INPUT TAX CREDIT – Eligibility and Reversal GST INPUT TAX CREDIT – Eligibility and Reversal - CA DEVENDRA KATARIA Partner M/s Dhadda and Company Chartered Accountants

IMPORTANT DEFINITIONS Section 2(19): “capital goods” means goods, the value of which is capitalised in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business Section 2(52): “goods’’ means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply

IMPORTANT DEFINITIONS Section 2(59): “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business Section 2(60): “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;

IMPORTANT DEFINITIONS Section 2(62): "input tax" in relation to a registered person, means the CENTRAL TAX, STATE TAX, INTEGRATED TAX OR UT TAX charged on any supply of goods or services to him and includes IGST charged on imports the tax payable under sub-section (3) and (4) of section 9 of CGST ACT and Respective SGST or UTGST ACT. the tax payable under sub-section (3) and (4) of section 5 of IGST ACT. But does not include the tax paid under section 10

Section 16: Entitlement of ITC Every Registered Taxable Person shall be entitled to take credit of input tax charged on Inward Supply of Goods or Services Which are used or Intended to be used in the course of furtherance of business.

Section 16: Conditions of ITC Possession of a Tax Invoice or Debit Note Receipt of goods or Services Tax charged has been actually paid. Furnished return under section 39 Payment to be made to the supplier in 180 days. No Depreciation on Input Tax

Section 16: Time Limit to Claim ITC To claim ITC on an invoice pertaining to FY 2017-18 last date will be earlier of the following: - Date of Furnishing of Annual Return u/s 39 for FY 2017-18. Due Date of Furnishing of GSTR 3 for September 2018.

Section 49: Sequence of taking ITC Input available in respect of IGST IGST, CGST, SGST Input available in respect of CGST CGST, IGST Input available in respect of SGST SGST, IGST NO SGST NO CGST

Section 17: Apportionment and Blocked Credits 17(1) Goods or Services used partly for business and partly for other purposes. 17(2) Goods or Services used partly for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies. 17(3) Value of exempt supplies shall include supplies on which the recepient is liable to pay tax, transactions in securities, sale of land and sale of building subject to clause (b) of para (5) of Schedule II 17(4) ITC reversal by Banking Companies to the extent of 50%.

Section 17(5)(a): MOTOR VEHICLE ITC for Motor Vehicles will NOT be available Except when they are used for Transportation of goods , or Making the following taxable services: Further supply of such vehicles / conveyances, or Transportation of passengers, or Training for driving / flying / navigating such vehicles / conveyances

Cosmetic and Plastic Surgery Section 17(5)(b): Supply of goods or services being: Food and Beverages Outdoor Catering Beauty Treatment Health Services Cosmetic and Plastic Surgery Allowed ONLY if goods / services of a particular category are used towards making taxable outward supplies of the same category

Section 17(5)(b): Supply of goods or services being: Allowed ONLY if where the services are notified as obligatory for an employer to provide an employee or services of a particular category are used towards making taxable outward supplies of the same category Life / health Insurance Rent-a-cab Membership of club Health and Fitness Centre Travel Benefits to employees NEVER allowed

Goods or services received by a taxable person for construction of an Section 17(5)(c) and (d): Construction Works contract services, except where it is an input service for further supply of works contract service Goods or services received by a taxable person for construction of an immovable property on his own account even when used in course or furtherance of business; ITC not Available Construction includes re-construction, renovation, additions or alterations or repairs to the extent of capitalisation

Section 17: Apportionment and Blocked Credits 17(5)(e) Goods or Services or both on which tax has been paid under section 10. 17(5)(f) Goods or Services received by a non-resident taxable person except when on goods imported by him. 17(5)(g) Goods or services or both used for personal consumption. 17(5)(h) Goods lost, stolen, destroyed, written off, of disposed off by way of gift or free samples. 17(5)(i) any tax paid in accordance with the provisions of section 74, 129 and 130.

