1. INPUT TAX CREDIT – Eligibility and Reversal
GST
INPUT TAX CREDIT – Eligibility and Reversal
- CA DEVENDRA KATARIA
Partner
M/s Dhadda and Company
Chartered Accountants

2. IMPORTANT DEFINITIONS
Section 2(19): “capital goods” means goods, the value of which is capitalised in the books of accounts of the person claiming the credit and which are used or intended to be used in the course or furtherance of business Section 2(52): “goods’’ means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply

3. IMPORTANT DEFINITIONS
Section 2(59): “input” means any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business Section 2(60): “input service” means any service used or intended to be used by a supplier in the course or furtherance of business;

4. IMPORTANT DEFINITIONS
Section 2(62): "input tax" in relation to a registered person, means the CENTRAL TAX, STATE TAX, INTEGRATED TAX OR UT TAX charged on any supply of goods or services to him and includes
IGST charged on imports
the tax payable under sub-section (3) and (4) of section 9 of CGST ACT and Respective SGST or UTGST ACT.
the tax payable under sub-section (3) and (4) of section 5 of IGST ACT.
But does not include the tax paid under section 10

5. Section 16: Entitlement of ITC
Every Registered Taxable Person shall be entitled to take credit of input tax charged on
Inward Supply of Goods or Services
Which are used or Intended to be used in the course of furtherance of business.

6. Section 16: Conditions of ITC
Possession of a Tax Invoice or Debit Note
Receipt of goods or Services
Tax charged has been actually paid.
Furnished return under section 39
Payment to be made to the supplier in 180 days.
No Depreciation on Input Tax

7. Section 16: Time Limit to Claim ITC
To claim ITC on an invoice pertaining to FY last date will be earlier of the following: -
Date of Furnishing of Annual Return u/s 39 for FY
Due Date of Furnishing of GSTR 3 for September

8. Section 49: Sequence of taking ITC
Input available in respect of IGST
IGST, CGST, SGST
Input available in respect of CGST
CGST, IGST
Input available in respect of SGST
SGST, IGST
NO SGST
NO CGST

9. Section 17: Apportionment and Blocked Credits
17(1) Goods or Services used partly for business and partly for other purposes. 17(2) Goods or Services used partly for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies. 17(3) Value of exempt supplies shall include supplies on which the recepient is liable to pay tax, transactions in securities, sale of land and sale of building subject to clause (b) of para (5) of Schedule II 17(4) ITC reversal by Banking Companies to the extent of 50%.

10. Section 17(5)(a): MOTOR VEHICLE
ITC for Motor Vehicles will NOT be available
Except when they are used for
Transportation of goods , or
Making the following taxable services:
Further supply of such vehicles / conveyances, or
Transportation of passengers, or
Training for driving / flying / navigating such vehicles / conveyances

11. Cosmetic and Plastic Surgery
Section 17(5)(b): Supply of goods or services being:
Food and Beverages
Outdoor Catering
Beauty Treatment
Health Services
Cosmetic and Plastic Surgery
Allowed ONLY if goods / services of a particular category are used towards making taxable outward supplies of the same category

12. Section 17(5)(b): Supply of goods or services being:
Allowed ONLY if where the services are notified as obligatory for an employer to provide an employee or services of a particular category are used towards making taxable outward supplies of the same category
Life / health Insurance
Rent-a-cab
Membership of club
Health and Fitness Centre
Travel Benefits to employees
NEVER allowed

13. Goods or services received by a taxable person for construction of an
Section 17(5)(c) and (d): Construction
Works contract services, except where it is an input service for further supply of works contract service
Goods or services received by a taxable person for construction of an
immovable property on his own account even when used in course or furtherance of business;
ITC not Available
Construction includes re-construction, renovation, additions or alterations or repairs to the extent of capitalisation

14. Section 17: Apportionment and Blocked Credits
17(5)(e) Goods or Services or both on which tax has been paid under section (5)(f) Goods or Services received by a non-resident taxable person except when on goods imported by him. 17(5)(g) Goods or services or both used for personal consumption. 17(5)(h) Goods lost, stolen, destroyed, written off, of disposed off by way of gift or free samples. 17(5)(i) any tax paid in accordance with the provisions of section 74, 129 and 130.

