Input Tax Credit 6th April GST ICAI ITC.pdf · GST - COVID-19 Impact Restriction on ITC Rule 36(4) – Proviso has been inserted in CGST Rules 2017 to provide that the said condition

Input Tax Credit

GST & IDTC of ICAI

CA Sushil K Goyal

7 April [email protected]

GST is a ‘Value Added’ TaxPurchase 100

Tax @ 10% 10110

Sale 150Tax @ 10% 15

165Liability to pay Govt. 15

Collected from customer 15

Payment to Govt. ??

Actual payment to Govt. 5

Liability to pay Govt. 15 Reduce liability by tax already paid (10)

Principles of Tax Credit


Taxable Person Eligible

Credit Available

Credit Availed

Credit Availed Prove ‘Test of Disallowance’

Utilizable Credit

Definition

– “Input”- any goods other than capital goods used or intended tobe used by a supplier in the course or furtherance of business. [Sec2(59)]

– “Input Service”- any service used or intended to be used by asupplier in the course or furtherance of business .[Sec 2(60)]

– “Capital Goods”- goods, the value of which is capitalised in thebooks of account of the person claiming the input tax credit andwhich are used or intended to be used in the course orfurtherance of business.[Sec 2(19)]


Definition

– “Input tax” In relation to a registered person, means the CentralTax, State Tax, Integrated Tax or Union Territory Tax charged onany supply of goods or services or both made to him andincludes:– (a) IGST charged on Import of goods– (b) Tax Payable u/s 9(3) and (4) of CGST Act– (c) Tax Payable u/s 9(3) and (4) of SGST Act– (d) Tax Payable u/s 5(3) and (4) of IGST Act– (e) Tax Payable u/s 7(3) and (4) of UTGST Act

But does not include tax paid under composition levy.


Input Tax CreditSec 16(1)Every registered person shall, subject to such conditions andrestrictions as may be prescribed and in the manner specifiedin section 49, be entitled to take credit of input tax charged onany supply of goods or services or both to him which are usedor intended to be used in the course or furtherance of hisbusiness and the said amount shall be credited to the electroniccredit ledger of such person.








Eligibility & Conditions


Input Tax CreditRestriction Sec 16(2)(a)

no registered person shall be entitled to the credit ofany input tax in respect of any supply to him unless, -– (a) he is in possession of a tax invoice or debit note issued by

a supplier registered under this Act, or such other tax payingdocuments as may be prescribed



DocumentsDocuments

for availment

of input tax credit:

Invoice issued u/s 31

Debit note issued u/s 34

Bill of entry

Invoice for reverse charge

Document issued by ISD

Document issued should contain minimum information like tax charged, description, value, GSTIN and Place of supply

Input Tax CreditRestriction Sec 16(2)(b) no registered person shall be entitled to the credit of anyinput tax in respect of any supply to him unless, -– (b) he has received the goods or services or both– “Explanation.—For the purposes of this clause, it shall be deemed that the

registered person has received the goods or, as the case may be, services––– (i) where the goods are delivered by the supplier to a recipient or any other person

on the direction of such registered person, whether acting as an agent or otherwise,before or during movement of goods, either by way of transfer of documents of titleto goods or otherwise;

– (ii) where the services are provided by the supplier to any person on the direction ofand on account of such registered person.”;



Receipt of Goods/ServiceReceipt of

Goods/Service

General Receipt in lots or installments

On direction of third person

Upon receipt of the Goods/Service

Upon receipt of last lot of goods/Service

Deemed receipt by the taxable third

person

Receipt of Goods


Movement of goods ondirection of third party

B

A CMovement of Goods

Date of Receipt by Cwill be considered as date of receipt by B

Input Tax CreditRestriction Sec 16(2)(c)

no registered person shall be entitled to the credit ofany input tax in respect of any supply to him unless, -– (c) subject to the provisions of section 41 or section 43A, the

tax charged in respect of such supply has been actually paidto the Government, either in cash or through utilization ofinput tax credit admissible in respect of the said supply;

