Most of the dealers opt for ITC for easy taxation and it is legal too. Here know complete information on Input Tax Credit guide for How to claim ITC, condition for it’s reversal, also about reconciliation and required documents…
What is Input Tax Credit
Input Tax Credit meaning is paying the balance tax amount during the time of tax paying from the amount of tax which you have already paid. When a service or product brought from a registered dealer, then it is compulsory to pay the tax during the purchase. So on selling a product a tax included and you reduce the tax from the taxes paid on purchase.
Moreover the output tax amount of sales and balance liability of tax that may paid to the Government. This entire process of mechanism of tax payment called Input Tax Credit. The taxation is important point for a product sold in market and as well to purchase. There are various terms that a dealer must go through for tax and thus they opt for ITC for easy taxation.
Input Tax Credit
It will be better if we go through a value example and know about the ITC calculation for your product and thus confirm what you say in your tax. If you suppose that 450 Rs paid on the final product and the tax paid on the same for purchase if Rs 300. In that case, the same product has a value of 450 Rs tax for selling and Rs 300 for buying.
Thus as a dealer you can go through the Input Tax Credit and just pay Rs 150 as the tax. Also, this will apply on that product and the remaining ITC after paying Rs 150 collected from the buyer which remaining Rs 300.
Conditions to Claim ITC
A person who registered through GST can only claim the Input Tax Credit and to do so, there are certain conditions which described below.
- Dealer should be in possession of Tax invoice of product
- The Goods and Service declared may received
- The Income tax return must have filled
- Supplier should pay the Tax on Goods to government
- When the last lot received, the ITC can claim
- The ITC claim will be applicable on capital Good
- Any individual under the compensation Scheme of GST cannot claim ITC
What is Claimed in Input Tax Credit?
ITC is only for the business purpose and mainly those who sell their service or goods to the public. Hence any Goods or services that are used for personal or exempt supplies or any such purpose are not applicable to be claimed under ITC. The value of tax exemption is only for that price of Goods which will be secondly sold to some buyer.
How to Claim Input Tax Credit on Product
If you’re a business holder then it is mandatory to report the amount under Input Tax Credit in their GST monthly returns.
- Fill GSTR-3B form monthly
You need to fill the form GSTR-3B monthly.
- Update ITC and Raise claim upto 20%
Update your Input Tax Credit and raise a claim up to 20 percent through this form and with the auto generated GSTR-2A return.
- Check the Balance Sheet Form
Taxpayer must ensure to check the balance sheet form their GSTR-2A
- Provisional ITC being only 20%
Total amount from ITC in GSTR-3B will be the total amount from the ITC of GSTR-2A and the provisional Input Tax Credit being only 20 percent.
- Match the purchase register along with Expense Ledger
It is mandatory to match the purchase register along with the expense ledger to know the value of Input Tax Credit.
Input Tax Credit Reversal
ITC claimed from the Goods or service under Business purpose only and cannot claimed if any Goods used for non-business. As well there’s a list of points on which ITC reversed.
- If any invoice which has not paid within 180 days from the date of issue, then ITC may reversed.
- ISD seller not eligible for the ITC, if a credit note issued to HO. The applicable ITC may reversed.
- Any Goods or service which supplied by a business and the same product may also used for personal purpose.
- It will not adds in ITC and the ITC reversal applied.
- Capital Goods majorly used for personal use will have the ITC reversal
- The ITC calculated after the annual return filed. If the total ITC on inputs exempted more than the ITC reversed during the year, then the amount may depreciated.
Reconciliation of ITC
The Input Tax Credit claimed by an individual must matched with the supplier GST return. In any case of mismatch, the recipient and supplier may contacted to fill the GSTR-3B. They may asked to fill the Tax Credit reconciliation. Thus only matching these forms will make them eligible for the ITC.
Required Documents for ITC
To have the benefits form the Input Tax Credit there is a requirement of submission of following documents
- Invoice issued by the supplier
- Debit note issued by supplier mentioning the recipient
- Bill of entry with Goods details
- Bill of supply issued under any circumstances
- An credit notes or invoice issued by Input Service Distributor
- Bill of Supply issued by supplier for product
Input Tax Credit Special case
There are some special cases of Input Tax Credit for capital Goods and Job work, where IT applied.
- For the ITC for Capital Goods which are exclusively for making exempted Goods and capital Goods. These may used exclusively for personal purpose. So the ITC will claim on them if the depreciation has claimed on the tax component of Capital goods
- ITC for Job work like sending the Goods for further modification. situation the manufacturer will be able to pay the tax on the goods to buy back from the job work. However these may applies, if the goods send for job work are bring back within1 year.
- ITC for actual registered person in Input Service Distributor of GST. Thus the ISD collects the ITC on all purchases made to their different branches under the different GST options. The goods supplied to the branches by the distributor will also applies with Input Tax Credit.
- Who is eligible for Input Tax Credit?
Input Tax Credit is only applicable for an individual who is registered under GST and does follow the guidelines of taxation in other Goods supply. As well the Input Service Distributor is also eligible to gain the benefits from Input Tax Credit.
- Is there any time limit for Input Tax Credit?
To claim ITC, the buyer must have paid for the supplied receipt from the manufacturer. It must be within 180 days of issuing the invoice. In any case, if the buyer didn’t pay the amount within 180 days then the ITC will not be applicable. If applied it will be reversed during their annual taxation.
- Can I get Input Tax Credit on Electricity Bill?
The electricity Bill is a no tax product. It is a government entity which is supplied to the consumer as a daisy need. These services are not under the supply goods and will not be taken into consideration of Input Tax Credit. The Bill generated does have service tax that is appid by government and is not referred for the ITC.
- Can I claim Input Tax Credit on Bank Charges?
If you have made any business transaction through the bank, then you're eligible to apply for ITC on bank transactions. The business entity can claim ITC only if they have registered under the GST for each of their transactions. Every transaction will not be claimed and only transactions related to business purposes will be applicable for claim.
- Can Input Tax Credit be refunded?
Input Tax Credit have no payment tax on zero rated goods and services that makes can claim as refund. The accumulation of ITC due to higher tax rate on inputs than output supplies are eligible for refund of Goods.