Jan 242017


What is input tax credit?

Sec 2(56) “input tax credit” means credit of ‘input tax’ as defined in sub-section (55);

Sec 2(55) “input tax” in relation to a taxable person, means the IGST, including that on import of goods, CGST and SGST charged on any supply of goods or services to him and includes the tax payable under sub-section (3) of section 8, but does not include the tax paid under section 9;

In essence a taxable person may take input of following taxes paid under GST:

  • IGST (Integrated goods and service tax) – paid on domestic procurement as wells as overseas procurement
  • CGST (Central goods and service tax)
  • SGST (State goods and service tax)
  • GST paid under reverse charge mechanism

However GST paid under composition scheme is not eligible for input tax. Further, input of GST paid to composition supplier, by mistake or otherwise, is not eligible.

When a registered taxable person is eligible for taking input tax credit?

Following are the eligible criteria for taking input tax credit:

  1. Input tax shall be charged on any supply of goods or services to him
  2. Such goods or services are used or intended to be used in the course or furtherance of his business
  3. He had complied with all conditions precedent to eligibility of input tax.

If the above two conditions are met, the eligible amount shall be credited to the electronic cash ledger (ECL) of such person.

When input tax shall be credited to electronic cash ledger?

The input tax shall be credited to ECL provisionally as provided under sec 36 of act. Every registered taxable person shall, be entitled to take credit of input tax, as self-assessed in his return.

Such amount shall be credited, on a provisional basis, to his electronic credit ledger to be maintained in the manner as may be prescribed.

The credit referred above shall be utilized only for payment of self-assessed output tax liability as per the return. That means input tax may only be utilized only for payment of out tax liability which is assessed by taxable person himself. In any other sum due to pay, e.g., tax liability under any order of department, penalty, fees and any other sum shall be paid by him in cash through online banking.

How to utilized input available in ECL by a taxable person?

Provisions related to utilization of input available in ECL are given in sec 44(5) and summarized in below table:

Input tax credit on account of Priority of utilization
IGST (1) (3) (2)
SGST (2) (1) x
CGST (2) x (1)

What if, in ECL, there is still left a balance in credit side after setting off the input tax?

The balance in the cash or credit ledger after payment of tax, interest, penalty, fee or any other amount payable under the Act or the rules made there under may be refunded in accordance with the provisions of section 48 and the amount collected as CGST/SGST shall stand reduced to that extent.

What are the other requirements which a taxable person must complied with before availing of input tax credit?

  1. He must have a tax invoice / debit note / such other taxpaying document(s) evidencing the payment of tax claimed as input
  2. He must have actually received the goods
  3. Tax claimed as input must have actually been paid to appropriate government. The payment to government may be done in either of the following mode:
    1. In cash, means online transfer through challan
    2. By way of utilization of input tax credit.
  4. He must have furnished the return for the concern period.