HOW TO CLAIM AND AVAIL INPUT TAX CREDIT

 

How to claim input tax credit under GST?

To claim input tax credit under GST –

• You must have a tax invoice (of purchase), or debit note issued by registered dealer
• You should have received the goods/services

Note: Where goods are received in lots/instalments, credit will be available against the tax invoice upon receipt of last lot or installment. Note: Where recipient does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input tax credit based on the invoice, the said credit will be added to his output tax liability along with interest.

• The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input tax credit
• Supplier has filed GST returns
• Supplier has uploaded the invoice in their GSTR-1, and it appears in GSTR-2B of the recipient or buyer.

Possibly the most path-breaking reform of GST is that input tax credit is ONLY allowed if your supplier has deposited the tax, he collected from you. So, every input tax credit you are claiming shall be matched and validated before you can claim it. Therefore, to allow you to claim input tax credit on Purchases all your suppliers must be GST compliant as well.

There’s more you should know about input tax credit –

• It is possible to have unclaimed input tax credit. Due to tax on purchases being higher than tax on sale. In such a case, you are allowed to carry forward or claim a refund.

If tax on inputs > tax on output –> carry forward input tax or claim refund If tax on output > tax on inputs –> pay balance No interest is paid on input tax balance by the government

• Input tax credit cannot be taken on purchase invoices which are more than one year old only in cases of special circumstances under Section 18(1). The period is calculated from the date of the tax invoice.
• Since GST is charged on both goods and services, input tax credit can be availed on both goods and services (except those which are on the exempted/negative list).
• Input tax credit is allowed on capital goods.
• Input tax is not allowed for goods and services for personal use.
• No input tax credit shall be allowed after GST return has been filed for September following the end of the financial year to which such invoice pertains or filing of relevant annual return, whichever is earlier.

Type of taxes under GST

All existing taxes such as VAT, CST, Excise Duty, Service Tax, Entertainment Tax shall go away, and GST will replace them.

There are 3 types of taxes under GST

1. State GST – SGST
2. Centre GST – CGST
3. Integrated GST – IGST

Now let’s understand how Input Tax Credit works under GST  

Suppose there is a seller Mr. A, and he sells his goods to Mr. B. Here Mr. B i.e. the buyer will be eligible to claim the credit on purchases based on the invoices. Let’s understand how:

Step 1: Mr A will upload the details of all tax invoices issued in GSTR 1.

Step 2. The details with respect to sales to Mr B will auto-populate/ get reflected in GSTR 2A or GSTR-2B, the same data will be pulled when Mr B will file GSTR 2 (i.e details of inward supply).

Step 3: Mr B will then accept the details that the purchase has been made and reported by the seller correctly and subsequently the tax on purchases will be credited to ‘Electronic Credit Ledger’ of Mr B and he can adjust it against future output tax liability and get the refund.