1. GST: Input Tax Credit Analysis
Gopal Mondal

2. Presently cascading effect in the existing system in India
No credit of CST
No Excise duty &Service tax for VAT
No credit of Entry tax or octroi
No credit of VAT to Service providers
No credit to exempt Sectors
No credit of basic customs duty and custom cess
No credit of Swachh Bharat cess to Manufacturer & service provider
No credit of Krishi Kalyan cess to Manufacturer

3. Aggregate Turnover -Meaning
Model GST: November 2016
Model GST: June 2016
(S.2 (6) “Aggregate turnover” means the aggregate value of all taxable supplies, exempt supplies, exports of goods and/or services and inter-state supplies of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be;
S.2 (6) “Aggregate turnover” means the aggregate value of all taxable and non-taxable supplies, exempt supplies and exports of goods and/or services of a person having the same PAN, to be computed on all India basis and excludes taxes, if any, charged under the CGST Act, SGST Act and the IGST Act, as the case may be;
Explanation – Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies.

4. Input tax credit and input tax
Model GST: November 2016
Model GST: June 2016
S.2(56) “input tax credit” means credit of ‘input tax’ as defined in section 2(55)
S.2(58) “input tax credit” means credit of ‘input tax’ as defined in section 2(57)
S.2(55) “input tax” in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes tax payable under section 8(3) but does not include the tax paid under section 9.
S.2(57) “input tax” in relation to a taxable person, means the {IGST and CGST}/(IGST and SGST} charged on any supply of goods or services to him which are used, or are intended to be used, in the course or furtherance of his business and includes the tax payable under section 7(3).

5. Meaning of Input
Model GST: November 2016
Model GST: June 2016
S.2(52) “input” means any goods other than capital goods used or intended to be used by supplier in the course or furtherance of business.
S.2(54) “input” means any goods other than capital goods, subject to exception as may be provided under this Act or the rules made thereunder, used or intended to be used by supplier for making an outward supply in the course or further of business.
S.2(53) “input service” means any service used or intended to be used by a supplier in the course or furtherance of business.
S.2(55) “input service” means any service subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course or furtherance of business.

6. Meaning of Capital Goods
Model GST: November 2016
S.2(19) “capital goods” means goods, the value of which is capitalized in the books of accounts of the person claiming the credit and which are used or intended to be used in the course of furtherance of business.
Claim of Input Tax Credit: [Section 36]
Every taxable person shall be entitled to take credit as self-assessed in his return and such amount shall be credited on a provisional basis to his electronic credit ledger
The credit shall be utilised only for payment of self –assessed output tax liability.

7. Eligibility and Conditions For taking input tax credit [Section 16]
Subject to such conditions and restrictions as may be prescribed and within the time and manner specified in Section 44
Every registered taxable person shall be entitled
To take credit of input tax charged on any supply of goods or services
Which are used or intended to be used in the course or furtherance of his business
The said amount shall be credited to the electronic credit ledger of such person

8. Essential requirements for availing ITC under GST
(a) Registered taxable person is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document as may be prescribed, issued by a supplier registered under GST Act9s) or the IGST Act.
Registered taxable person has received the goods and/or services
Requirements for availing Input Tax Credit
(c) The tax charged in respect of such supply has been actually to the credit of the appropriate Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and .
(d) Registered taxable person has furnished the return under S 27

9. Time Limit for availing
ITC under GST
Where the goods against an invoice are received in lots or instalments, the registered taxable person shall be entitled to take credit upon received of the last lot or installment.
Restriction on use of input tax credit:
Pipelines and telecommunication tower fixed to earth
1/3 of total input tax in the financial year in which the goods are received
1/3 of total input tax in the next financial year
Balance 1/3 in any subsequent financial year

10. Time Limit for availing
ITC under GST
Filing of return for September month of next financial year
Whichever is earlier
Filling of annual return of the financial year
Date of filing of return for the September month of next FY
Date of filing of annual return for the FY
Maximum period by which input tax credit for the FY can be availed
October 20
December 31
September 30

11. Apportionment of credit [Section-17]
Where goods and/or services are used by the registered taxable person
Section 17(1)
Party for the purpose of business
Party for other purposes
Section 17(2)
Party for effecting taxable supplies including zero-rated supplies under this Act or IGST Act.
Party for effecting exempt supplies including under reverse charge basis Section 8(3)
Amount of credit shall be attributable to the purpose of business [Section 17(1)]/taxable supplies including zero rated supplies [Section 17(2)]

