INPUT TAX CREDIT UNDER GST LAW

INPUT TAX CREDIT UNDER GST LAW
CA PRATIK SUDHIR SHAH PRATIK SUDHIR SHAH CHARTERED ACCOUNTANT

Definitions Capital goods – Goods the value of which is capitalized in the books of accounts of the person claiming the credit and which are used in the course of furtherance of business Input – any goods other than capital goods used in the course of furtherance of business Input service – means any service used in the course of furtherance of business Reverse Charge: Means the liability to pay tax by the recipient of goods or services instead of the supplier of such goods or services Output Tax: In relation to a taxable person, this refers to the tax chargeable under this Act on taxable supply of goods or services or both made by a person or by his agent but excludes tax payable by him on reverse charge basis. CA PRATIK SUDHIR SHAH

Conditions for availing Input Tax Credit
Assessee should be Registered Person under GST Act. Input should be in course or furtherance of Business. Possession of Tax invoice , Debit note or Documents evidencing payment. Receipt of goods / services. Tax is paid by the supplier to govt through Cash or through utilization of Credit. Return is filed by the recipient of goods / services. Amount towards supply of goods and services and tax thereon to be paid to supplier within 180 days from the date of invoice. Not eligible if depreciation on tax claimed under Income tax. Note: Credit to be availed before the due date of filing return for September following the end of financial year or filing of annual return CA PRATIK SUDHIR SHAH

Time Limit for Availment & Utilization of Input Tax Credit
I. Availment of Input Tax Credit- Section 16(4) ITC can be availed till Due Date for month of September following the end of financial year to which invoice of goods or services pertains or Date of filing Annual Return Whichever is earlier II. Utilization of Input Tax Credit Provisions in Sec 16(4) is only for availment of ITC. There is no time limit specified for utilization of credit. Hence credit once availed can be utilized at any point of time CA PRATIK SUDHIR SHAH

Q. Availment of ITC Mr A had received an invoice in Feb However he forgot to claimed the credit in Feb Can he claim ITC in following situations? a) Invoice booked in Return of April 18 and annual return filed in Dec 18 Yes Mr A can claim in April 18 as it is availed within due date of Sept 18 return or filing of annual return b) Invoice booked in Return of Sept 18 and annual return filed in Dec 18 Yes Mr A can claim in Sept 18 as it is availed within due date of Sept 18 return or filing of annual return c) Invoice booked in Return of Sept 18 and annual return filed in Aug 18 No Mr A cannot claim ITC as annual return is filed prior to claiming credit. d) Invoice booked in return of Oct 18 and annual return filed in Dec 18 No Mr A cannot claim ITC as ITC must be availed within due date for month of sept for following year. CA PRATIK SUDHIR SHAH

Q. Utilization of ITC Mr A had received an invoice in Feb He booked it in feb 18 and availed the credit which was credited in Electronic Credit Ledger. Mr A did not make any sales for few months and made sales in Jan Can he utilize the credit availed in Feb 2018? Ans: There is no time limit for utilization of credit. Time Limit is only for availment of credit Hence Mr A can utilize the credit in Jan 2022. CA PRATIK SUDHIR SHAH

Procedure for Reversal of Credit-Payment within 180 days
Rule 2 of Input Tax Credit Rules makes provision with regard to reversal of credit when amount is not paid within 180 days of date of invoice. ITC will get reversed from ECL if balance is available in ECL or it needs to paid if no balance is available in ECL. Registered person shall be liable to pay 18% from period starting from Date of Availing the Credit till the date when amount is actually paid. Even if balance is available in ECL still we need to pay Interest, as interest cannot be debited from ECL. Third Proviso to Section 16(2) of the act provides that amount so reversed can be taken as credit when the payment has been made later to the supplier of goods Even Rule 37(4) provides that the time limit prescribed u/s 16(4) for availing ITC (i.e. before the due date for furnishing return for the month of September of the succeeding year or annual return, whichever is earlier) shall not apply for reavailing the credit which was reversed earlier. Hence reavailment can be claimed anytime in future when the payment is made.. CA PRATIK SUDHIR SHAH

