Input Tax Credit in Detail
When you buy a product/service from a registered dealer you pay taxes on purchase, while making sales, tax is collected and periodically the same is adjusted with the tax you already paid at time of purchase and balance liability of tax (tax on sales (minus) tax on purchase) is to be paid to the government. This mechanism is called utilization of input tax credit (tax on purchase adjustment against tax liability on output i.e. sales).
Following are some of the conditions that need to be addressed for availing ITC:
1. Input credit is to be availed within one year: Businesses will not be entitled to take input tax credit under GST law, in respect of any supply of goods and/ or services after the expiry of one year from the date of issue of tax invoice in respect of such supply.
2. Generally accepted accounting principles should be followed: The amount of credit under GST law will be calculated in accordance with generally accepted accounting principles. Further rules in this regard are yet to be notified.
3. ITC is attributable to the purpose of business only: In case goods and/or services supplied are used by the taxable person partly for the purpose of any business and partly for any other purpose, the the ITC shall be restricted to the extent of the input tax as is attributable to the purpose of business.
4. ITC is attributable to taxable supply: There can be a business scenario when the goods and /or service are used by the registered taxable person partly for effecting taxable supplies and partly for the purpose of non-taxable supplies. In such cases, input credit attributable to exempt/ non-taxable supply will not be available. However, the amount of input tax on zero-rated supplies will be available as credit.
5. Proper tax invoice must be furnished: Businesses registered under GST will not be provided the credit of any input tax in respect of any supply of goods and/or services unless:
*the business is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document as may be required under the notified GST law
*the business has actually received mentioned goods and/ or services
*GST charged in respect of such supply has been actually paid to the credit of government against such supply
*The business has furnished the proper return under GST law
Also, where the goods against an invoice are received in lots or installments, the registered taxable person shall be entitled to the credit upon receipt of last lot or installment.