–


Input Tax CreditRestriction Sec 16(2)(d)

no registered person shall be entitled to the credit ofany input tax in respect of any supply to him unless, -– (d) he has furnished the return under section 39:


Input Tax CreditRestriction Sec 16(2) 2nd Proviso– Provided further that where a recipient fails to pay to the supplier

of goods or services or both,

– other than the supplies on which tax is payable on reverse chargebasis,

– the amount towards the value of supply along with tax payablethereon

– within a period of one hundred and eighty days from the date ofissue of invoice by the supplier,


Input Tax CreditRestriction Sec 16(2) 2nd Proviso – an amount equal to the input tax credit availed by the recipient

shall be added to his output tax liability, along with interestthereon, in such manner as may be prescribed:

– Provided also that the recipient shall be entitled to avail of thecredit of input tax on payment made by him of the amounttowards the value of supply of goods or services or both alongwith tax payable thereon.

– Note : Provision of Section 16(4) will not apply for re-availing ofcredit


TAX

Availing ITC in GST Regime


Tax dept Buyer

Buyer gets input credit if seller pays GST

Seller pays tax to the government Buyer gets input credit

Seller

20

Restriction on ITC Rule 36(4)

– Input tax credit to be availed by a registered person in respect ofinvoices or debit notes, the details of which have not beenuploaded by the suppliers under sub-section (1) of section 37,shall not exceed 20 per cent. of the eligible credit available inrespect of invoices or debit notes the details of which have beenuploaded by the suppliers under sub-section (1) of section 37.



– Input tax credit to be availed by a registered person in respect ofinvoices or debit notes, the details of which have not beenuploaded by the suppliers under sub-section (1) of section 37,shall not exceed 10 per cent. of the eligible credit available inrespect of invoices or debit notes the details of which have beenuploaded by the suppliers under sub-section (1) of section 37.



– taxpayers may avail full ITC in respect of– IGST paid on import,

– documents issued under RCM,

– credit received from ISD etc.

– details of which have been uploaded by the suppliers as onthe due date of filing of the returns in FORM GSTR-1 of thesuppliers for the said tax period.


Have all the invoices been furnished in GSTR-2A? YES

Credit for invoice not furnished by supplier < 10% of invoices

furnished

Avail credit

Avail credit of invoices in 2A + 10% of such invoices

YES

NO

NO


NO

NO




Cases Invoices available in GSTR-2A

(A)

10% of invoices furnished

(B)

ITC to be taken in GSTR-3B

(A)+(B)

Case 1 ₹ 10,00,000 ₹ 1,00,000 ₹ 10,00,000

Case 2 ₹ 9,50,000 ₹ 95,000 ₹ 10,00,000

Case 3 ₹ 8,00,000 ₹ 80,000 ₹ 8,80,000


– Full ITC of balance amount may be availed, in present, inthe above cases total ITC pertaining to invoices thedetails of which have been uploaded reaches Rs. 8.3lakhs (Rs 10 lakhs /1.20).

– When it will reach Rs.8.3 lakhs by that time credit takenby the registered person Rs.10 lakhs.

– No further credit available beyond 10 lakhs.


GST - COVID-19 ImpactRestriction on ITC Rule 36(4)– Proviso has been inserted in CGST Rules 2017 to provide that the

said condition shall not apply

– for the months of February, March, April, May, June, July andAugust, 2020,

– but that the said condition shall apply cumulatively in FORM GSTR-3B for the tax period of September, 2020

– Hence, cumulative adjustment of input tax credit for the saidmonths in accordance with the condition under rule 36(4).