Rule 36: Eligible Documents for claiming ITC The ITC shall be availed by a registered person on the basis of any of the following documents: - An Invoice issued under Section 31 An Invoice issued under Section 31(3)(f) A Debit Note issued under section 34 A Bill of entry or similar document as prescribed under the Customs Act, 1962 ISD Invoice or ISD Debit Note

Rule 37: ITC Reversal in case of Non Payment A registered person Who has availed ITC Fails to pay to the supplier within 180 days Proportionate amount of ITC has to be furnished in GSTR 2 and the same shall be added in the output Tax. Such Person shall be liable to pay interest ITC can be claimed again once the amount has been paid.

Rule 42: ITC Reversal in case of Inputs and Services Particulars Action Total Input Tax Denoted as T ITC on inputs and services used exclusively for non business purposes Denoted as T1 ITC on inputs and services used exclusively for exempt supplies Denoted as T2 Ineligible Credit u/s 17(5) Denoted as T3 Amount of ITC to be credited to ECL “C1” C1 = T – (T1+T2+T3)

Rule 42: ITC Reversal in case of Inputs and Services Particulars Action ITC on inputs and services used exclusively for taxable supplies including Zero rated Supplies Denoted as T4 Remaining Common Credit “C2” C2 = C1 – T4 ITC to be reversed “D1” D1 = C2 * E / F If Common inputs and services used for personal purpose also then ITC attributable to such inputs “D2” D2 = C2 * 5% Remaining ITC which can be claimed “C3” C3 = C2 – (D1 +D2)

C3 to be computed separately for CGST, SGST, UTGST and IGST; Rule 42: ITC Reversal in case of Inputs and Services ‘E’ is the aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies, during the tax period, and ‘F’ is the total turnover of the registered person during the tax period C3 to be computed separately for CGST, SGST, UTGST and IGST; D1 and D2 shall be added to output tax liability provided invoice wise segregation has been made;

Rule 42: ITC Reversal in case of Inputs and Services Credit calculated on provisional basis shall be computed finally before due date of filing returns for the month of September following the end of the FY to which credit relates; In case amount calculated exceeds the provisional calculation the differential amount shall be added to the output tax liability and interest from the month of April of next FY till the date of payment to be paid; In case amount finally calculated is short of the provisional calculation, the differential amount shall be taken as credit in the month of September.

Rule 43: ITC Reversal in case of Capital Goods Particulars Action Capital Goods used for exclusive Exempt supplies or non business purpose Indicate in GSTR 2 and ITC will not be credited in ECL. Capital Goods used exclusively for taxable supplies including Zero Rated Supplies Indicate in GSTR 2 and ITC will be credited in ECL Remaining Capital Goods Amount of ITC to be denoted as “A” Useful Life of such Assets 5 Years Aggregate amount of “A” for all such Capital Goods be denoted as “Tc”

Rule 43: ITC Reversal in case of Capital Goods Particulars Action ITC attributable to common capital goods for a tax period “Tm” Tm = Tc / 60 ITC attributable at the beginning of the Tax period on all common capital goods whose life remains during the tax period be denoted as “Tr” Tr = Aggregate of Tm of all such Capital Goods Amount to be reversed “Te” Te = E / F * Tr

Te to be computed separately for CGST, SGST, UTGST and IGST; Rule 43: ITC Reversal in case of Capital Goods ‘E’ is the aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies, during the tax period, and ‘F’ is the total turnover of the registered person during the tax period Te to be computed separately for CGST, SGST, UTGST and IGST; Amount of “Te” along with applicable interest to be added to output tax liability during every tax period of the useful life of the asset.

THANK YOU CA DEVENDRA KATARIA, FCA PARTNER DHADDA AND COMPANY CHARTERED ACCOUNTANTS JAIPUR OFFICE: K-35, First Floor Road No. 1, IPIA, Kota M. No. 9887431073 Email: devendra@dhaddaonline.com