Under earlier regime, CENVAT Credit reversal applied only to services. Under GST is required to be done in case of non-payment against invoices for goods as well as services Q. Whether reversal of ITC shall apply if tax is fully paid but the value of supply remains unpaid after 180 days ? Second proviso to Sec. 16(2) clearly provides that the same shall apply when a recipient fails to pay the amount towards the value of supply along with the tax payable thereon. Hence mere payment of tax within the stipulated period of 180 days is not enough. Even the value of supply needs to be paid within 180 days to avoid the reversal. Q. Whether reversal of ITC is required in cases of part payment of value of supply as well as tax thereon within 180 days ? ITC reversal shall apply only to the extent of proportionate amount. This is because second proviso to Sec. 16(2) nowhere states that full amount is required be paid within 180 days to avoid the reversal. Hence to the extent of amount (including tax) paid within 180 days, ITC reversal is not called for. CA PRATIK SUDHIR SHAH

Q. How to calculate the period of 180 days ? Hence the period of 180 days for determination of ITC reversal needs to be calculated from the date of issuance of invoice and not the date on which said invoice is recorded in the books of accounts or the date on which ITC is claimed. Q. Is interest payable even if ITC availed earlier is not utilized ? Second proviso to Sec. 16(2) provides that interest has to be paid on account of reversal of ITC “availed” earlier. Hence even if the ITC availed earlier is not utilized, interest is required to be paid. Q. Will ITC reversal apply to ITC claimed under Reverse Charge Mechanism ? No. Second proviso to Sec. 16(2) clearly excludes supplies on which tax is payable on reverse charge basis from its applicability. Hence ITC is not required to be reversed even if payment is not made within 180 days against supplies covered under reverse charge mechanism. CA PRATIK SUDHIR SHAH

Q. Whether ITC reversal is required for transactions covered under Schedule – I ? Schedule – I to the CGST Act, 2017 covers transactions made without consideration (e.g. branch transfer outside State). Proviso to Rule 37(1) provides that the value of supplies made without consideration as specified in Schedule I of the CGST Act shall be deemed to have been paid for the purposes of the second proviso to sub- section (2) of section 16. Hence ITC reversal shall not apply to transactions covered under Schedule – I CA PRATIK SUDHIR SHAH

Ineligible Credit (Section 17(5))
Motor vehicles and other conveyances Input Tax Credit shall can not availed for purchase of Motor Vehicles or other conveyances Motor Vehicle includes Car, Bus, Lorry, Truck Conveyance includes Vessel (Boat, Ship) , Aircraft, Helicopter Exception for ITC on Purchase of Motor Vehicle: Transportation of passengers Transportation of goods Imparting training or motor driving skills Further supply of such vehicle or conveyance CA PRATIK SUDHIR SHAH

2) Goods or Services provided 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 is used by a registered taxable person for making an outward taxable supply of the same category of goods or services or as an element of TAXABLE composite or mixed supply. Membership of a club, health and fitness centre, Rent-a-cab, life insurance, health insurance except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force or such inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as part of a TAXABLE composite or mixed supply; 3) Travel benefits extended to employees on vacation such as leave or home travel concession. CA PRATIK SUDHIR SHAH

4) Works Contract Services Works contract services when supplied for construction of immovable property, other than plant and machinery, except where it is an input service for further supply of works contract service 5) Construction of Immovable Property Goods or 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 course or furtherance of business; 6) Composition Dealer A Composition Dealer is not eligible to claim ITC for GST paid on purchase of Goods and Services. CA PRATIK SUDHIR SHAH

7) Non Resident Taxable Person: NRI under GST is not eligible to claim ITC for purchase of goods & services except on goods imported by him. 8) Personal Consumption No ITC if goods and services are used for personal consumption 9) Goods Lost, Stolen, Destroyed or written off or disposed by way of Gift / Free Samples ITC will be reversed if goods are lost stolen destroyed or are given as gift or free samples for business promotion. 10) Tax Paid in accordance with provisions of Section 74, 129, 130. CA PRATIK SUDHIR SHAH

