Input credit under GST

Input credit under GST

What is Input credit

In simple words taking input credit means taking credit of GST paid on various purchases

A registered person is entitled to take credit of GST charged on purchase of goods or services which are used or intended to be used in the course or furtherance of his business

The said amount shall be credited to the electronic credit ledger of such person.

Conditions for taking Input credit

1. You must possess a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents.

2. You have received the goods or services.

3. Tax charged on invoice or any other document, has been paid to government.

4. You have filed the required returns to claim the Input credit.

5. The said goods or services or both are used or intended to be used in the course or in the furtherance of his business

Special cases

Goods received in Instalments

One of the condition to avail input credit is that you must have received goods or services. If goods are received in installments against a single invoice, credit can be taken upon receipt of last installment of goods

Reversal of credit on non-payment of dues to supplier beyond 180 days from the date of invoice

If recipient of goods or service has not paid the supplier within 180 days from date of invoice, he would be liable to add back (to the output liability) the input credit availed on such invoice along with the interest.

Non-payment of value of Invoice to the supplier must be furnished in the form GSTR 2. The said input tax credit can be re-availed on payment of value of supply and tax payable thereon.

Capital goods on which depreciation is claimed

Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.

Apportionment of credit

Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.

Similarly, Where the goods or services or both are used by the registered person partly for

effecting taxable supplies and exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies.

No Input credit for the following

 1. Motor vehicles & other conveyances

 A person is not eligible to take input credit on purchase of motor vehicle except for those person who uses motor vehicle for the following purposes:

  1. For transportation of goods
  2. For transportation of passengers
  3. For imparting training on driving
  4. Person who makes further supply of vehicles can also take credit

2. Goods and services like Food & beverages, outdoor catering, beauty treatment, health services etc except where these are used by a registered person for making a outward taxable supply

3. Membership of a club, health & fitness centre.

4. Rent a cab, life insurance & health insurance except where these are used by a registered person for making a outward taxable supply

 5. Travel benefits extended to employees

 6. Goods or services used for personal consumption

 7. GST paid on works contract services will be allowed only if the output is also works contract services.

 8. Goods or services or both on which the tax paid under composition scheme.

Some frequently asked questions

Q1. Whether Input tax credit on Inputs and Capital Goods is allowed in one installment?

Yes. Input tax credit will be available in full with respect to inputs and capital goods in one installment, unlike previous law, where credit on capital goods were available on installment.

Q2. Whether the registered person can avail the benefits of input tax credit and depreciation

on the tax component of capital goods and plant and machinery?

No. only one of the above is available, a person can either take credit of tax paid or take depreciation on tax component of capital goods including it in the cost of such capital goods

Q3. Whether input tax credit will be available on taxable goods which are given by way of gift or free samples under the sales promotion?

No. GST laws specifically restricts input tax credit on goods disposed of by way of gift or free samples.

Q4. Whether Input tax credit is available in respect of Input tax paid on use of mobile phones / laptops/as given to employees?

Yes. The mobile phones/ laptops would be covered under the definition of inputs as they are used in the course/ furtherance of business and hence, the input tax paid on such goods will be available as input tax credit.

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