Input tax credit – Eligibility

Input Tax Definitions

Input Tax Definition Section 2(55) under SGST /CGST Act

Input Tax Definition Section 2(15) of IGST ACT

Input Tax means the IGST(includingimport), CGST & SGST charged on any supply of goods or services to himIncludes tax payable U/S 8(3) - Levy of payment under Reverse chargeExcludes tax paid U/S 9 – Composition levy

Input Tax means the IGST(including import), CGST & SGST charged on any supply of goods or services to himIncludes tax payable U/S 5(2) - Levy of payment under Reverse chargeExcludes tax paid U/S 9 – Composition levy of CGST/SGST Act

Eligibility and conditions for taking input

tax credit (Sec 16)

16(1) Every registered taxable person entitled for inputtax charged on any supply of goods or services to himwithin time and manner specified in Sec 44.

Conditions

which are used or intended to be used in the course offurtherance of his business

Such amount shall be credited to the electronic creditledger of such person

Other conditions as may be prescribed

Credit of input tax for pipelines &

telecommunication tower

(a) One third in financial year in which said goods arereceived

(b) Two-third of credit in succeeding year and

(c) Balance amount of credit in any subsequent year

Section 44 – Payment of tax, interest,

penalty and other amounts

44 (1) Every deposit made for above purposes, shall becredited to the electronic cash ledger of such person tobe maintained in the manner as may be prescribed.

16 (2) Conditions for claiming credit (a) Registered taxable person is in possession of invoice or

debit note issued by a supplier

(b) Received goods and/or services

(c) tax charged in respect of such supply has actually paideither in cash or credit; and

(d) supplier has furnished the return u/s 34.

Explanation – for the purpose of clause (b), it shall bedeemed that taxable person received the goods wheregoods are delivered by supplier to a recipient or any otherperson on direction of such person, whether acting asagent or otherwise, before or during movement of goods,either by way of transfer of documents of title or otherwise.

16 (2) Conditions for claiming credit

Provided that in case goods supplied in lots, registeredtaxable person claim credit upon receipt of last lot orinstallment.

Provided that where a recipient fails to pay to thesupplier of services within 3 months from the date ofissue of invoice by supplier, an amount equal to cenvatcredit availed by the recipient shall be added to hisoutput tax liability, along with interest thereon, in themanner as may be prescribed.

Conditions for claiming credit

16(3)In case depreciation claimed on tax component ofcost of capital goods under income tax act, the inputtax credit shall not be allowed on said component.

16(4) A taxable person shall not be entitled to input taxin respect of any invoice or debit note for supply ofgood or services after furnishing return u/s 34 for themonth of September following the end of financialyear or furnishing of the relevant annual return,whichever is earlier.

Sec 17. Apportionment of credit and blocked

credits

17(1) Where good and/or services are used partly forbusiness and partly for other purposes, the amount ofcredit shall be restricted to so much of input tax asattributable to his business.

17(2) Where goods and/or services are used partly fortaxable supplies including zero rated supplies andpartly for exempt supplies, the amount of credit shallbe restricted to input tax attributable to said taxablesupplies including zero rated supplies.

Sec 17. Apportionment of credit and blocked

credits

17(3) A banking company/ financial institution includingnbfc engaged in supply of accepting deposits shall have theoption to either comply with sub-section (2) or avail of,every month, an amount equal to 50% of the eligible inputtax credit on input, capital goods and input services in thatmonth.

17(4) Input tax credit shall not be available for following:

(a) motor vehicle or other conveyance except when they areused for further supply of such vehicles, transportation ofpassengers or imparting of training on driving & fortransportation of goods.

Sec 17(4) Credit not available in respect of

some items listed below:

(ii) membership of club, health and fitness centre

(iii) rent a cab, life insurance, health insurance exceptwhere govt. notifies the services are obligatory for anemployer to provide to its employees under any law

(iv) travel benefits extended to employees for vacationunder leave travel concession

(c) Work contract services when supplied for constructionof immovable property, other than plant and machinery,except where input service for further supply of workcontract service

Sec 17(4) Credit not available in respect of

some items listed below:

(d) goods or services received by a person forconstruction of an immovable property(other thanplant & machinery) on his own account even whenused in course of furtherance of business.

(e) Good or service on which tax paid u/s 9 i.e.composition scheme.

(f) goods or services used for personal consumption.

(g) goods lost, stolen, destroyed, written off ordisposed of by way of gift or free samples.

(h) any tax paid in section 67, 89 or 90.

Sec 18. Availability of credit in special

circumstances

(1) A person who applied for registration within 30days from the date on which he becomes liable toregistration and has been granted such registrationshall, subject to such conditions and restrictions asmay be prescribed, be entitled to take credit of inputtax in respect on inputs held in stock(including semifinished and finished stock) on the day immediatelypreceding the date from which he becomes liable topay tax under this act.

Sec 18. Availability of credit in special

circumstances (2) A person who take voluntary registration u/s 23(3) shall

subject to conditions and restrictions as may be prescribed,be entitled to take credit of inputs held in stock(includingsemi finished and finished stock) on the day immediatelypreceding the date of grant of registration.

(3) Where registered taxable person ceases fromcomposition scheme (sec. 9), he shall be entitled to takecredit of input in respect of inputs held in stock on the dayimmediately preceding the date from which he becomesliable to pay tax u/s 8.

Provided capital good credit shall be reduced by suchpercentage as may be prescribed.

Sec 18. Availability of credit in special

circumstances (4) Where exempt supply of goods or services become

a taxable supply, such person shall be entitled to takecredit of input tax in respect of inputs held instock(including semi finished and finished stock)relatable to such exempt supply and on capital goodsexclusively used for such exempt supply on the dayimmediately preceding the date from which suchsupply become taxable;

Provided that credit of capital goods shall be reducedby such percentage as may be prescribed on thisbehalf.