Eligibility & Conditions for ITC

Eligibility and

Condition

must be used “by

him”Possession of

documents

contain all the prescribed particulars

Taxes actually paid

upload the details of such documents

received goods or services

payment to the supplier within 180

days

No depreciation

claimed

Sept month / Annual Return

Not pursuant to an order

Credit should not exceed 10% R:36(4)


Matching ConceptRule 36(4)

Professional

xxx 134/17 500 60xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP-63U 1000 50

Inward Supply Register

Paper

Computer

Telephone

Food

07/04/[email protected]

Professional

xxx CA-0001/17-18 20000 3600xxx CA-0002/17-18 30000 5400xxx CA-0003/17-18 10000 1800xxx CA-0004/17-18 20000 3600

Outward Supply Register

Client A

Client B

Client C

Client D


GSTR - 1

xxx CA-0001/17-18 20000 2400xxx CA-0002/17-18 30000 3600xxx CA-0003/17-18 10000 1200xxx CA-0004/17-18 20000 2400

xxx 134/17 500 60xxx E32j33 30000 5400xxx YP-63U 1000 50

Professional

Paper

Computer

Food


GSTR – 2A

xxx 134/17 500 60xxx E32j33 30000 5400

xxx YP-63U 1000 180

xxx 134/17 500 60xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP-63U 1000 50

Inward Supply RegisterProfessional


GSTIN Invoice No. Invoice Value TaxInput Records

xxx 134/17 500 60xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP63-U 1000 50

GSTIN Invoice No. Invoice Value TaxOutput Tax

xxx CA-0001/2017-18 20000 1600

xxx CA-0002/2017-18 30000 5400

xxx CA-0003/2017-18 10000 1800xxx CA-0004/2017-18 20000 3600

Professional


Professional

GSTIN Invoice No. InvoiceValue

Tax

Input Records

xxx 134/17 500 60

xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP63-U 1000 50

Invoice Value TaxOutput Tax Liability

Payment


80000 14400

Paid by ITC Paid by Cash

6006 8394

Eligible ITC in 2A : 546010% of above : 546ITC to be availed : 6006


Utilisation of Credit

Utilisation of ITCSection 49ANotwithstanding anything contained in section 49, the input tax crediton account of central tax, State tax or Union territory tax shall beutilised towards payment of integrated tax, central tax, State tax orUnion territory tax, as the case may be, only after the input taxcredit available on account of integrated tax has first been utilisedfully towards such payment.

Inserted by the Finance Act 2018 w.e.f. 1st February 2019


Order of utilisation of ITC Rule 88AOrder of utilization of input tax credit.- Input tax credit on account ofintegrated tax shall first be utilised towards payment of integratedtax, and the amount remaining, if any, may be utilised towards thepayment of central tax and State tax or Union territory tax, as thecase may be, in any order:

Provided that the input tax credit of CGST/SGST shall be utilisedtowards the payment of IGST/CGST/SGST only after the input taxcredit available on account of integrated tax has first been utilisedfully.



Input Credit Adjustment

Input Tax

SGST

SGSTIGST

12

SGST1Input Tax

SGST

InputTax

CGSTCGSTIGST

12

CGST1Input Tax

CGST

InputTax

IGSTIGSTCGST

12

SGST

3

IGSTIGSTCGST

Input Tax

IGSTSGST

Block Credit


input tax credit shall not be available in respect of the followingnamely:-

(a) motor vehicles for transportation of persons having approvedseating capacity of not more than thirteen persons (includingthe driver), except when they are used for making the followingtaxable supplies, namely: —

(A) further supply of such motor vehicles; or(B) transportation of passengers; or(C) imparting training on driving such motor vehicles;


Block Credit Section 17(5)(a)…


(aa) vessels and aircraft except when they are used––(i) for making the following taxable supplies, namely:—

(A) further supply of such vessels or aircraft; or (B) transportation of passengers; or(C) imparting training on navigating such vessels; or(D) imparting training on flying such aircraft;

(ii) for transportation of goods;7 April [email protected]

Block Credit Section 17(5)(aa)…

input tax credit shall not be available in respect of the followingnamely:-(ab) services of general insurance, servicing, repair and maintenance in

so far as they relate to motor vehicles, vessels or aircraft referredto in clause (a) or clause (aa):Provided that the input tax credit in respect of such services shall be available—