Q. ITC on Tax paid under section 74, 129 or 130 Mr X has supplied goods to Mr Y at price of Rs 10. Mr X collected GST on it and paid to govt. During Audit we found that appropriate value is Rs 15. Mr X paid tax on differential amount on account of suppression of facts. Will Mr Y be eligible for Credit on differnce? Ans: Section 74 provides that if the demand for differential tax arises on account of fraud, willful misstatement or suppression of facts than demand shall be made by issuing show cause notice under Sect 74 Mr X has paid tax on account of suppression of facts under Sec 74. Hence such credit is not admissible to receiver ie Mr Y CA PRATIK SUDHIR SHAH

Utilization of Input Tax Credit
IGST to be utilized in the following order:- First utilize towards payment of IGST Second utilize towards payment of CGST Third utilize towards payment of SGST CGST to be utilized in the following order:- First utilize towards payment of CGST Second utilize towards payment of IGST Not to be utilized towards payment of SGST SGST (State A) to be utilized in the following order:- First utilize towards payment of SGST (State A) Not to be utilized towards payment of CGST CA PRATIK SUDHIR SHAH

Rule 42: Manner of determination of input tax credit in respect of inputs or input services and reversal thereof_ Input Tax Credit being partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies I) Calculation of Input Tax Credit when Inputs are used partly for Taxable Supplies and partly for Exempt Supplies (a) the total input tax involved on inputs and input services in a tax period, be denoted as ‘T’; (b) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be used exclusively for the purposes other than business, be denoted as ‘T1’; (c) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be used exclusively for effecting exempt supplies, be denoted as ‘T2’; (d) the amount of input tax, out of ‘T’, in respect of inputs and input services on which credit is not available under sub-section (5) of section 17, be denoted as ‘T3’; (e) the amount of input tax credit credited to the electronic credit ledger of registered person, be denoted as ‘C1’ and calculated as C1 = T- (T1+T2+T3); (f) the amount of input tax credit attributable to inputs and input services intended to be used exclusively for effecting supplies other than exempted but including zero rated supplies, be denoted as ‘T4’; (g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person at the invoice level. (h) Input tax credit left after attribution of input tax credit under clause (g) shall be called common credit, be denoted as ‘C2’ and calculated as C2 =C1- T4; Cont on Next Page CA PRATIK SUDHIR SHAH

Rule 42: Input Tax Credit for Taxable & Exempt Supplies
(i) The amount of input tax credit attributable towards exempt supplies, be denoted as ‘D1’ and calculated as D1= (E÷F) × C2 where, ‘E’ is the aggregate value of exempt supplies during the tax period, and ‘F’ is the total turnover in the State of the registered person during the tax period: Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last tax period for which the details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to be calculated; Disallowance of Credit for taxable and exempt shall be made each month. If turnover is not available for the month than turnover must be taken of previous month where Exempt and Total T/o is available. CA PRATIK SUDHIR SHAH

Rule 42: Input Tax Credit for Taxable & Exempt Supplies
II) ) Calculation of Input Tax Credit when Inputs are used partly for Business Purpose and partly for Non Business Purpose. If common input and input services are used partially for business and partially for non business purpose than it shall be deemed that 5% of C2 is utilized for non business purpose Hence D2= 5% of C2 shall be disallowed Thus even if small quantity of input or input services are used for non business purpose than 5% of C2 shall be disallowed. Hence Total Credit required to be reversed shall be D1 + D2 Eligible ITC shall be denoted by C3 = C2- (D1 + D2) CA PRATIK SUDHIR SHAH