12. Example
Supplier “A” in Delhi supplies goods worth INR 500/- to “B” in Delhi. “B” further used 60% of such goods in manufacturing of taxable goods and 40% of such goods in manufacturing exempted goods. After 40% value addition, “B” supplies goods to consumer in Delhi.
Let us assume the CGST rate as 9% and SGST rate as 9% to be levied goods supplied. Thus, GST would be levied in the following manner:

13. “A” supplies goods worth Rs. 500 “B” supplies with 40% value addition
Consumer
Delhi
Delhi
Delhi
Particulars
Amt.(Rs)
Value for A
500.00 9%
45.00 9%
Total
590.00
Particulars
Taxable
Exempted
Amt. (Rs)
Value for “B”
300.00
200.00
Value Add. (40%)
120.00
80.00
Base value for GST
420.00
280.00 9%
37.80
0.00 9%
Total Value
495.60
Tax to be paid in Cash:
Central Govt.:
CGST : 37.80
-CGST(45*60%) : 27.00
Paid in cash :10.80
Delhi Govt.:
SGST : 37.80
-SGST(45*60%) : 27.00
Paid in Cash :10.80
Total Amount Collected:
CG : = 55.80
Delhi Govt.: = 55.80
ITC of GST paid on goods used shall not be available to the supplier. Credit booked on such input shall be reversed in the books of accounts

14. Credit for Banking and Financial Institution
Credit option:
Banking company/financial institution/NBFC
Either comply with the provisions of Section 17(2); or
Avail of, every month, an amount equal to 50% of the eligible input tax credit on input, capital goods and input service in that month.
Note: the option one exercised shall not be withdrawn during the remaining part of the financial year.

15. List of items not eligible for ITC[ Section-17(4)]
Motor vehicles
Except when they are used:
For making the following taxable supplies, namely:
further supply of such vehicles; or
transportation of passengers; or
imparting training on driving, flying, navigating such vehicles;
For transportation of goods
Supply of goods and services for personal use or consumption of any employee
Namely
Food and beverages,
outdoor catering,
beauty treatment,
health services,
cosmetic and plastic surgery
Except where such inward supply of goods or services of a particular category is used by a registered taxable person for making an outward taxable supply of the same category of goods or services;

16. List of items not eligible for ITC[ Section-17(4)]
(ii) Membership of a club, health & fitness centre ,
(iii) rent-a-cab, life insurance, health insurance
Except where the Government notifies the services which are obligatory for an employer to provide to its employees under any law for the time being in force; and
(iv) Travel benefits extended to employees on vacation such as leave or home travel concession
Work contract services
When supplied for construction of immovable property, other than plan and machinery, except where it is an input service for further supply of works contract service;

17. List of items not eligible for ITC[ Section-17(4)]
Construction of immovable property
Goods or services received by a taxable person for construction of an immovable property on his own account, other than plan and machinery, even when used in course or furtherance of business.
Composition scheme (Section 9)
Goods and/or services on which tax has been paid under Section 9

18. Registration vs Input Tax Credit (ITC)
Section 18(1) – explanation with example
30 days
X becomes liable to registration on April 1, 2017
Suppose, X has to apply for Registration on April 29, 2017
X is entitled to ITC in respect of:
Inputs held in stock; and
Inputs contained in semi-finished goods; or
finished goods held in stock
On the day immediately preceding the date of registration (i.e. March 31, 2017)
What about ITC on capital goods and input services as on March 31, 2017?
Section 18(2) – Is ITC on voluntary registration available w.e.f. March 31, 2017 ?
Note : Section 23(3) a person may get himself registered voluntarily and all the provisions of the Act as are applicable to a registered taxable person shall apply to such person.

19. Registration vs Input Tax Credit (ITC)
Section 18(3) – composition scheme (Section 9)
X’s taxable turnover exceeds INR 50 lakhs on May 1, 2017 (Section9)
X will not enjoy the benefit of Section 9
X is entitled to ITC in respect of :
Inputs held in stock; and
Inputs contained in semi-finished goods; or
finished goods held in stock , and
Capital goods, immediately preceding the date of May 1, 2016 [i.e. on April 30, 2017]
Section 9: (a) Permission requires from proper officer; (b) tax rate not less that 2.5% for manufacturer and 1% for other cases (c) no permission to service provider, inter-state supplier, E-commerce operator; (d) applicable to all taxable person having same PAN (e) no ITC (f) permission withdrawn on > 50 lacs.