15. Rule 36: Eligible Documents for claiming ITC
The ITC shall be availed by a registered person on the basis of any of the following documents: -
An Invoice issued under Section 31
An Invoice issued under Section 31(3)(f)
A Debit Note issued under section 34
A Bill of entry or similar document as prescribed under the Customs Act, 1962
ISD Invoice or ISD Debit Note

16. Rule 37: ITC Reversal in case of Non Payment
A registered person
Who has availed ITC
Fails to pay to the supplier within 180 days
Proportionate amount of ITC has to be furnished in GSTR 2 and the same shall be added in the output Tax.
Such Person shall be liable to pay interest
ITC can be claimed again once the amount has been paid.

17. Rule 42: ITC Reversal in case of Inputs and Services
Particulars
Action
Total Input Tax
Denoted as T
ITC on inputs and services used exclusively for non business purposes
Denoted as T1
ITC on inputs and services used exclusively for exempt supplies
Denoted as T2
Ineligible Credit u/s 17(5)
Denoted as T3
Amount of ITC to be credited to ECL “C1”
C1 = T – (T1+T2+T3)

18. Rule 42: ITC Reversal in case of Inputs and Services
Particulars
Action
ITC on inputs and services used exclusively for taxable supplies including Zero rated Supplies
Denoted as T4
Remaining Common Credit “C2”
C2 = C1 – T4
ITC to be reversed “D1”
D1 = C2 * E / F
If Common inputs and services used for personal purpose also then ITC attributable to such inputs “D2”
D2 = C2 * 5%
Remaining ITC which can be claimed “C3”
C3 = C2 – (D1 +D2)

19. C3 to be computed separately for CGST, SGST, UTGST and IGST;
Rule 42: ITC Reversal in case of Inputs and Services
‘E’ is the aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies, during the tax period, and
‘F’ is the total turnover of the registered person during the tax period
C3 to be computed separately for CGST, SGST, UTGST and IGST;
D1 and D2 shall be added to output tax liability provided invoice wise segregation has been made;

20. Rule 42: ITC Reversal in case of Inputs and Services
Credit calculated on provisional basis shall be computed finally before due date of filing returns for the month of September following the end of the FY to which credit relates;
In case amount calculated exceeds the provisional calculation the differential amount shall be added to the output tax liability and interest from the month of April of next FY till the date of payment to be paid;
In case amount finally calculated is short of the provisional calculation, the differential amount shall be taken as credit in the month of September.

21. Rule 43: ITC Reversal in case of Capital Goods
Particulars
Action
Capital Goods used for exclusive Exempt supplies or non business purpose
Indicate in GSTR 2 and ITC will not be credited in ECL.
Capital Goods used exclusively for taxable supplies including Zero Rated Supplies
Indicate in GSTR 2 and ITC will be credited in ECL
Remaining Capital Goods
Amount of ITC to be denoted as “A”
Useful Life of such Assets
5 Years
Aggregate amount of “A” for all such Capital Goods be denoted as
“Tc”

22. Rule 43: ITC Reversal in case of Capital Goods
Particulars
Action
ITC attributable to common capital goods for a tax period “Tm”
Tm = Tc / 60
ITC attributable at the beginning of the Tax period on all common capital goods whose life remains during the tax period be denoted as “Tr”
Tr = Aggregate of Tm of all such Capital Goods
Amount to be reversed “Te”
Te = E / F * Tr

23. Te to be computed separately for CGST, SGST, UTGST and IGST;
Rule 43: ITC Reversal in case of Capital Goods
‘E’ is the aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies, during the tax period, and
‘F’ is the total turnover of the registered person during the tax period
Te to be computed separately for CGST, SGST, UTGST and IGST;
Amount of “Te” along with applicable interest to be added to output tax liability during every tax period of the useful life of the asset.

25. THANK YOU CA DEVENDRA KATARIA, FCA PARTNER DHADDA AND COMPANY
CHARTERED ACCOUNTANTS
JAIPUR
OFFICE: K-35, First Floor
Road No. 1, IPIA, Kota
M. No