Input Tax Credit on Capital Goods
Capital goods" means goods, the value of which is capitalised in the books of account of the person claiming the credit and which are used or intended to be used in the course or furtherance of business - section 2(19) of CGST Act. Capital goods" shall include "plant and machinery" as defined in the Explanation to section 17 of CGST Act – Explanation below Rule 45 of CGST and SGST Rules, Plant and machinery" means apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supply of goods or services or both and includes such foundation and structural supports but excludes- (i) land, building or any other civil structures (ii) telecommunication towers; and (iii) pipelines laid outside the factory premises. Input tax credit of tax not allowed if depreciation claimed on tax component. Ineligibility of ITC on pipelines and telecommunication tower Credit of input tax in respect of pipelines laid outside the factory and telecommunication towers fixed to earth by foundation or structural support including foundation and structural support are not eligible for input tax credit - Explanation to section 17 of CGST Act CA PRATIK SUDHIR SHAH

100% Input GST Set Off can be claimed on Capital Goods Capital Goods must be used for 5 years ie 60 months (5% every quarter and part of quarter shall be considered as full quarter) If Capital Goods are sold within 5 years than proportionate credit (From Date of sale to date of completion of 5 years) shall be reversed by debiting electronic credit ledger or electronic cash 5% per quarter (part of quarter shall be considered as full quarter) However, in case of bricks, moulds and dies, jigs and fixtures are supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under section 15 of CGST Act - proviso to section 18(6) of CGST Act. CA PRATIK SUDHIR SHAH

