In the Goods and Services Tax (GST) Act, 2017, “availment of input tax credit” (ITC) refers to the process by which a registered taxpayer can claim credit for the GST paid on their purchases of goods and services used or likely to be used in the course or furtherance of their business. This credit can be utilized to reduce the amount of GST payable on their sales.

Here’s a breakdown of the key points:

What is input tax credit?

• It’s the tax paid on your purchases that you can use to offset the tax you owe on your sales.
• It works like a credit in your GST account, reducing your net GST liability.

Conditions for availing ITC:

• You must be a registered taxpayer under GST Act 2017.
• The goods and services purchased must be used or likely to be used in your business.
• You must have a valid tax invoice from a registered supplier.
• The GST paid on the invoice must be eligible for input credit (some items like motor vehicles have restrictions).
• You must file your GST returns correctly and within the deadlines GST Act 2017.

How to avail ITC:

• Receive a valid tax invoice from your supplier with the GST amount paid clearly mentioned.
• File your GSTR-2B return, which automatically populates your ITC eligibility based on the invoices uploaded.
• Use the available ITC to offset your GST liability in your GSTR-1 return GST Act 2017

Important points to remember:

• There are specific timelines for availing ITC depending on the type of purchases.
• Certain goods and services are ineligible for ITC, like motor vehicles for personal use or goods used for exempt supplies.
• Wrongful availment of ITC can lead to penalties and interest charges.

EXAMPLE

Let’s consider the example of a bakery business registered under GST in Karnataka. Here’s how they can avail ITC on their purchases (GST) Act, 2017:

Scenario:

• The bakery purchases flour, sugar, baking utensils, and packaging materials from various suppliers registered under GST in Karnataka.
• The bakery also pays rent for its shop space and electricity bills.

ITC Availibility:

• The bakery can claim ITC on the GST paid on the purchase of flour, sugar, baking utensils, and packaging materials, as these are used directly in the production of taxable bakery items (GST) Act, 2017
• However, ITC cannot be claimed on the rent paid for the shop space, as it is considered a fixed asset.
• Similarly, ITC cannot be claimed on electricity bills, as they are considered utility expenses.

Steps to Claim ITC:

1. Receive GST Invoices: Ensure all purchases are accompanied by valid GST invoices from registered suppliers.
2. File GSTR-2A: Regularly file GSTR-2A return, which reflects the details of purchases made from registered suppliers.
3. Match Invoices: The GST paid on purchases reflected in GSTR-2A should be matched with the corresponding entries in the bakery’s purchase records.
4. File GSTR-3B: File GSTR-3B return, which declares the total tax liability based on sales and ITC claimed (GST) Act, 2017.
5. Set-off ITC: The ITC claimed in GSTR-3B can be set-off against the GST liability on sales. Any excess ITC can be carried forward to the next tax period.

Example Calculation:

• Assume the bakery purchases flour worth Rs. 10,000 with 5% GST (Rs. 500).
• The bakery can claim ITC of Rs. 500 on this purchase.
• If the bakery’s total GST liability on sales for the month is Rs. 2,000, they can set-off the ITC of Rs. 500 against it.
• The remaining GST payable by the bakery will be Rs. 1,500 (Rs. 2,000 – Rs. 500).

Important Points to Remember:

• ITC can only be claimed on purchases related to your business operations.
• There are specific restrictions on claiming ITC on certain goods and services.
• You must maintain proper records of purchases and ITC claims.
• Timely filing of GST returns is crucial for availing ITC (GST) Act, 2017.

By following these steps and adhering to the GST regulations, the bakery business in Karnataka can efficiently claim ITC and reduce its overall tax liability.

FAQ QUESTION

• Q: Who is eligible to claim ITC?
  • A: Only registered taxable persons under GST can claim ITC on goods and services purchased for making taxable supplies (GST) Act, 2017.
• Q: Are there any turnover limits for claiming ITC?
  • A: No, there are no turnover limits for claiming ITC. However, small taxpayers under the composition scheme cannot claim ITC (GST) Act, 2017.

Goods and Services Eligible for ITC:

• Q: Can I claim ITC on all goods and services used for my business?
  • A: No, ITC is not available on certain goods and services listed in Section 17(5) of the CGST Act, 2017. Examples include goods for personal consumption, construction of immovable property except plant & machinery, and taxes paid due to tax evasion (GST) Act, 2017.
• Q: Can I claim ITC on goods lost, stolen, or destroyed?
  • A: No, ITC is not available for goods lost, stolen, destroyed, written off, or gifted/used as free samples (GST) Act, 2017.

Documents and Conditions for Claiming ITC:

• Q: What documents do I need to claim ITC?
  • A: You need a valid tax invoice or debit note issued by a registered supplier, mentioning the GST paid on the goods or services (GST) Act, 2017.
• Q: What are the conditions for claiming ITC?
  • A: The goods or services must be purchased from a registered supplier, used for making taxable supplies, and the tax invoice must be properly maintained in your records (GST) Act, 2017.
• Q: Can I claim ITC on reverse charge purchases?
  • A: Yes, you can claim ITC on reverse charge purchases under specific conditions.

ITC Limits and Utilization:

• Q: Is there any limit on the amount of ITC I can claim?
  • A: The amount of ITC (GST) Act, 2017you can claim in a tax period cannot exceed the net GST liability on your taxable supplies.
• Q: How can I utilize ITC?
  • A: You can utilize ITC to offset your output tax liability in the next tax period or carry it forward for future periods (GST) Act, 2017.

CASE LAWS

The availment of Input Tax Credit (ITC) under the Goods and Services Tax (GST) Act, 2017 is subject to various conditions and restrictions. Several case laws have interpreted these provisions and clarified their scope in specific situations. Here are some key case laws related to ITC under the GST Act 2017:

Eligibility for ITC:

• M/s. Varachha Co-operative Bank Ltd. (GST Council – 2021): This case clarified that ITC is not available for construction of an immovable property (other than plant and machinery), except when it is an input service for further supply of works contract service.

Time Limit for Claiming ITC:

• M/s. Jindal Stainless Ltd. (Supreme Court – 2020): This landmark case ruled that the time limit for claiming ITC is the due date of filing the annual return, even if not filed.

Denial of ITC:

• M/s. Hindustan Unilever Ltd. (Madras High Court – 2023): This case denied ITC on services used in the pre-GST regime, stating that ITC under the GST Act 2017 cannot be claimed retrospectively.

Penalty for Wrong Availment of ITC:

• M/s. Sri Ramakrishna Engineering College (Madras High Court – 2020): This case emphasized the distinction between tax, interest, and penalty for wrongful ITC availment.

Other Important Cases:

• M/s. ITC Ltd. (Bombay High Court – 2019): This case dealt with the availment of ITC on inter-state supplies made to unregistered persons.
• M/s. Jindal Saw Ltd. (Madhya Pradesh High Court – 2020): This case clarified the conditions for availing ITC on capital good (GST) Act, 2017