(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause(aa)are used for the purposes specified therein;

(ii) where received by a taxable person engaged—(I) in the manufacture of such motor vehicles, vessels or aircraft; or(II) in the supply of general insurance services in respect of such motor vehicles,

vessels or aircraft insured by him; 7 April [email protected]

Block Credit Section 17(5)(ab)…


(b) the following supply of goods or services or both—(i) food and beverages, outdoor catering, beauty treatment, health services,

cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles,vessels or aircraft referred to in clause (a) or clause (aa) except when usedfor the purposes specified therein, life insurance and health insurance:

Provided that the input tax credit in respect of such goods or services or bothshall be available where an inward supply of such goods or services or both isused by a registered person for making an outward taxable supply of the samecategory of goods or services or both or as an element of a taxable compositeor mixed supply;


Block Credit Section 17(5)(b)…


(i)…..(ii) membership of a club, health and fitness centre; and(iii) travel benefits extended to employees on vacation such as

leave or home travel concession.Provided that the input tax credit in respect of such goods orservices or both shall be available, where it is obligatory for anemployer to provide to its employees under any law for the timebeing in force.


Block Credit Section 17(5)(b)…


(c) works contract services when supplied for construction ofimmovable property, (other than plant and machinery), exceptwhere it is an input service for further supply of works contractservice;

Explanation. - For the purpose of clause (c) and (d), the expression“construction” includes re-construction, renovation, additions oralterations or repairs, to the extent of capitalization, to the saidimmovable property.


Block Credit Section 17(5)(c)…


(d) goods or services or both received by a taxable person forconstruction of an immovable property (other than plant andmachinery) on his own account, including when such goods orservices or both are used in the course or furtherance of business;

Explanation. - For the purpose of clause (c) and (d), the expression“construction” includes re-construction, renovation, additions oralterations or repairs, to the extent of capitalization, to the saidimmovable property.


Block Credit Section 17(5)(d)…


(e) goods or services or both on which tax has been paid under section 10;


Block Credit Section 17(5)(e)…


(f) goods or services or both received by a non-resident taxable person except on goods imported by him;


Block Credit Section 17(5)(f)…


(g) goods or services or both used for personal consumption;


Block Credit Section 17(5)(g)…


(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and


Block Credit Section 17(5)(h)…


(h) any tax paid in accordance with the provisions of sections 74, 129 and 130.


Block Credit Section 17(5)(i)…

Apportionment



Use of Goods/Service Sec 17(1)

Use of Input tax

Credit

For business purpose

For other purpose

ITC available

ITC not available

Use of Input Tax Credit : partly for

Taxable Supplies

Zero rated Supplies

Non taxable supplies

Exempted Supplies

Nil rated supplies

ITC available ITC not available

ITC on the basis of Uses Sec 17(2)



The value of exempt supply shall be such

as may be prescribed,

and shall include

supplies on which the recipient is liable to pay tax

on reverse charge basis,

transactions in securities,

sale of land and,

sale of building. (subject to clause (b) of paragraph 5 of

Schedule II)

Value of Exempt Sec 17(3)


Value of Exempt Sec 17(3)

Explanation :(2) for determining the value of an exemptsupply as referred to in sub-section (3) of section 17-

(a) the value of land and building shall be taken as thesame as adopted for the purpose of paying stampduty; and

(b) the value of security shall be taken as oneper cent of the sale value of such security.

Apportionment (Banking/FI/NBFC)

– Avail of, every month, an amount calculated as above,– An amount equal to 50% of the eligible input tax credit

on inputs, capital goods and input services in thatmonth and the rest shall lapse.

– Option once exercised shall not be withdrawn duringthe remaining part of the financial year.

