Input Tax

Reconciliation of GST Input Tax Credits
What exactly is an input tax credit?

The central tax (CGST), state tax (SGST), integrated tax (IGST), or cess paid by a person with a GST registration on the delivery of goods or services is the input tax credit. The reverse charge tax and the IGST levied on products imported are both included in the GST input tax. Input tax, on the other hand, excludes the tax paid under the composite taxation plan.

The tax paid by a firm on a purchase is used to decrease the tax burden when a sale is made, and this tax is known as the input tax credit. Taxati is a taxonomic classification system.

The Products and Service Tax Act is a value-added tax imposed on goods and services. To prevent the tax burden from cascading from the purchase of raw materials, consumables, plants, and machinery, and so on. The input tax credit is a method of balancing the tax burden.

Every individual in the supply chain who has a GST registration participates in the control, collects the GST tax, and remits the amount collected. To minimise double taxation and the cascading impact of the tax, a tax input credit is available to offset tax paid on the purchase of raw materials, consumables, products, or services utilised in the manufacturing process.

Input tax credit eligibility criterion

Who is eligible for an input tax credit?

A person who is registered for GST can only claim the input tax credit if he meets the following criteria:


Only those who have a GST registration and have filed the GSTR 2 returns are eligible for the input tax credit.

The tax invoice or debit note issued by the input or input services supplier should be in the dealer’s possession.

It is expected that the products or services, or both, be received.

The GST payment for such a supply has been paid by the supplier to the government.

When items are delivered in instalments, the input tax credit is only available when the last lot is delivered.

If depreciation on the tax component of a capital product has been claimed, no input tax credit is available.

Documents needed to claim the GST Input Tax Credit

What paperwork is needed to obtain the GST input tax credit?

  1. The following papers can be used to claim the input tax credit as a registered taxable person:
  2. An invoice is a document that is issued by a vendor of goods or services.
  3. The recipient of products and services supplied by an unlicensed merchant issues an invoice. The reverse charge process applies to such supplies. The supplies made by an unregistered person to a registered person are part of this process.
  4. The tax levied on a debit note provided by the provider is less than the tax payable on that supply.
  5. An integrated tax on imports must also be documented using a bill of entry or equivalent documentation.
  6. An invoice or credit note issued by an input service distributor in accordance with GST laws.
  7. A bill of supply from a dealer who has chosen the composition scheme, an exporter, or a provider of exempted products.
Requirements for obtaining the input tax credit at a basic level

What are the requirements for claiming an input tax credit?

The following requirements must be met in order to claim an input tax credit under the GST:

  1. Under the GST law, the individual must be registered.
  2. The tax amount is shown on a tax invoice or debit note issued by a registered supplier.
  3. It is necessary to get the goods or services.
  4. The supplier is responsible for filing the returns and paying the tax to the government.
  5. The input tax credit can be claimed on the receipt of the last lot or instalment if the items are received in parts or instalments.
  6. No input tax credit is permitted if the input tax credit is incorporated in the cost of the capital goods and depreciation on the tax is claimed.
  7. If the input tax credit is not claimed within the specified time frame, it will be denied.
Taking advantage of the Input Tax Credit

What is the procedure for claiming the Input Tax Credit?

The amount of the must be reported in the GSTR 3B by all ordinary taxpayers.

A taxpayer can claim up to 20% of the qualifying input tax credit recorded by the supplier in the auto-generated GSTR 2A return on a provisional basis in the GSTR 3B. Before beginning the GSTR 3B, the taxpayer must double-check the GSTR 2A data.

A taxpayer might claim any amount of the provisional input tax credit before October 9, 2019. However, starting of October 9, 2019, a taxpayer can claim just 20% of the qualifying ITC provided in the GSTR 2A as a temporary input tax credit, according to CBIC.

