What is the Meaning of Input Tax Credit?

What is the Meaning of Input Tax Credit?

An input tax credit is a credit that a manufacturer has received for having paid input taxes towards the inputs that have been used in the manufacture of goods and products. Similarly, a dealer will be entitled to the input tax credit.

What is Input Tax Credit?

An input tax credit is the credit manufacturer's received for paying input taxes towards inputs used to manufacture products. Similarly, a dealer is entitled to the input tax credit if he has purchased goods for resale.

All dealers are liable for output tax on taxable sales done in their business process. With the help of an input tax credit, he can offset the output tax against the input tax already paid. The input tax credit is not applicable on all types of inputs. Each state has its own norms and conditions in this regard and are applicable accordingly.

Who can claim ITC?

ITC can be claimed by a person registered under GST only if he fulfills all the conditions as prescribed.

a. The dealer should have a tax invoice

b. The said goods/services have been received

c. Returns have been filed.

d. The tax charged has been paid to the government by the supplier.

e. When goods are received in installments, ITC can be claimed only when the last lot is received.

f. No ITC will be allowed if depreciation has been claimed on the tax component of a capital good

A person registered under the composition scheme in GST cannot claim ITC.

Input Tax Credit Eligible & Ineligible Purchases

To avail input tax credit benefits, the goods purchased should be for one of the below-mentioned purposes:

  1. Sale or resale within the state.
  1. Interstate trade or commerce sales.
  1. Used as raw materials, consumable stores or containers, or packing materials to be sold anywhere inside the country or abroad.
  1. Used in the execution of works contract.
  1. Used as capital goods while manufacturing or reselling the taxable good.
  1. Used for making 0-rates sales.

The following circumstances are ineligible for claiming input tax credits:

  1. Goods bought from unregistered dealers.
  1. Goods bought from registered dealers who have chosen the Composition Scheme.
  1. Goods notified in the negative list by respective state governments.
  1. Goods purchased without Invoice.
  1. Goods purchased with Invoice but without a separate mention of the amount of tax.
  1. Goods purchased for manufacturing exempted goods other than exports.
  1. Goods that are in stock that have been taxed previously in an Act though they are categorized as exempted goods under VAT Act.
  1. Goods purchased for personal consumption or received for free as gifts.
  1. Goods purchased from abroad.
  1. Interstate goods purchases.
  1. Goods, including motor vehicles, furniture, toilet articles, etc., that aren’t related to the production of goods or stocked for sale/resale.

 


Created & Posted by Pooja

Income Tax Expert at TAXAJ

 

TAXAJ is a consortium of CA, CS, Advocates & Professionals from specific fields to provide you with a One-Stop Solution for all your Business, Financial, Taxation & Legal Matters under One Roof. Some of them are: Launch Your Start-Up Company/Business, Trademark & Brand Registration, Digital Marketing, E-Stamp Paper Online, Closure of Business, Legal Services, Payroll Services, etc. For any further queries related to this or anything else, visit TAXAJ

 

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