cannot avail the ITC of Rs.9,00,000 on the machinery.
Treatment of Input Tax Credit already availed in exceptional scenarios
When a regular dealer who has availed ITC switches to the composition scheme
When a daily dealer who has account ITC switches to the balance scheme, the person must pay back the ITC availed on inputs in stock, inputs in semi-finished state, finished goods in stock and capital goods (reduced by the prescribed percentage points) on the day before the date of switching to the composition scheme.
Example: You are registered as a regular dealer. You switch to the composition scheme on 1st September 2017 as your turnover does not exceed Rs.50 Lakhs. On 31st August 2017, you have the following inputs in stock on which ITC has already been availed-
|Closing stock- 31.8.2017|
|Inputs||Value (Rs.)||GST paid on inputs @ 18% (Rs.)|
|Raw material A||1,50,000||27,000|
|Raw material B||20,000||3,600|
On switching to the composition scheme, you have to pay back the ITC of Rs.30,600 availed on the inputs in stock. CBitss Technologies provide tally training in chandigarh ,Sector 34A . Also deal in quickbooks, advance excel, Management courses.