Question – XYZ Ltd, purchased machine on for Rs 10,00,000 on which IGST was 18%. He availed the input tax credit and utilised the capital goods. On he sold the machinery as second hand goods for Rs 7,50,000. State what steps he is required to take to comply with statutory provisions. Answer: XYZ can avail full IGST Credit in July 2017 of Rs 1,80,000/- (10 L * 18%) Capital Asset is used by XYZ Ltd from 1st July 17 to 02nd Oct 2018 ie 6 quarters XYZ can retain credit of 30% (5% for 6 quarters) of Rs 1,80,000 = Rs 54,000 IGST Credit of Rs 1,26,000/- (1,80,000 – 54,000) shall be reversed. Also Co has sold machinery, hence GST on sales shall be Rs 1,35,000 (750000*18%) Hence XYZ shall pay Rs 2,61,000 (1,26, ,35,000) by debiting Electronic Credit Ledger if balance available or by debiting Electronic Cash Ledger. CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, being partly used for the purposes of business and partly for non business purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the following manner, namely,- (a) the amount of input tax in respect of capital goods used or intended to be used exclusively for non-business purposes or used or intended to be used exclusively for effecting exempt supplies shall not be credited to his electronic credit ledger; (b) the amount of input tax in respect of capital goods used or intended to be used exclusively for effecting supplies other than exempted supplies but including zero-rated supplies shall be credited to the electronic credit ledger; (c) the amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’, SHALL BE CREDITED TO ELECTRONIC CASH LEDGR and the useful life of such goods shall be taken as five years ie 60 months from the date of the invoice. Provided that where any capital goods earlier covered under clause (a) is subsequently covered under this clause, the value of ‘A’ shall be arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof and the amount ‘A’ shall be credited to the electronic credit ledger; CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Explanation.- An item of capital goods declared under clause (a) on its receipt shall not attract the provisions of sub-section (4) of section 18, if it is subsequently covered under this clause. (d) the aggregate of the amounts of ‘A’ (Total of all capital assets used for taxable & exempt supplies) credited to the electronic credit ledger under clause (c), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods for a tax period: Provided that where any capital goods earlier covered under clause (b) is subsequently covered under clause (c), the value of ‘A’ arrived at by reducing the input tax at the rate of five percentage points for every quarter or part thereof shall be added to the aggregate value ‘Tc’; (e) the amount of input tax credit attributable to a tax period on common capital goods during their useful life, be denoted as ‘Tm’ and calculated as Tm=Tc÷60 (f) the amount of input tax credit, at the beginning of a tax period, on all common capital goods whose useful life remains during the tax period, be denoted as ‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods; CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases g) the amount of common credit attributable towards exempted supplies, be denoted as ‘Te’, and calculated as Te=(E÷ F) x Tr where, ‘E’ is the aggregate value of exempt supplies, made, during the tax period, and ‘F’ is the total turnover of the registered person during the tax period: Provided that where the registered person does not have any turnover during the said tax period or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by taking values of ‘E’ and ‘F’ of the last tax period for which the details of such turnover are available, previous to the month during which the said value of ‘E/F’ is to be calculated; Explanation.- For the purposes of this clause, it is hereby clarified that the aggregate value of exempt supplies and the total turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule; (h) the amount Te along with the applicable interest shall, during every tax period of the useful life of the concerned capital goods, be added to the output tax liability of the person making such claim of credit. CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Case Study : Capital Goods used for Taxable and Exempt Supplies: Purchase of Capital Goods in April 2018 CG 1 : ITC Rs 50,000 - Used Exclusively for Exempt Supplies CG 2 : ITC Rs 1,00,000 – Used Exclusively for Taxable Supplies CG 3 : ITC Rs 60,000 – Used for Taxable & Exempt Supplies CG 4 : ITC Rs – Used for Taxable & Exempt Supplies Total Turnover during the month is Rs 15,00,000 out of which Rs 5,00,000 is for Exempt Supplies. Purchase of Capital Goods in May 2018 CG 5 : ITC Rs 60,000 – Used for Taxable & Exempt Supplies Total T/O during the month of may is Rs 9,00,000 out of which Rs 6,00,000 is for Exempt Supplies. Total T/O during the month of June is Rs 12,00,000 out of which Rs 6,00,000 is for Exempt Supplies. Calculate ITC to be reversed on capital goods for month of April & May ? CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Ans : For April Month CG 1: ITC shall be disallowed and shall be taken in Ineligible credit. So no credit in ECL. CG 2: ITC will be allowed fully and credit in ECL. CG 3 & CG 4: ITC will be first allowed fully and credit in ECL (Entire Rs will be credited in ECL in April). Now every month we need to reverse the credit as partly it is used for taxable and partly for exempt supplies. Credit of CG 3 of Rs 60,000 shall be denoted by A1 and Credit of CG 4 of Rs 30,000 shall be denoted by A2 Tc = A1 + A2 (Total Common Credit for all assets for April month) Hence Tc = Rs 90,000 (Rs 60,000 for CG 3 and Rs 30,000 for CG 4) Tm for April = Tc / 60 ie Rs 90,000 / 60 = Rs 1,500 per month Calculate Tr which is aggregrate of all Tm for all capital goods for all month Hence Tr = 1,500 (Tm for April) Calculate Te for April month = (Rs 1,500 * 5/15) = Rs 500 Hence Rs 500 is to be reversed for April month. CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Ans Cont : For May Month CG 5: ITC will be first allowed fully and credit in ECL (Entire Rs will be credited in ECL in May). Now every month we need to reverse the credit as partly it is used for taxable and partly for exempt supplies. Credit of Rs 60,000 shall be denoted by A. Tc = A (Since there is only 1 capital asset) Tm for May = Tc / 60 = 60,000/60 = Rs 1,000 Tr for May month shall be Tm for April + Tm for May Hence Tr will be Rs 2,500 (1, ,000) Calculate Te = Tr * Exempt Supply / Total Supply Hence Te = 2,500 * / = Rs 1667/- which is to be reversed for May month CA PRATIK SUDHIR SHAH

Rule 43: Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases. Ans Cont : For June Month CG 1: Now being used for Taxable and Exempt Supplies from 1st June Since CG 1 was used exclusively for Exempt supplies for one quarter hence 5% shall be disallowed (Part of Qtr is equal to full Qtr) Hence Common Credit for CG 1 shall be 47,500 (50000 – 5%) which will be entirely credited to ECL in June. Hence A for June month (assuming no capital goods addition) = CG 1 Hence A shall be 47,500 Tc for June also shall be 47,500 (Since only 1 A) Tm for June shall be Tc /60 = Rs 792 ( 47,500 / 60) Tr for June month shall be Tm for April + Tm for May + Tm for June Tr for June month = Rs 3,292 ( ) Te = Tr * Exempt Supply / Taxable Supply Hence Te = Rs 1,646 (3,292 * / ) Hence ITC of Rs 1,646 will be reversed during June month. CA PRATIK SUDHIR SHAH