This implies that the total ITC reported in the GSTR 3B will be the sum of the real ITC in the GSTR 2A and the provisional ITC, which is equal to 20% of the actual eligible ITC in the GSTR 2A. The importance of matching the purchase register with the GSTR 2A is critical.

Input Tax Credit Reversal

In some instances, such as those listed below, the input tax credit can be reversed:

  1. Failure to pay a supplier within 180 days of receipt of the invoice.
  2. The products and services are utilised for personal reasons, whether they are inputs or capital assets.
  3. Goods and services used in the manufacture or provision of the exempted goods or services.
  4. Input tax credit was claimed on the sale of capital goods or plant and machinery.
  5. The input service distributor is the one who issues the credit notes.
  6. Section 17(5) of the Act makes the supply ineligible.
  7. The input tax credit is revoked when a registered regular dealer becomes a composite dealer.
  8. The reversed amount may be added to the output tax debt in the month in which it is reversed. Interest is due from the time the credit is granted until the amount is reversed and paid.
  9. There is no time restriction for recovering a credit that has been overturned.
Reverse Charge Mechanism to obtain credit

When the tax has been paid through the Reverse Charge Mechanism, how do you get the credit?

If the tax is paid through the Reverse Charge Mechanism, the input tax credit can be claimed in the same month as the payment, as long as the following requirements are met.

  1. The debt was paid off in full with cash.
  2. The products or services were purchased for commercial purposes.
  3. Because an unregistered supplier cannot produce a tax invoice, purchases are self-invoiced.
Input tax credit reconciliation

The data given by the supplier in the GST return must match the input tax credit claimed by the individual. If there is a discrepancy, the supplier and receiver will be notified after the GSTR 3B is submitted.

Input tax credit special instances

Capital goods input tax credit

Capital goods used only for manufacturing exempted products and solely for personal use are not eligible for ITC.

Only if depreciation on the tax component of the capital goods has been claimed will ITC be given.

Tax credit for on-the-job labour

A primary manufacturer may deliver items to a job worker for further processing. In certain circumstances, ITC will be authorised on the items supplied to the job worker:

From a main business location

Directly from the supplier of such products’ place of supply.

The items must be returned to the principal within 30 days to qualify for the input tax credit.

The Input Service Distributor gives you an input tax credit.

The main office, a branch office, or the registered office of a GST-registered person might all be considered input service distributors. The input service distributor collects and distributes the input tax credit on all purchases made and delivered to all beneficiaries.

Credit for input taxes paid on the sale of a firm

This is true in the case of mergers and acquisitions, as well as company transfers. At the time of the company transfer, the transferor will have the available input tax credit, which will be passed on to the transferee.

Input Tax Credit ineligible goods and services

The input tax credit is not accessible for the following items or services under GST:

  1. Motor vehicles, unless provided in the course of business or used to provide taxable services such as:
  2. Passengers’ transportation
  3. Goods transportation
  4. Providing driving, flying, and navigating such vehicles training
  5. a new supply of such cars or modes of transportation
  6. Except where a registered taxable person uses such inward supply of goods or services of a particular category for making an outward taxable supply of the same category of service, supply of goods and services concerning food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery
  7. Club, health, and fitness centre membership
  8. Unless an employer is required by law to provide such services, rent a cab, life insurance, and health insurance.
  9. Vacation perks, like as leave or home travel concessions, are provided to employees on vacation.
  10. Other than plant and machinery, goods and services obtained by the primary in the building of immovable property, unless it is an input service for the delivery of works contract service
  11. Other than equipment and machinery, goods and services obtained by a taxable person for constructing an immovable property on his account, even if utilised in the course of business.
  12. Goods and services for which a composition scheme tax has been paid
  13. Personal consumption products and services
  14. Goods that have been lost, stolen, written off, or given away as gifts or free samples.
  15. Tax is paid when fraud, intentional misrepresentation, or suppression has been discovered.
  16. For the release of detained or confiscated items, a tax is paid.
  17. For the release of impounded items, a tax was paid.

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