One of the main features of GST is the ITC, input tax credit. This is applicable across the chain and also across the country.

Input tax means tax you pay at the time of purchase and output tax is the tax you collect at the time of sale.

Input tax credit is the mechanism in which you can reduce the amount of input tax from output tax at the time of payment. This means you can adjust the taxes paid at the time of purchase with the tax you collected at the time of sale and pay balance liability to the government. There may be the cases when input tax is more than output tax. In this case, you can adjust excess of input in the next month return. But if output tax is more than input tax, then the difference is to be paid in the same month only.

For example,

A Ltd purchases goods from B ltd. for Rs. 118000 (includes GST Rs. 18000). Then A Ltd. sells those goods to C Ltd. at Rs. 147500 (includes GST Rs. 22500). Therefore, GST to be paid by A Ltd. to government is Rs. 4500, i.e. 22500-18000 (Output tax – Input tax).

Who can claim ITC

Input tax credit can only be claim if the following conditions are fulfilled-

  1. ITC can be claimed only for business purposes.
  2. Both the dealers should be registered under GST.
  3. The seller must have paid tax to the Government and return have been filed.
  4. Both the Dealers must have proper tax invoice, and GSTIN must be mentioned of both the dealers in the invoice.
  5. Goods/Service mentioned in the invoice has been delivered/received.

Who cannot claim ITC

There are some cases where you cannot claim ITC-

  1. ITC will not be available if Goods/ Service are used for personal use.
  2. ITC on exempted supplies is not available.
  3. ITC will not be available for supplies in which ITC specifically not available.
  4. No ITC will be allowed if depreciation has been claimed on the tax component of capital goods.

ITC Reversed

There are some situations where ITC can be reversed-

  1. When the payment of the invoice is not made within 180 days of issue.
  2. When the invoice is cancelled.
  3. When a credit note is issued.
  4. When goods/ services are partially used for business purpose and partially for personal use, and ITC for the full invoice is claimed. In this case, a portion of ITC used for personal use has to be reversed.

ITC Reconciliation

ITC can only be claimed when details of buyer and seller are matched. Buyer can check the details of ITC to be claimed in GSTR2A by login the GST portal. GSTR2A is a view-only return which contains information of all the ITC which buyer can claim. Remember, you can only claim ITC when you have a Tax Invoice. If any invoice is missing or mismatched in GSTR2A, the supplier and the recipient both would have to communicate regarding the same and can amend the details accordingly.