ITC on Stock - When person becomes liable for Registration
A person who has applied for registration under the Act within thirty days from the date on which he becomes liable to registration and has been granted such registration shall, subject to such conditions and restrictions as may be prescribed, be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of CGST Act -section 18(1)(a) of CGST Act. The registered person shall within thirty days from the date of his becoming eligible to avail of input tax credit under section 18(1) shall make a declaration, electronically, on the Common Portal in form GST ITC-01 to the effect that he is eligible to avail of input tax credit as aforesaid. The input tax credit on capital goods, in terms of clauses (c) and (d) of section 18(1), shall be claimed after reducing the tax paid on such capital goods by 5% per quarter of a year or part thereof from the date of invoice or such other documents on which the capital goods were received by the taxable person. The declaration under clause (b) shall clearly specify the details relating to the inputs lying in stock or inputs contained in semi finished or finished goods lying in stock, or as the case may be, capital goods on the day immediately preceding the date from which he becomes liable to pay tax under the provisions of this Act. The details furnished in the declaration under clause (c) shall be duly certified by a practicing chartered account or cost accountant if the aggregate value of claim on account of central tax, State tax and integrated tax exceeds two lakh rupees. CA PRATIK SUDHIR SHAH

ITC on Stock: Conversion from Compostion to Regular
Where any registered taxable person ceases to pay tax under section 10 of CGST Act [which provides for composition scheme], he shall be entitled to take credit of input tax in respect of inputs held in stock, inputs contained in semi-finished or finished goods held in stock and on capital goods on the day immediately preceding the date from which he becomes liable to pay tax under section 9 of CGST Act [on basis of transaction value]. Mr A was registered under Composition Scheme in On 1st Oct 2018 his turnover exceeded Rs 1.5 Crores. Hence he becomes liable to get registered on 1st Oct 2018 and Mr A shall be entitled to Input Tax Credit for Stock as on 30th Sept Credit on capital goods shall be reduced by such percentage as may be prescribed -section 18(1)(d) of CGST Act. CA PRATIK SUDHIR SHAH

ITC on Stock: Conversion from Exempt Supply to Taxable
Where an exempt supply of goods or services or both by a registered taxable person becomes a taxable supply, such person shall be entitled to take credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock relatable to such exempt supply and on capital goods exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable -section 18(1)(d) of CGST Act. Mr A was selling Exempted Goods in On 1st Oct 2018 Exemption on Goods was withdrawn. Mr A shall be entitled to Input Tax Credit for Stock as on 30th Sept Credit on capital goods shall be reduced by such percentage as may be prescribed -section 18(1)(d) of CGST Act. CA PRATIK SUDHIR SHAH

Reversal of ITC if goods become exempt or taxable person switches to composition scheme
If a taxable person switches over from normal scheme to composition scheme, or his product which was earlier taxable becomes exempt, he is required to reverse input tax credit of GST paid on Stock, WIP and Finished Goods on the day immediately preceding the date of such switch over. He is also required to reverse ITC taken on capital goods, after allowing deduction of 5% per quarter. He shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger, equivalent to the credit of input tax in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock and on capital goods, reduced by such percentage points as may be prescribed, on the day immediately preceding the date of such switch over or, as the case may be, the date of such exemption -section 18(4) of CGST Act After payment of such amount, the balance of input tax credit, if any, lying in his electronic credit ledger shall lapse -proviso to section 18(4) of CGST Act. CA PRATIK SUDHIR SHAH

GST ITC 01: Credit on Inputs in Stock
In Case of New Registration: Applicant has filed application for registration within 30 days of becoming liable to pay GST and has been granted registration (other than voluntary registration). Registered person has the details of ITC for purchases on the day immediately preceding the day with effect from which he becomes liable to pay GST. Set Off of Capital Goods in not admissible. B) In Case of Voluntary Registration: Registered person has the details of ITC on stock as on the day immediately preceding the date of grant of registration. Set Off of Capital Goods is not admissible. C) In Case of Conversion from Composition to Regular: Registered person has the details of ITC on inputs/capital goods as on the day immediately preceding the day in which he opts out from composition. D) In Case of Conversion from Exempt to Taxable Supply: Registered person has the details of ITC on inputs/capital goods as on the day immediately preceding the day when goods becomes taxable. CA PRATIK SUDHIR SHAH

