What is Input Tax Credit Under GST - Rules, Time Limit and its Utilization

What is Input Tax Credit?

Input Tax is meant for taxpayers who have paid taxes for the supply of their goods and/or services to another person with an intention to use the same for business activity. The application of Input Tax Credit is a critical activity under GST. Mainly, it is in respect of settlement of tax liability. 

Input Tax Credit is regarded as the backbone of GST and it is very much essential for a supplier or dealer registered under GST. The conditions and eligibility to claim Input Tax Credit has already been prescribed under GST law. The approach is quite straightforward for claiming Input Tax Credit under GST guidelines and regulations.

Conditions of Input Tax Credit Entitlement:

Some of the conditions that are required to be fulfilled by a supplier or dealer under GST to claim Input Tax Credit;

•     The evidence of payment is required including a debit note, payment receipt, or tax invoice
•    The recipient must have received the goods and/or services
•     Document for transfer of title for goods supplied to another person is required
•    The returns should be furnished
•    In case of installment or partial supply of goods, the Input tax credit can be availed after completion of full delivery.
•     For capital goods, if depreciation is allowed then Input Tax Credit will not be provided
•     In case the supplier has failed to supply goods under the specified time limit. In such a case, Input Tax Credit has to be claimed with the addition of interest and output tax liability. After receiving the payment, the Input tax credit will be claimed.

1. Input Tax Credit has to be claimed against an invoice or debit within a specified time limit;

a)     GST return filing due date  is the month of September of the next financial year 
                                            OR
b)    The annual return filing due date is the same financial year

GST Input Tax Credit Utilization:

As discussed earlier in previous chapters, GST taxes are categorized under three types of taxes which are as follows;

1. Central Goods and Service Tax (CGST)

CGST is applicable in the case of an intra-state supply of goods/services.

2. State Goods and Service Tax/ Union Territory Goods and/or services Tax (SGST/UTGST)

SGST/UTGST both are applicable in case of an intra-state supply of goods/services 

3. Inter-State Goods and Service Tax (IGST) 

IGST is applicable in the case of inter-state supply of goods/ services

Rules for Input Tax Credit:

The following are some of the conditions when Input Tax Credit cannot be claimed;

•    In case goods are collected under the composition scheme of GST
•    In case the goods are used for personal purposes Input Tax Credit cannot be claimed.
•    In case of employer and employee relationship, the goods or services are used for the personal use of employees
•    In the case of capital goods when depreciation is allowed the Input Tax Credit cannot be claimed

In case goods and/or service is acquired due to a contract related to the construction of immovable property excluding plant and machinery

Some of the rules for claiming the Input Tax Credit are as follows;

•    The individual or business must be GST registered as a taxpayer
•    The goods and/or services should be used for business purposes.
•    Input  Tax Credit can be claimed on taxable goods as well as zero-rated supplies
•    Input Tax Credit can be claimed electronically by the electronic ledger.
•    It is mandatory to file GST Returns for claiming Input Tax Credit
•    If goods are supplied installment or partially, Input Tax Credit can be claimed after  supplying the last installmen of goods

Time Limit for Input Tax Credit:

A registered dealer under GST can claim for Input Tax Credit within a specified time period under GST. However, there may be different situations, where input can be claimed based on the semi-finished inventory or complete stock of goods.

The time limit to claim Input Tax Credit under GST is mentioned below;

•  If a person has filed an application for GST registration or is eligible to register or granted a registration, the time limit for these applicants will be the same day on which they are required to pay tax.
•  If registration is voluntary in nature then the date of registration will be the due date for Input Tax Credit
• According to Section 7 of the Goods and Services Act, if taxpayers fail or stop making payment of tax under the composition levy scheme, then he needs to pay tax in a common manner.
• In case the time limit exceeds 365 days from the date of issuance of invoice for the goods and/or services specified under GST, then Input tax Credit is applicable.

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