What is Input Tax Credit (ITC) and how to claim it?
- On January 11, 2020
- GST, GST Updates, Input Tax credit, ITC
Implementation of Goods and Services Tax in India has been considered as one of the biggest reforms. People are getting acquainted with the process and GST, however, there is still a lot to learn and know about it for the common mass. So, here we are with the new topic and information about it, this time’s topic is Input Tax Credit, or ITC as said. Input Tax Credit (ITC) in simple terms is the reduction of that tax from your sales which you have already paid on your purchases. ITC is GST’s backbone and a very significant matter for the registered taxpayers. Let’s have a peek at ITC and how to claim it.
What is Input Tax Credit (ITC)?
Input Tax Credit basically refers to the reduction of the taxes paid on inputs from taxes to be paid on output. When the supply of goods and services is supplied to a taxable person, the GST charged is known as Input Tax. The concept of ITC is not entirely new as it already existed under the pre-GST indirect taxes regime (service tax, VAT and excise duty). Now just the scope of it has been widened under GST. Earlier, it was not allowed to claim ITC for Central Sales Tax, Entry Tax, Luxury Tax and other taxes. In addition to all these, the manufacturers and service providers were barred from claiming the Central Excise duty. Though, it should be noted that Input Tax Credit can not be applied to all types of inputs. Each and every state or country can have a different set of rules and regulations to be followed. Input Tax Credit can also be applicable to a dealer who has purchased goods to resale. These rules are quite stringent and particular in their approach. Let’s take an instance, where a manufacturer needs to figure out his final taxes after claiming the ITC. Let’s say, the tax to be paid on the final product is Rs. 500 and the purchase tax paid is Rs. 350. The Input credit he claimed is Rs. 350, then the final taxes he will pay is Rs.150. Under GST, It is a very critical activity to claim for ITC for every business to settle the tax liability. So, let’s learn how to claim ITC.
How to claim Input Tax Credit (ITC)?
If you want to claim and be entitled to your Input Credit Tax then the following must be followed as per the GST laws –
1. One should be a registered taxable person.
2. One can claim Input Tax Credit only, in the case, where the goods or services received is used for business purposes.
3. Input Tax Credit is taxable and can be claimed on exports or zero-rated supplies.
4. If you are a registered taxable person, and the constitution changes due to merger, sale or transfer of business, then the unused Input Tax Credit shall be transferred to the merged, sold or transferred business.
5. One can credit the Input Tax Credit in his/her Electronic Credit Ledger in a provisional manner on the common portal as per the model GST law.
6. Supporting documents such as a debit note, tax invoice, supplementary invoice, all are needed to claim the Input Tax Credit.
7. Input Tax Credit can be claimed if there is an actual receipt of goods and services.
8. The Input Tax needs to be paid through Electronic Credit/Cash ledger.
9. All GST returns like GST-1, 2,3, 6, and 7 needs to be filed.
So, this was all about Input Tax Credit, stay tuned for more!