20. Registration vs Input Tax Credit (ITC)
Conditions for eligible ITC to a taxable person switching over from composition scheme under this Act. (Section 172):
Such input and or goods are used or intended to be used for making taxable supplies under this Act;
The said person is not paying tax under Section 9
the said taxable person is eligible for input tax credit on such inputs under this Act
The said taxable person is in procession of invoice and /or other prescribed documents evidencing payment of duty under earlier law in respect of such inputs; and
Such invoices are not earlier than 12 months immediately preceding the appointed day.

21. Registration vs Input Tax Credit (ITC)
Section 18(7) – Switches over to composition scheme (S9) & exempt supply (S11)
X, a taxable person, switch over to Section 9 or Section 11
X shall pay an amount by way of debit in the electronic credit or cash ledger equivalent to the credit of:
Inputs held in stock; and
Inputs contained in semi-finished goods; or
Finished goods held in stock and
Capital goods
On the day immediately preceding the day of such switchover or the date of such exemption

22. Registration vs Input Tax Credit (ITC)
Section 18(4) – exempt supply becomes a taxable supply of goods and services
Where an exempt supply of goods or services by a taxable person becomes a taxable supply
Such person is entitled to ITC in respect of :
Inputs held in stock; and
Inputs contained in semi-finished goods; or
finished goods held in stock and
capital goods
Exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable.
A taxable person shall not be entitled to take input tax credit under sub section (1), (2), (3) or (4) as the case many be, in respect of any supply of goods and/or services to him after the expiry of 1 year from the date of issue of tax invoice relating to such supply [S 18(5)].

23. Disposal of Capital Goods
under Section 18(10)
Registered taxable person
Supply of capital goods or plant/machinery
With/without consideration
Shall pay an amount equal to
ITC taken on said CG or P&M reduce by the % points as may be specified
The tax on transactional value of CG or P&M
Whichever is higher

24. ITC FOR JOB WORK Supplier of Goods Job Worker Principal (b) (a)
Intra/Inter-State Purchase
(c) With one year
Principal
Purchase from Supplier: Allow ITC to principal on inputs sent to a job worker for job work.
Input directly sent to job worker without being first bough to his place of business: Allow ITC on input directly sent to a job worker.
If the inputs are not received back by the principal:
after completion of job work, or
otherwise, or
not supplied from the place of business of the Job Worker.
Within a period of 1 year of being sent out, it shall be deemed to be supplied on the day when the said inputs are sent out.

25. Manner of Distribution of ITC by ISD
Particulars
ISD
Delhi
Recipient
Mumbai
CGST Act
CGST
IGST
SGST Act
SGST
Centre will transfer IGST Credit to state
State will transfer SGST Credit to centre

26. Manner of Distribution of ITC by ISD
(a) Credit can be distributed against a prescribed document issued to each of the recipients
the amount of the credit distributed shall not exceed the amount of credit available for distribution
(c) Credit of tax paid on input services attributable to a supplier shall be distributed only to that supplier.
Conditions for distributing Input Tax Credit by ISD
(d) Credit of tax paid on input services attributable to more than one recipient, shall be distributed on pro rata on the basis of the turnover in a State of such recipient.
(e) Credit of tax paid on input services attributable to all recipient, shall be distributed on pro rata on the basis of the turnover in a State of such recipient,

27. Supply of good and/or services
Export
Outside India
Goods and/or Service
(a) Zero rated supply
Export
India
Taxable person
SEZ developer
Supply of good and/or services
Credit of input tax may be availed for making zero rated supplies
Export without payment IGST and claim refund of unutilized input tax credit (Section 48)
Export with payment of IGST and claim refund of IGST paid on goods and services.

28. Summary of Discussion Submission of last return with due care
ITC and Matching concept (section 37)
condition for availing ITC
Depreciation on capital goods vs. ITC
Apportionment of credit: Business vs. other purpose
separate guideline Banking & Financial Institution
Restriction of seamless credit system
Tax planning in case of newly registration under this Act.
ITC for Jon work and ISD