In GST Compliance, input tax credit (ITC) is an essential method to lower tax liabilities by collecting credits for the taxes paid while buying.
The input tax credit (ITC) is an essential method that helps businesses to lower their tax liabilities by collecting credits for the taxes they pay while buying products or services. This feature is included in the taxation system for goods and services (GST) regime, a comprehensive tax structure that has replaced indirect taxes. Businesses can use the input tax credit they paid on the GST while buying goods or services under the GST system to reduce the GST they owe on their taxable deliveries.
Business owners should understand specific important exclusions and rules to prevent any issues. In general, Input Tax Credit’s critical role is simplifying the taxation system and endorsing compliance between different industries.
Here we shall discuss the five most recent modifications to the Input Tax Credit in India.
Recent Alterations to Input Tax Credits in India
Businesses should be registered under GST Laws
Here are a few things that businesses need to understand before claiming Input Tax Credits. Firstly, your business should be listed under GST laws and regulations as per the norms laid by the government. An industry with a valid registration number must obtain documents or invoices showing that GST has been paid while buying goods or services.
The documents or tax invoices should include curtailed details, including the name & address of the supplier, GSTIN, types of goods and services bought, total value, and the payment made per the GST bill. Every business owner needs to obtain accurate and authentic statements and other important documents while claiming Input Tax Credits.
Above all, buyers should also be aware that their suppliers should have a valid registration number per the GST act. If the supplier doesn’t file their returns or has no exact registration number, the buyer cannot claim for ITC on the products or services they have purchased.
An increase in the time to avail ITC under sec 16(4)
Section 16(4) under GST Act states that buyers should be given some specific period to avail of Input Tax Credits. It has been provided that the registered business owners can collect ITC against the bill or documents before the following dates:
- Due dates of filing returns for the financial year u/s 39
- Providing Annual Return
A business listed under GST law can claim ITC on the Tax Invoices, debit notes or bills for a specific financial year.
It has been recommended that a registered person can now claim ITC on Invoices or debit notes issued before the following schedule:
- On or before November 30, after the end of the fiscal year to which such invoice/debit note relates
- Submission of the applicable Annual Return
A change in the amendment would give extra time to the registered person to claim the ITC of GST imposed on invoices/debit notes for inbound supplies of goods or services or both.
18% interest rate on excess Claim of ITC- Retrospective amendment
A retrospective amendment (effective July 1, 2017) has been made in the GST law to charge interest on ITC that was improperly availed and utilized. As a result, the interest rate is 18% on such an ITC (rather than 24% p.a.). This proposed revision is consistent with the Hon’ble Madras High Court’s decision regarding F1 Auto Components Pvt. Ltd. vs. Chennai State Tax Officer.
No interest on inaccurately collected Input Tax Credits
The Finance Bill 2022 seeks to retrospectively amend Section 50(3) to allow for the imposition of interest solely in circumstances where input tax credit was improperly obtained and utilized.
Section 50(3) authorizes the imposition of interest on unreasonable or excessive claims of the input tax credit. The law makes no differentiation between ‘ITC just availed’ and ‘ITC availed and utilized.’ The Finance Bill 2022 proposed that interest would be charged if ITC was improperly obtained and applied to pay output liabilities. However, no interest would be charged if ITC was unlawfully obtained and shown in a computerized credit ledger.
It is intended to replace Section 38 in the Finance Bill of 2022. The Form GSTR-2B would describe the supplies for which ITC would be available and those for which ITC would not be payable, according to the proposed amendment. Several instances where ITC might be prohibited have been specified under the proposed provision (such as where there is an error in tax payment or filing of returns and such default is repeated for a specific period, a discrepancy in the tax liability of GSTR-1 and GSTB-3B). It has also been stated that the beneficiary is not permitted to get ITC in above mentioned circumstances.
Also, it has been suggested that preliminary ITC has to be eliminated as there would no longer be any matching of returns. The final ITC of the registered individual would be the one recorded in the electronic credit ledger. Additionally, the proposed clause states that the receiver must reverse the ITC and interest in cases where the provider has not paid the tax. The Input Tax Credits may be recovered once the supplier has repaid the tax.
One notable development is the introduction of the GST network (GSTN) portal, which has made it easier for businesses to claim and manage their ITCs online. The portal provides businesses with real-time information on their ITCs, allows for seamless integration with accounting and bookkeeping software, and simplifies the process of filing GST returns.
Additionally, there have been changes in the rules governing ITCs, such as the introduction of the inverted duty structure, which allows businesses to claim ITCs on inputs at the rate of the final product. This has reduced the burden on companies and improved their cash flow.
However, businesses still need help claiming ITCs in India, such as proper documentation and compliance with the complex GST regime.