Sec 18. Availability of credit in special

circumstances (5) Input tax credit is not available under subsection 1

to 4 in respect of supply to him after expiry of oneyears from the date of issue of tax invoice relating tosuch supply.

(6) Where change in constitution of registered taxableperson on account of sale, merger, amalgamation,lease or transfer with the specific provision of transferof liabilities, said registered taxable person shall beallowed to transfer input tax credit remain unutilizedin its book of accounts of new company in the mannerprescribed.

Sec 18. Availability of credit in special

circumstances (7) Where a taxable person who availed of input tax

credit switches over as a taxable person u/s 9composition scheme or when goods or servicessupplied by him become exempt u/s 11, he shall pay anamount, by away of debit to electronic or cash ledger,equivalent to credit of input tax in respect of inputsheld in stock(including semi finished and finishedstock) and on capital goods, reduced by suchpercentage as may be prescribed, on the dayimmediately preceding the date of such switch over orthe date of exemption.

Sec 18. Availability of credit in special

circumstances (10) In case of supply of capital goods or plant &

Machinery, on which input tax credit has been taken,the registered taxable person shall pay an amountequal to input tax credit taken reduced by suchpercentage prescribed on this behalf or the tax ontransaction value u/s 15(1) i.e. value of taxable supply,whichever is higher.

Provided that where refractory, bricks, moulds anddies, jigs and fixtures are supplied as scrap, the taxableperson may pay tax on transaction value of such goodsu/s 15(1).

Sec 19. Recovery of input tax credit and

interest thereon

Where credit has been taken wrongly, the same shallbe recovered from the registered taxable person inaccordance with the provisions of this act.

Sec 20. Taking input tax credit in respect of

inputs sent for job work

20(1) Where the registered taxable person(Sec 55) sendgoods on job work shall, subject to such conditionsand restrictions, be allowed to input tax credit oninputs sent to job-worker for job-work.

20(2) Notwithstanding anything contained in sec16(2)(b), the ‘principal’ shall be entitled be take creditof input tax on inputs even if the inputs are directlysent to a job worker for job-work without being firstbrought to his place of business.

Sec 20. Taking input tax credit in respect of

inputs sent for job work 20(3) where the inputs sent for job-work are not

received back by the principal after completion of job-work or are not supplied from the place of business ofjob worker in accordance with section 55(1)(b) within aperiod of one year of their being sent out, it shall bedeemed that such inputs had been supplied byprincipal to the job worker on the day when the saidinputs were sent out:

Provided when input are sent directly to job worker,the period of 1 year shall be counted on the date ofreceipt of input by the job – worker.

Sec 20. Taking input tax credit in respect of

inputs sent for job work 20(4) Deals with capital good sent on job work and

similar to section 20(1)

20(5) similar to section 20(2) where capital gooddirectly sent to job worked and principal claim thecredit of input tax on such capital goods.

20(6) similar to section 20(3) period of one yearsubstitute with 3 years in case of capital goods.

20(7) Nothing contained in sub-section (3) or (6) shallapply to moulds and dies, jigs & fixtures sent out to job– worker for job – work.

Sec 21. Manner of distribution of credit by

Input Service DistributorInput Distribution

Credit of CGST CGST or IGST

Credit of IGST IGST or CGST

Where the distributor and the recipient of credit located in different states.Amount of input tax distributed being reduced thereafter. (CGST Act)

Input Distribution

Credit of SGST SGST or IGST

Where the distributor and the recipient of credit located in different states.Amount of input tax distributed being reduced thereafter. (SGST Act)

Sec 21. Manner of distribution of credit by

Input Service DistributorInput Distribution

Credit of CGST & IGST CGST

Where the distributor and the recipient of credit being a business vertical, are located in the same state.Amount of input tax distributed being reduced thereafter. (CGST Act)

Input Distribution

Credit of SGST & IGST SGST

Where the distributor and the recipient of credit being a business vertical, are located in the same state.Amount of input tax distributed being reduced thereafter. (CGST Act)

Sec 21(3). Conditions for credit distribution

(a) The credit can be distributed against a prescribeddocument issued to each of the recipients of credit sodistributed, and such document shall contain detailsas may be prescribed.

(b) The amount of credit distributed shall not exceed theamount of credit available for distribution.

(c) The credit of input services attributable to a recipientof credit shall be distributed only to that recipient.

Sec 21(3). Conditions for credit distribution(d) The credit of tax paid on input services attributable

to more than one recipient of credit shall bedistributed on pro rata basis of the turnover in astate, during the relevant period, to the aggregateturnover of all such recipients to whom such inputservice is attributable and which are operational incurrent year, during the said relevant period.

Explanation 1. – Relevant period shall be –

(a) If the recipients of credit have turnover in their statesin preceding financial year during which credit sodistributed, the said financial year; or

Sec 21(3). Conditions for credit distribution

(b) If some or all recipients of the credit do not haveturnover in their states in preceding financial year,the last quarter for which details of such turnover ofall the recipients are available, previous to the monthduring which credit is to be distributed.

Explanation 2 – Recipient of credit means the supplier ofgood or services having same PAN as that of Inputservice distributor.

Explanation 3 – Turnover means aggregate value ofturnover, as defined in Sec 2(6).

Sec 22. Manner of recovery of credit

distributed in excess

Where input service distributor distributes the creditin contravention of the provision of sec 21 resultingin excess distribution of credit to one or morerecipients of credit, the excess credit so distributedshall be recovered from such recipients along withinterest, and the provisions of sec 66 & 67, shallapply mutatis mutandis for effecting such recovery.

Abhishek Kumar Chhapolika

abhishekchhaplika@gmail.com