GST ITC 01: Credit on Inputs in Stock
Steps for filing Form ITC 01: Login and Navigate to ITC-01 page Declaration for claim of input tax credit under sub-section (1) of section 18 ♣ Claim made under Section 18 (1) (a) ♣ Claim made under Section 18 (1) (d) Submit GST ITC-01 to freeze data Update Certifying Chartered Accountant or Cost Accountant Details where ITC is greater than Rs 2Lakhs. CA PRATIK SUDHIR SHAH

GST ITC 02: Transfer of Business
A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or transfer or change in the ownership of business for any reason, furnish the details of sale, merger, de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02, electronically on the common portal along with a request for transfer of unutilized input tax credit lying in his electronic credit ledger to the transferee; The transferor shall also submit a copy of a certificate issued by a practicing chartered accountant or cost accountant certifying that the sale, merger, de- merger, amalgamation, lease or transfer of business has been done with a specific provision for the transfer of liabilities (Transferor will Login and go to Returns and click on ITC 02 and fill the details) The transferee shall, on the common portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall be credited to his electronic credit ledger. (Transferee will login and go to User Services Tab and than click “ITC 02 pending for Action”). The inputs and capital goods so transferred shall be duly accounted for by the transferee in his books of account. CA PRATIK SUDHIR SHAH

GST ITC 03: Conditions/events in which this form is required to be filed:- Where a registered person opts to pay tax under Composition scheme ( Chang from normal to composition scheme) Where there taxable supply becomes exempt Then:- Pay an amount equal to Credit of Input or Capital goods(as reduced by the points) or both availed by debit in electronic credit ledger or electronic cash ledger on the day immediately preceding the date of exercising of such option or, as the case may be, the date of such exemption. Due date to file such form: - On happening of such event/condition. No exact time period given. CA PRATIK SUDHIR SHAH

