Input Tax Credit under Goods and services Tax Keshav R Garg (B.Com, FCA, CS, ISA(ICAI)) Faculty on GST – Indirect Tax Committee of ICAI Author – GST Ready Reckoner by Bharat Publications Co- Author - A Handbook on GST Member – Indirect Tax Committee of PHDCCI, CII, MyGst.MyTax Foundation Address - #3328, Sector 27 D, Chandigarh, India 160 019 Mail - keshavgarg@kdai.in Ph - +91-988-809-0008, +91-172-461-3328

What is “Input Tax” ? Means IGST, CGST, SGST; Charged on any supply of goods and/or services; Which are used or intended to be used; In course of furtherance of business; and Includes the tax paid under reverse charge. No Entitlement of ITC after filing of Return u/s 27 of September of succeeding year or date of filing of Annual Return w.e. is earlier.

Manner of taking Input Tax Credit 16(1) General Clause: Every Registered taxable person – entitled to ITC admissible to him 16(2) New Assessee: Register within 30 days of crossing threshold to avail full credit or only credit on date of registration allowed. (ITC only in respect of Inputs held in stock or in form of semi-finished/finished) Manner of taking Input Tax Credit NO ITC ON CAPITAL GOODS/ INPUT SERVICE 16(2A) Taxpayer Compulsorily registration: Entitled to ITC on inputs held in stock/semi-finished/finished goods 16(3) Composition Assessee: Entitled to ITC on inputs held in stock/semi-finished/finished goods on date of taxability u/s 7

Conditions for Availing Input Tax Credit 1. Possession of Tax invoice or other relevant documents Availing Input Tax Credit In case of provisions 16(2), 16(2A), 16(3) the ITC can be claimed only before the expiry of 1 year of issue of Invoice 2.He has received the goods and/or services 3. Tax charged in respect of supply should have actually been paid 4. He has furnished a return under Section 27. Full ITC available on Capital Goods

Items not eligible for Input tax Credit 16(9) 16(9)(a) motor vehicles, except when they are supplied in the usual course of business or are used for providing the following taxable services— (i) transportation of passengers, or (ii) transportation of goods, or (iii)imparting training on motor driving skills; Food for Thought: Outdoor Caterers Courier Agencies Shamiana/Pandal

Sec 16(9) (b) : goods and/or services provided in relation to food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, membership of a club, health and fitness centre, life insurance, health insurance and travel benefits extended to employees on vacation such as leave or home travel concession, when such goods and/or services are used primarily for personal use or consumption of any employee; Section 16(9) (c) : goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery;

Sec 16(9) (d) goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery; Sec 16(9) (e) : goods and/or services on which tax has been paid under section 8; and Sec 16(9) (f) : goods and/or services used for private or personal consumption, to the extent they are so consumed.

Input Tax Credit in case of Job Worker Description Conditions of Allowing Input Tax Credit to Principal Supplier Goods Transferred to Job-worker for some activity and received back by Principal Supplier. The goods after the completion of work should be received back by the principal supplier within 180 days of sending such goods. 2. Goods Transferred directly to Job-worker without being first received by Principal Supplier. The goods after the completion of work should have been received by the principal supplier within 180 days of receipt of goods by the job worker. 3. Capital Goods Transferred to Job-worker for some activity and received back by Principal Supplier. The capital goods after the completion of work should be received back by the principal supplier within 2 years of sending such goods. 4. Capital goods Transferred directly to Job-worker without being first received by Principal Supplier The capital goods after the completion of work should be received back by the principal supplier within 2 years of such capital goods received by job worker. 5. Where the goods/capital goods removed to job worker has not been received back within 180 days/2 years. Principal Supplier shall pay an amount equivalent to input tax credit availed on such goods/capital goods along with interest.

Input Tax Credit of Input Service Distributor ISD Different State CGST IGST SGST Within Same State Conditions for distribution: Issue of Prescribed Documents Amount of Credit shall not exceed amount of credit available. The Credit of tax paid input services attributable to a supplier shall be distributed only to that supplier; If More than two suppliers are involved – distribute on pro-rata basis based on turnover

Utilization of Input Tax Credit under GST IGST CGST SGST CGST SGST

Few Illustrations to understand ITC Illustration 1: (Intra-State Supply of Goods/Services) M/s ABC Limited having registered business premises at Delhi makes the supply of Rs. 15,00,000/- to M/s XYZ which also has the registered business premises in Delhi. Further M/s XYZ sells the goods to its customers in Delhi for Rs. 18,00,000/-. What would be the tax implications under GST. Description ABC Limited XYZ Limited Transaction Value of Supply 15,00,000/- 18,00,000/- Total Tax Liability CGST @ 9% 1,35,000/- 1,62,000/- SGST @ 9% Less: Input Tax Credit CGST Nil SGST Tax Payable in Cash 27,000/-

Illustration 2: (Inter-State Purchase followed by Intra-state supply) M/s ABC Limited having registered business premises at Chandigarh makes the supply of Rs. 15,00,000/- to M/s XYZ which also has the registered business premises in Delhi. Further M/s XYZ sells the goods to its customers in Delhi for Rs. 18,00,000/-. What would be the tax implications under GST. Description ABC Limited XYZ Limited Transaction Value of Supply 15,00,000/- 18,00,000/- Total Tax Liability CGST @ 9% Nil 1,62,000/- SGST @ 9% IGST @ 18% 2,70,000/- Less: Input Tax Credit CGST SGST 1,08,000/- IGST Tax Payable in Cash 54,000/-