– Restriction of 50% will not apply on supply from otherunit having same PAN


Banking/NBFC Sec 17(4)

ITC Reversal onInput & Input Services Rule 42

The ITC in respect of inputs or input services, whichattract the provisions of Sec 17(1)/(2), being partly usedfor the purposes of business and partly for otherpurposes, or partly used for effecting taxable suppliesincluding zero rated supplies and partly for effectingexempt supplies, shall be attributed to the purposes ofbusiness or for effecting taxable supplies in the followingmanner, namely


ITC Reversal onCapital Goods Rule 43The ITC in respect of capital goods, which attract theprovisions of Sec 17(1)/(2), being partly used for thepurposes of business and partly for other purposes, orpartly used for effecting taxable supplies including zerorated supplies and partly for effecting exempt supplies, shallbe attributed to the purposes of business or for effectingtaxable supplies in the following manner, namely


ITC Reversal onCapital Goods

Rule 43 of CGST Rules modified to have betterunderstanding

Reversal of credit in case of non taxable personbecoming taxable or vice versa



Transfer of Business

Apportionment of ITC Business Reorganisation

– Transfer/Apportionment of ITC in the event of Business Reorganisation with specific provision for transfer of liability– Sale,– Merger, – Demerger, – Amalgamation – Lease – Transfer or– Change in the constitution/ownership of business



Issue : In case of de-merger proviso to rule 41(1) says that ITC shall be apportioned in the ratio of the value of assets of the new units. Whether the value of asset is considered as state level or at all India level?Clarification : A person having same PAN required to take separate registration in different state and each registration is known as separate entity. So, the value of assets of the new units is to be taken at the State level.



Issue : Whether the transferor required to file Form GSTITC 02 in all the States where it is registered?

Clarification : No. The transferor is required to file FORMGST ITC-02 only in those States where both transferor andtransferee are registered.



Issue : Whether the proviso to rule 41(1) shall beapplicable to calculate the amount of transferable ITC onlyto demerger or other form of business and where part ofbusiness is transferred as a going also covered?Clarification : Yes, the formula for apportionment of ITC,shall be applicable for all forms of business re-organizationthat results in partial transfer of business assets along withliabilities.



Issue : Whether the ratio of value of assets, in rule shall beapplied in respect of each ITC head separately viz. CGST/SGST/ IGST/ Cess?

Clarification : No, it shall be applied to the total amount ofunutilized ITC of the transferor sum of CGST, SGST/ UTGSTand IGST credit. Said formula also applicable for cess.



Issue : How to determine the amount of ITC that is to betransferred to the transferee under each tax head(IGST/CGST/SGST) while filing of Form GST ITC-02 by thetransferor?Clarification : The transferor shall be at liberty todetermine the amount to be transferred under each taxhead within this total amount, subject to the ITC balanceavailable with the transferor.



Issue : It is not clear as to which date shall be relevant tocalculate the amount of unutilized ITC balance oftransferor?

Clarification : the apportionment formula shall be appliedon the ITC balance of the transferor as available inelectronic credit ledger on the date of filing of FORM GSTITC – 02 by the transferor.



Issue : Which date shall be relevant to calculate the ratio ofvalue of assets, as prescribed in the proviso to rule 41(1)?

Clarification : The ratio of the value of assets should betaken as on the appointed date of demerger, on the ITCbalance of the transferor, on the date of filing FORM GSTITC - 02 to calculate the amount to transferable ITC.



Others

Council Recommendations

– Interest for delay in payment of GST to be charged on thenet cash tax liability w.e.f. 01.07.2017 (Law to beamended retrospectively)


Corporate Insolvency Resolution Process– Registration CIRP Period

– IRP/RP should apply for registration of CD – Within 30 days of appointment – If appointed before Notification 30days from 21.3.2020

– Returns for the CIRP Period– First Return as per Section 40– Including all transaction from date of appointment to actual

date of registration


Corporate Insolvency Resolution Process– Input Tax Credit

– Eligible for credit Including all transaction from date of appointment to actual date of registration even old registration is mentioned

– First Return as per Section 40– Section 16(4) & Rule 36(4) will not apply for the first return– Buyer will get credited even old GSTIN


Time for Query


[email protected]
