FAQs Regarding Input Tax Credit (ITC)

Common questions about Input Tax Credit (ITC) under GST arise among businesses. Eligibility criteria, exceptions, the time limit for availing of ITC, and any required documentation are all important matters to be aware of so businesses can optimize their credit. Additionally, it is essential to understand how mistakes can be corrected to use ITC effectively. Knowing the answers to these FAQs helps ensure businesses make the most of their input tax credit under GST.

Common questions about ITC under GST Audit arise among many. Eligibility criteria, exceptions, availing of ITC, and any required documentation are all important.

GST Audit

GST Audit

It is a mechanism under GST system that allows businesses to claim a credit for the taxes paid on their purchases of goods or services, which can be offset against the tax liability on their sales. In simple terms, it is a credit that businesses can avail themselves to avoid double taxation.

When a registered business purchases goods or services from a supplier, it pays GST on those purchases. The tax paid on these inputs can be claimed as an input tax credit. This credit can then be utilized to reduce the tax liability on the supplies made by the business.

A person can claim ITC for the purchase and expense if it pertains to business and person fulfills all following conditions: [Section 16]

(1) He possesses the tax invoice or debit note.
(2) The invoice has been furnished by supplier in his GSTR-01 or IFF.
(3) He has received both the goods or services.
(4) The tax has been paid to government.
(5) The person has furnished his returns.
(6) Payment is made to the supplier within 180 days of the invoice

Yes, a person can claim ITC if it fulfills the conditions of Section 16 stated above. If the person is not eligible for ITC if he has capitalized capital goods on full amount i.e., inclusive of GST Taxes.

If GST Taxes are not capitalized then ITC is eligible.

No, ITC is ineligible for personal expenses.

Section 17(5) also prescribes list of expenses wherein ITC is blocked:

(1) Motor vehicles, conveyances and related services except for a few.

(2) Vessels, aircraft and related services

(3) Membership of a club, health & fitness center

(4) Works contract service

(5) Self-construction of immovable property

(6) Inward supplies of restaurants who opted to pay GST at a reduced rate

(7) Inward supplies of composition taxpayer

(8) Inward supplies used for personal consumption

(9) Free samples, gifts, goods lost, etc.

(10) Travel benefits to employees

(11) Inward supplies of the non-resident taxable person

(12) Food and beverages, health services, beauty treatment services and other services

If the same supply is purchased to make outward supply, then ITC is eligible for same

At the time of GSTR-03B, person is required to show the full amount of ITC on inward supplies and then the person shall reverse ITC under the head Ineligible ITC wherein such blocked ITC will be shown.