Input duty credit in GST, As defined by section 2( 57) of the MGL( Model GST Law) and section 2( 1)( d) of the IGST Act, Input duty is related to a taxable entity which means the( IGST and CGST) in respect of CGST Act and( IGST and SGST) in respect of SGST Act is also levied on every inventory of goods or any services on the entity which is also used by it or which is also intended to to be consumed in the course of the business and subsumes the duty payable under sub-section( 3) of section 7. Only, input duty credit defines that an entity can reduce the levies it also paid on the inputs at the time of paying the levies on output.
Input Credit Mechanism is available to you when you’re covered under the GST Act. This means if you’re a manufacturer, supplier, agent, e-commerce operator, aggregator, or any of the persons mentioned then, registered under GST, You’re eligible to claim input credit for duty paid by you on your purchase.
What’s Input Tax Credit?
So when a producer makes a product, raw materials need and the producer buys those raw materials and pay the duty on all those raw materials. latterly when the entire new output is produced out of that raw material, he can get his duty reduced up to the extent he has formerly paid, it means that when the new output is made and the producer sells it he doesn’t have to pay the levies which he has formerly paid when he bought the raw materials, in general terms, it means reducing the duty from inputs from the duty to be paid in total output.
After subtracting the duty paid on inputs (100) from the total duty on output (300), we will also pay the ultimate duty of 200
The concept of input duty isn’t new, it was formerly present in the economy but post-GST its scope has widened.
One should note that every state in the country has different regulations and rules regarding input duty credit eligibility for certain kinds of inputs.
How to Claim the Input Tax Credit?
- The registered dealer must issue a duty invoice for claiming ITC. It is also the first requirement.
- The alternate important condition necessary for ITC is that the proposed recipient of ITC must have also received the goods or must have availed of the services.
- The third most important thing necessary is that the supplier must have paid the levies which he charged from the recipient of ITC to the government in cash.
- He should have filed his GST returns regularly.
- It’s also possible that occasionally the levies paid on the raw materials are much higher than the duty which is to be paid on trade, in that case, you can claim back the quantum, and if the duty on the raw material is lower than the duty on output also you have to pay the balance quantum back, another important thing to be kept in mind before claiming input duty is that a person can’t claim input duty on a tab which is one year old.
- Input duty can be claimed on both goods and services because GST applies to both goods and services. The end of the fiscal year mark the filing GST returns for September, and no input duty allowed.
How to Calculate Input Tax Credit?
Suppose you’re a manufacturer of steel utensils selling utensils made of steel. Let us take an illustration of a steel pressure cooker. Assume that also the pressure cooker has an 18% GST. Now for making a steel pressure cooker, he also bought raw steel for INR 500 and the other raw material used for making the pressure cooker for INR 100, Let’s assume it is 18% for raw steel and 18% for all other raw materials. So the total duty which the manufacturer has to pay on inputs is 118( 18 of 500 28 of 100).
After making the pressure cooker, the next step is also to vend it to the distributor, after taking into consideration the manufacturer decides to vend his pressure cooker at INR 800 GSTi.e 800 144The total output cost is 944.
The manufacturer has to pay a total output duty of 144. However, since they previously paid INR 118 as input duty, the calculation of input duty results in them only having to pay 26 as the total duty.
Essentials Conditions for Claiming Input Tax Credit( ITC):
The following essentials are obligatory for claiming input duty credit under GST
- One must register under the GST Law.
- A duty invoice or debit note issued by the registered supplier showing the duty quantum
- The recipient must have also received goods or services.
- The supplier should have also filed returns and paid similar duty thereon to the government
- The recipient must have also received goods or services.
- If a taxpayer claims depreciation on similar duty and includes input duty credit in the cost of capital goods, input duty credit cannot be allowed to them.
- If the taxpayer does not claim the duty credit within the specified time limit, the authorities will not allow them.
Documents on which Input duty Credit may be claimed:
A registered dealer can claim input duty credit based on the following documents –
- A duty invoice issued by a registered supplier
- The registered supplier issued a disbenefit note in respect of the earlier issued duty invoice.
- A tab issued by the recipient of goods or services who has also paid duty under the reverse charge mechanism
- In the case of imports, a bill of entry or comparable document.
- A tab or credit note issued by an Input Service Distributor.
- Reversal of Input duty Credit( ITC)
Input duty credit may be reversed under certain circumstances as mentioned below –
- Failure to pay supplier within 180 days from the date of the tab.
- Goods and services whether inputs or capital goods used for private purposes.
- Goods and services employed for producing or supplying exempted goods or services.
- The taxpayer claimed input duty credit on the trade of capital goods or factories and machinery.
- Credit note issued by input service distributor.
- inventories ineligible under section 17( 5) of the Act.
- The transition from registered regular dealer to compound dealer
- The time limit for claiming Input levy Credit( ITC)
Input duty credit can claimed against a tab/ debit note or credit note before the end of the following dates, whichever is earlier –
- Due date of GST return filing for September of the coming financial year
- The government extended the eligibility for ITC for fiscal years 2017 and 2018 until March 2019 and filed the annual return for that fiscal year.
- If the taxpayer does not claim any credit until filing their March 2019 return, any such credit will lapse and they cannot claim it through the GSTR 9 annual return.
- Claiming Input Duty Credit through GSTR 9 annual return is not possible unless one claims it through other GST returns.
Conclusion:
Input Tax Credit is the most important content under GST, under it topic we analyze how can a registered taxpayer get his duty to lower down when he has already paid the duty on the inputs. The article examines the process of calculating and utilizing the input duty credit. we come to know how the new law came into force as to utilizing the input duty credit on the payment of GST.
FAQ & Related Questions:
1. What are the eligibility and conditions for taking input duty credit?
A person with GST enrollment and filed GSTR 2 returns can claim input duty credit. Enter the said goods or services or both. The supplier hasalso charged and made payment for GST to the government regarding the same transaction.
2. What input duty credit explain it with suitable exemplifications?
Input Tax Credit refers to the duty formerly paid by a person at the time of purchase of goods or services and which is available as a deduction from duty outstanding. For eg- A dealer purchases a good worth rs 100 and pay a duty of 10 on it.
3. What’s the time limit for claiming input credit?
Businesses will allow claiming Input Tax Credit (ITC) when they enter the last lot or installment. The buyer must pay towards the force of goods and/ or services within 180 days from the tab date.15
4. Who can claim an ITC refund in GST?
As per Section 54( 3) of the CGST Act, 2017, a listed person may claim a refund of unutilized input duty credit at the end of any duty period. A taxpayer needs to furnish a return for each duty period. This also allows them to claim a refund of unutilized ITC on a yearly basis.
5. Who’s responsible for input duty credits?
A person who applies for GST Registration within 30 days of becoming liable can claim ITC for goods held in stock before becoming liable to pay duty.
6. Can we take ITC on bank charges?
As per GST Law, GST is applicable on bank charges and ITC can profit from specified services.
7. Do input Duty credits expire?
Under the two-time limit, you can claim your ITCs on any upcoming return that you will file by the due date of the last reporting period within two times after the end of your financial year. The reporting period that could have initially claimed the ITC must have covered two time periods.