How to claim ITC in GST
Input tax credit (ITC) is one of the most prominent features of the newly introduced GST tax system in India. ITC gives registered taxable businesses the benefit of reduced taxation. This is because the tax they pay on sales is reduced as a result of the tax they have already paid on purchases.
Though the concept of ITC has been in existence even before the introduction of GST, it has been modified. It is now possible to claim input tax credit for central sales tax and since all the various forms of tax are now subsumed under GST, it is possible to cross-credit one tax to the other especially for IGST. For instance, you can utilize the credit you get from paying VAT on other forms of tax, say luxury tax.
To reduce your tax liability and keep your business floating, it is important to take advantage of ITC. However, there are certain conditions that you must meet to claim your ITC.
Rules to follow to Claim your ITC
- Both you and your supplier must be registered taxable persons.
- You must possess a valid tax invoice, debit note, bill of entry, bill of supply and other prescribed document.
- You must have received the goods or service.
- Your supplier has paid the tax charged on the goods or services to the government.
- The supplier has filed GST return on the supply.
- If the goods are in instalment, the credit will be paid only when the last instalment is paid.
- You must pay the consideration for the supply received within 180 days to enjoy input tax credit otherwise any ITC paid shall be added to your output tax liability with interest.
- You can claim input tax credit on taxable exports or zero-rated supply goods.
Other Points to Note in Order to Claim ITC
- You cannot use ITC on SGST paid in one state to pay for SGST in another state.
- You cannot claim ITC for goods you purchase for personal consumption or without the intention of reselling.
- Taxpayers who are beneficiaries of composition scheme cannot enjoy ITC.
- A bank or any non-banking financial institution can claim ITC proportionate credit or 50% of the eligible tax credit.
- Your GSTR-3 return must match with your supplier’s GSTR-3 return for you to claim ITC, as any mismatch due to duplication or excess input declaration on the part of the recipient, then the excess input will be considered as output liability for the recipient, which shall be paid with interest. To ensure accuracy in your invoice or carry out sales and purchase reconciliation, consider utilising online accounting software.
- For newly registered taxpayers, those that changed from composition dealers to normal dealers and from exempt to taxable supplies, they cannot avail ITC after one year of the date of issuance of tax invoice relating to such supply.
You must know that to claim your ITC, the input tax must be paid through the Electronic Cash/Credit Ledger. Therefore, you can credit your ITC in your electronic credit ledger and utilize it later.