Conditions for claiming Input Tax Credit are to be fulfilled by all the GST (goods and services tax) registered buyers. Having said that, these buyers cannot claim Input Tax Credit if they do not fulfil the conditions.
Conditions for claiming Input Tax Credit under GST
Conditions for claiming Input Tax Credit are laid down under the CGST Act. These conditions are as follows:
– Use of goods/services are for business purposes
Firstly, the buyer who has a GST registration can claim Input Tax Credit only if the purchase of goods or services are for the use of business purposes. That is to say, the said buyer cannot claim ITC, if the use of goods or services is for personal use.
– Buyer must have a tax invoice on the date of filing GST Return
Secondly, the buyer must have a tax invoice or debit note or document which shows the payment towards the purchase. For instance, if Mr. X (buyer) wants to claim ITC of the amount Rs. 5000 (an entry present in his GSTR-2B) of December, 2023 and has no invoice of the same till 20th January, 2024 (date of filing of GSTR-3B), then he cannot claim ITC.
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– Supplier must file the tax invoice
Thirdly, the supplier must file the tax invoice or debit note in Form GSTR-1 and the same must appear in the buyer’s Form GSTR-2B. For instance, if Mr. X (buyer) has the tax invoice of Rs. 5000 bearing date 13th December, 2023 for the purchases. He wants to claim the ITC of the same but there is no entry of the same till 20th January, 2024 by the supplier. Accordingly, the buyer cannot claim ITC while filing GSTR-3B.
– Amount of ITC reported in GSTR-3B will be the total of actual ITC in GSTR-2B
From 1st January 2022, the benefit of provisional ITC claims is no longer available. It means the amount of ITC in GSTR-3B will be a total of actual ITC in GSTR-2B. The provisional ITC of 5% of actual ITC in GSTR-2B will no longer be allowable. Hence, a regular matching of the purchase register or expense ledger with GSTR-2B is crucial. Until 31st December 2021, a regular taxpayer could claim provisional ITC in GSTR-3B to the extent of 5% of the ITC available in GSTR-2B, in addition to ITC in GSTR-2B.
– The buyer must receive the goods and/or services
The buyer must receive the goods and/or services. The goods are said to be received if it is delivered by the supplier to the buyer or his representative or agent or another person as directed, against a document of transfer of title of goods. On the other hand, the services are said to be received if it is rendered by the supplier to the buyer or another person as directed. For instance, Mr X received a tax invoice for purchases dated 10th December, 2023 but has not yet received goods until 20th January, 2024. The taxpayer cannot report ITC on that tax invoice in GSTR-3B for January 2024 and may claim it in future once goods are delivered.
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– The buyer must furnish the GST returns in Form GSTR-3B.
The buyer must furnish the GST returns in Form GSTR-3B. Having said that, non-filing of GSTR-3B means non-claiming of ITC.
– Claim the ITC on receiving of the last lot or instalment
Where the receiving of the goods are in lots or instalments, you can claim the ITC on receiving of the last lot or instalment.
– The buyer must pay towards the supply of goods and/or services within 180 days from the invoice date
The buyer must pay towards the supply of goods and/or services tax in India within 180 days from the invoice date. If they fail to, then the ITC already claimed will need to be paid to the government, along with interest payable. The ITC claim can be again made once the payment is made to the supplier.
Also Read: Know Whether you can claim Input Tax Credit on Food?
– No ITC will be allowed if depreciation has been claimed
No ITC will be allowed if depreciation has been claimed on the tax component of a capital good purchased.
– Claim ITC within the time limit frame
ITC on a tax invoice or debit note belonging to a financial year must be claimed within the time limit given by the GST provisions.
– Common credit of ITC must be identified
Common credit of ITC must be identified and split as it is used together for selling both exempt and taxable supplies, and/or business and non-business activity
Time frame to claim an input tax credit under GST
The time frame to claim ITC against an invoice or debit note is earlier of two dates, given below: – 30th November of the next financial year, or – The date of filing the annual returns in form GSTR-9 relating to that financial year.
For instance, Mr. X, a buyer with a purchase invoice bearing date 29th December 2022 (FY 2022-23), wants to claim Goods and services tax on that purchase. As per the time frame to claim ITC, the two dates are as follows: – 30th November 2023. – The date of filing GST annual return for FY 2022-23 is 31st December 2023.
The earlier of the two is the date up till when Mr. X can claim ITC of FY 2022-23. Accordingly, the last date is 30th November 2023.
Also Read: GST Slab Rates 2023: Easily Explained by TaxHelpdesk
Note: For debit notes, the above condition must be considered with respect to the debit note itself and not the original invoice that it is linked to.
Items on which ITC is not allowed
The input tax credit is not available for claims in the following cases-
– Motor Vehicles
Motor vehicles, with a seating capacity of less than or equal to 13 persons (including the driver), goods transport agencies, vessels and aircraft, except for a few cases. So, ITC is allowed in the below cases:
- Such motor vehicles and conveyances are further supplied i.e. sold. – Transport of passengers and goods.
- Conveyance is used for imparting training on driving, flying, and navigating such vehicles or conveyances.
- Services of general insurance, servicing, repair and maintenance Relating to motor vehicles, vessels or aircraft.
– Food and beverages, beauty treatment, health services
Food and beverages outdoor catering, beauty treatment, health services, cosmetic and plastic surgery.
However, if the goods and/or services are for the delivery of the same category of services or as a part of a composite supply, the input tax credit will be available.
Example: Mr Y purchases cosmetic creams to supply it to a customer, then ITC on purchases will be allowed.
– Membership in a club, health, and fitness centre.
– Rent-a-cab, health insurance & life insurance except in the following cases where it is allowed:
– Travel benefits are extended to employees on vacation such as leave or home travel concessions.
– Works contract service for construction of an immovable property (except plant & machinery or for providing a further supply of works contract service).
– Goods and/or services for the construction of an immovable property whether to be used for personal or business use.
– Goods and/or services where tax has been paid under the composition scheme.
– Goods and/or services used for personal use.
– Goods or services or both are received by a non-resident taxable person except for any of the goods imported by him.
– Goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples.
– ITC will not be available in the case of any tax paid due to non-payment or short tax payment, excessive refund or ITC utilised or availed by the reason of fraud or willful misstatements or suppression of facts or confiscation and seizure of goods.
– Special cases: Standalone restaurants will charge only 5% goods and services tax (GST) but cannot enjoy any ITC on the inputs.
· The expenditure spent on Corporate Social Responsibility (CSR) initiatives by corporates.