GST ITC 04: Conditions/events in which this form is required to be filed:- Inputs/Capital goods sent for job-work ( along with amendments if any) Inputs/Capital goods received back from job worker or sent out from business place of job-work ( along with amendments if any) Frequency of Filing: Quarterly Note: Details are to be given even in case goods were send to job worker in between the quarter and fully/partially received between the quarters. Due date to file such form: - No such date prescribed. As per notification 53/2017 dated 28/10/2017, due date to file such form has been extended to 30th Nov, 2017. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. Can GST paid on reverse charge basis be considered as input tax? Yes. The definition of input tax includes the tax payable under the reverse charge. Q. Can a person take input tax credit without payment of consideration for the supply along with tax to the supplier? Yes, the recipient can take ITC. But he is 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. Q. What would happen of the ITC taken by the registered person if he has not paid the consideration along with tax within 180 days from the date of issue of invoice? ITC will be reversed from ECL if balance is available and if not than ITC so reversed needs to be paid. Interest has to be 18% for the period from Date of availment till date of payment of Interest. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. Who will get the ITC where goods have been delivered to a person other than taxable person (‘bill to’- ‘ship to ’scenarios)? It would be deemed that the registered person has received the goods when the goods have been delivered to a third party on the direction of such taxable person. So ITC will be available to the person on whose order the goods are delivered to third person. Q. What is the time limit for taking ITC and reasons therefor? Time limit is 20th October of next financial year or date of filing annual return whichever is earlier. Q. Where the registered taxable person has claimed depreciation on the tax component of the cost of capital goods under the provisions of the Income Tax Act,1961, will ITC be allowed in such cases? The input tax credit shall not be allowed on the said tax component in respect of which depreciation has been claimed. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A taxable person is in the business of information technology. He buys a motor vehicle for use of his Executive Directors. Can he avail the ITC in respect of GST paid on purchase of such motor vehicle? No. ITC on motor vehicles can be availed only if the taxable person is in the business of transport of passengers or goods or is providing the services of imparting training on motor vehicles. Q. Can a registered person get ITC with respect of goods or services used for construction of a building for business purposes? No. ITC on goods or services by a person for construction of immovable property, other than plant and machinery, is not allowed. Plant and machinery cover only apparatus, equipment, and machinery fixed to earth by foundation or structural support, and excludes land and building, among other things CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A person becomes liable to pay tax on 1st August, 2017 and has obtained registration on 15th August, Such person is eligible for input tax credit on inputs held in stock as on: (a) 1st August, 2017 (b) 31st July, 2017 (c) 15th August, 2017 (d) He cannot take credit for the past period Ans: 31st July, 2017 ie Date immediately preceding the date when he becomes liable Q. What is the eligibility of input tax credit on inputs in stock for a person who obtains voluntary registration? Ans: The person who obtains voluntary registration is entitled to take the input tax credit of input tax on inputs in stock, inputs in semi- finished goods and finished goods in stock, held on the day immediately preceding the date of registration. Q. Which of the following is included for computation of taxable supplies for the purpose of availing credit? (a) Zero-rated supplies (b) Exempt supplies (c) Both Ans: Zero rated supplies. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A person paying tax under compounding scheme crosses the compounding threshold and becomes a regular taxable person. Can he avail ITC and if so from what date? He can avail ITC in respect of inputs held in stock and inputs contained in semi- finished or finished goods held in stock and on capital goods (reduced by prescribed percentage points) on the day immediately preceding the date from which he ceases to be eligible for composition scheme. Q. Are there any special provisions in respect of banking companies? A banking company or a financial institution including a non-banking financial company engaged in supply of specified services would either avail proportionate credit or avail 50% of the eligible input tax credit. Q. Mr. B applies for voluntary registration on 5th July, 2017 and obtained registration on 22nd July, Mr. B is eligible for input tax credit on inputs in stock as on……….. Ans: Mr. B is eligible for input tax credit on inputs held in stock and inputs contained in semi-finished or finished goods held in stock as on 21st July, This is subject to the further condition that the invoices pertaining to such inputs should not be more than a year old. Mr. B cannot take input tax credit in respect of capital goods. CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A has an ITC of Rs 3000 under IGST, Rs.700 in SGST and Rs. 600 in CGST during September, 2017. During that month, A has a tax liability of Rs.2000/‐ in IGST, Rs in SGST and Rs.5000 in CGST. QQ Q. A has supplied services worth Rs. 1 lakh to B. A is a registered person and has recovered GST at the appropriate rate from B. However, A has not issued a tax invoice. A cannot claim ITC since he has not received Tax Invoice. Particulars IGST CGST SGST Output GST Liability 2000 5000 Input GST Liability 3000 600 700 Balance (1000) 4400 4300 Set Off of IGST Refund 1000 Balance GST Payable 3400 CA PRATIK SUDHIR SHAH

FAQ on Input Tax Credit Q. A has a credit balance of Rs.2000 under IGST Act, Rs.1000 under CGST, and Rs.800 under SGST during January, During the same month, A’s tax liability was IGST Rs.4000, CGST Rs.5000 and SGST Rs.500. QQ Q. ABC Ltd. raises an invoice for supply of goods on DEF Ltd. No goods are actually delivered, but tax is paid appropriately by ABC Ltd. This is done merely to show increased turnover for improving credit standing of the company Particulars IGST CGST SGST Output GST Liability 4000 5000 500 Input GST Liability (2000) (1000) (800) Balance 2000 (300) Set Off of SGST Refund 300 Balance GST Payable 1700 CA PRATIK SUDHIR SHAH

THANK YOU PRATIK SUDHIR SHAH CHARTERED ACCOUNTANT
CA PRATIK SUDHIR SHAH PRATIK SUDHIR SHAH CHARTERED ACCOUNTANT

INPUT TAX CREDIT UNDER GST LAW

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INPUT TAX CREDIT UNDER GST LAW

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