Illustration 3: (Intra-state Purchase followed by Inter-state Supply) M/s ABC Limited having registered business premises at Delhi makes the supply of Rs. 15,00,000/- to M/s XYZ which also has the registered business premises in Delhi. Further M/s XYZ sells the goods to its customers in Kerala for Rs. 18,00,000/-. What would be the tax implications under GST. Description ABC Limited XYZ Limited Transaction Value of Supply 15,00,000/- 18,00,000/- Total Tax Liability CGST @ 9% 1,35,000/- Nil SGST @ 9% IGST @ 18% 3,24,000/- Less: Input Tax Credit CGST SGST IGST Tax Payable in Cash 54,000/-

Illustration 4: (Inter-state Purchase followed by Inter-state Supply) M/s ABC Limited having registered business premises at Chandigarh makes the supply of Rs. 15,00,000/- to M/s XYZ which also has the registered business premises in Delhi. Further M/s XYZ sells the goods to its customers in Kerala for Rs. 18,00,000/-. What would be the tax implications under GST. Description ABC Limited XYZ Limited Transaction Value of Supply 15,00,000/- 18,00,000/- Total Tax Liability CGST @ 9% Nil SGST @ 9% IGST @ 18% 2,70,000/- 3,24,000/- Less: Input Tax Credit CGST SGST IGST Tax Payable in Cash 54,000/-

Illustration 5: (Branch Transfer of Goods/Services) M/s ABC Limited having registered business premises at Chandigarh transfers the goods worth Rs. 15,00,000/- to its Delhi Branch. Then the goods are sold to M/s XYZ having registered business premises at Delhi from the Branch for Rs 16,00,000/-. Further M/s XYZ sells the goods to its customers in Delhi for Rs. 18,00,000/-. What would be the tax implications under GST. Description ABC Limited Branch of ABC Limited XYZ Limited Transaction Value of Supply 15,00,000/- 16,00,000/- 18,00,000/- Total Tax Liability CGST @ 9% Nil 1,44,000/- 1,62,000/- SGST @ 9% IGST @ 18% 2,70,000/- Less: Input Tax Credit CGST SGST 1,26,000/- IGST Tax Payable in Cash 18,000/-

Illustration 6: (Transfer of Goods/Services by Principal to Agent) M/s ABC Limited having registered business premises at Chandigarh transfers the goods worth Rs. 15,00,000/- to its Agent in Delhi. Then the goods are sold to M/s XYZ having registered business premises at Delhi by the Agent for Rs 16,00,000/-. Further M/s XYZ sells the goods to its customers in Delhi for Rs. 18,00,000/-. What would be the tax implications under GST. Description ABC Limited Agent of ABC Limited XYZ Limited Transaction Value of Supply 15,00,000/- 16,00,000/- 18,00,000/- Total Tax Liability CGST @ 9% Nil 1,44,000/- 1,62,000/- SGST @ 9% IGST @ 18% 2,70,000/- Less: Input Tax Credit CGST SGST 1,26,000/- IGST Tax Payable in Cash 18,000/-

Illustration 7: (Partially Taxable and Exempt Supply) M/s ABC Limited having registered business premises at Delhi makes the supply of Rs. 15,00,000/- to M/s XYZ which also has the registered business premises in Delhi. Further M/s XYZ uses the inputs worth Rs 10,00,000/- for taxable supplies and Rs. 5,00,000/- for exempt supplies. Taxable supplies has been sold for Rs. 12,00,000/- by M/s XYZ Limited. Illustrate the allow ability of Input Tax Credit. Description ABC Limited XYZ Limited Transaction Value of Taxable Supply 15,00,000/- 12,00,000/- Total Tax Liability CGST @ 9% 1,35,000/- 1,08,000/- SGST @ 9% IGST @ 18% Nil Less: Input Tax Credit CGST (1,35,000/ 15,00,000 X 10,00,000) 90,000/- SGST (1,35,000/ 15,00,000 X 10,00,000) IGST Tax Payable in Cash CGST 18,000/- SGST

Illustration 8: (Purchase from Compounding Taxpayers) M/s ABC Limited having registered business premises at Delhi makes the supply of Rs. 15,00,000/- to M/s XYZ which also has the registered business premises in Delhi. M/s ABC Limited runs a small business unit and has opted for Compounding option under section 8 of the Act. Further M/s XYZ sells the goods to its customer in Delhi for Rs. 18,00,000/- . Illustrate the tax implication under GST Description ABC Limited XYZ Limited Transaction Value of Taxable Supply 15,00,000/- 18,00,000/- Total Tax Liability CGST @ 9% Nil 1,62,000/- SGST @ 9% IGST @ 18% Compounding Tax @ 1% 15,000/- -- Less: Input Tax Credit CGST SGST IGST Tax Payable in Cash Compounding Tax

(B.Com, FCA, CS, ISA(ICAI)) Keshav R Garg (B.Com, FCA, CS, ISA(ICAI)) Faculty – IDTC of ICAI Author – GST Ready Reckoner A Handbook on GST Member of: Indirect tax committee of CII, PHDCCI, MyGst.MyTax 3328, Sector 27 D, Chandigarh 160019 +91-9888-090-008 keshavgarg@kdai.in