Analysis of Recent Amendments in GST Input Tax Credit Rule

GST Input Tax Credit Rule: The government implemented a revised set-off procedure effective from March 29, 2019, to streamline the allocation of Integrated Goods and Services Tax (IGST) credits. These updated regulations were designed to minimize the accumulation of unutilized IGST credits and ensure a balanced distribution between the Central and state authorities.

GST Input Tax Credit Rule Overview

Analysis of Recent Amendments in GST Input Tax Credit Rule

• A modification in Section 16 mandates buyers to settle their invoice value, including GST, within 180 days from the invoice date. Failure to do so will require them to pay the claimed Input Tax Credit (ITC) amount plus interest under Section 50.
• Sections 37, 39, 44, and 52 are updated to limit taxpayers from filing GSTR-1, GSTR-3B, GSTR-9, and GSTR-8 for a tax period after three years from the due date.
• Section 17(5) sees an amendment, including expenditure on Corporate Social Responsibility (CSR) initiatives for corporates as ineligible ITC.
• Transactions like high sea sales, not falling under the goods or services category, are now exempt. Consequently, proportional ITC related to such sales cannot be claimed, per the revised Section 17(3).
• Schedule III undergoes an amendment with the addition of paras (7) and (8) and explanation (2), effective retrospectively from July 1, 2017.
• Amendment to Section 10 of the CGST Act allows businesses supplying goods through an e-commerce operator to opt for the composition scheme.

GST Input Tax Credit Rule: Conditions To Claim An Input Tax Credit

• Business Use Requirement : ITC is claimable only when purchased goods or services are utilized for business purposes, not personal use.
• Possession of Valid Documents : The buyer must possess a tax invoice, debit note, or any document validating payment towards the purchase. For instance, if Mr. Manoj wishes to claim a Rs. 5,600 ITC, he needs the invoice, and failure to receive it by the return filing date can hinder the claim.
• Inclusion in GSTR Forms : The supplier should report the tax invoice or debit note in Form GSTR-1 and reflect it in the buyer's Form GSTR-2B. The absence of such an entry in GSTR-2B inhibits the ITC claim.
• Provisional ITC Changes : Post 1st January 2022, temporary ITC claims (5% of actual ITC in GSTR-2B) are no longer permitted under Section 16(2)(aa). The ITC reported in GSTR-3B aligns with the existing ITC in GSTR-2B.
• Goods/Services Receipt : ITC can be claimed once goods/services are received. Goods are considered received upon supplier delivery, while services are upon supplier rendering.
• Timely GST Return Filing : The buyer needs to file GST returns using Form GSTR-3B.
• Payment Within 180 Days : Payment for goods/services should be made within 180 days from the invoice date. Failure to do so necessitates repaying the claimed ITC and Section 50 interest to the government.
• Depreciation Impact : ITC won't be allowed if depreciation is claimed on the tax component of a purchased capital good.
• Timely Claim Submission : ITC for a tax invoice or debit note must be claimed within the stipulated time limit per GST provisions.
• Allocation of Common Credit : Common credit of ITC needs to be identified and divided when used for exempt and taxable supplies and business and non-business activities.
• Blocked Credits : Certain items are ineligible for ITC claims, outlined in Section 17(5) of the CGST Act, referred to as blocked credits.

GST Input Tax Credit Rule: Time Limit to Claim an Input Tax Credit

1. November 30 of the next financial year.
2. The date of filing the annual returns in form GSTR-9 relating to that financial year.

• November 30

GST Input Tax Credit Rule: Who Can Claim ITC?

GST Input Tax Credit Rule: How to Claim ITC?

GST Input Tax Credit Rule: Documents Required for Claiming ITC

• Supplier's Invoice for Goods/Services: A valid invoice issued by the supplier for the goods or services.
• Debit Note from Supplier (if applicable): If the supplier has issued a debit note to the recipient, it should be available.
• Bill of Entry: Relevant in the case of imported goods.
• Special Circumstances Invoice: Invoices issued under specific conditions, such as a bill of supply instead of a tax invoice for amounts below Rs 200 or in situations where a reverse charge is applicable as per GST law.
• Invoice or Credit Note from Input Service Distributor (ISD): An invoice or credit note issued by the Input Service Distributor (ISD) by GST invoice rules.
• Bill of Supply: A bill of supply issued by the supplier is required for goods and services.

GST Input Tax Credit Rule: The Amended Law on Order of ITC Set-Off

• Section 49A: Despite the provisions of section 49, the ITC for central tax, State tax, or Union territory tax shall be used first for the payment of integrated tax, central tax, State tax, or Union territory tax, respectively, only after the ITC available for integrated tax has been thoroughly utilized for such payments.
• Section 49B: Regardless of the provisions in this Chapter and subject to the stipulations of clause (e) and clause (f) of sub-section (5) of section 49, the government, based on the Council's recommendations, can prescribe the sequence and method for using ITC for integrated tax, central tax, State tax, or Union territory tax towards the payment of any such tax.

• Rule 88A: Order of utilization of input tax credit: The ITC on account of integrated tax should initially be utilized for the payment of integrated tax, and any remaining amount, if applicable, can be used for the payment of central tax and State tax or Union territory tax, in any order. It's important to note that the ITC on account of central tax, State tax, or Union territory tax should only be used after fully utilizing the ITC available for integrated tax.

GST Input Tax Credit Rule: What is the Maximum ITC Eligible for Offsetting GST Liability?

• Registered taxpayers who have paid more than Rs. 1 lakh as income tax in the last two financial years, either for themselves, their proprietor, two partners, managing director, trustee, or board members, in belated IT returns.
• Registered taxpayers who have received more than Rs. 1 lakh as a refund of unutilized input tax credit under GST due to zero-rated supplies or an inverted tax structure.
• Registered taxpayers who have paid over 1% of their GST liability using only their electronic cash ledger for all tax periods in the current financial year.
• Government departments, PSUs, local authorities, statutory bodies, etc.

GST Input Tax Credit Rule: Updates on the GST Portal

GST Input Tax Credit Rule: Impact on Businesses

GST Input Tax Credit Rule: Items Ineligible for Input Tax Credit (ITC)

• Motor vehicles with a seating capacity of 13 persons or less (including the driver), goods transport agencies, vessels, and aircraft, except in specific cases:
  • When these vehicles and conveyances are further supplied (sold).
  • When used for transportation of passengers and goods.
  • When 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, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery, unless used to provide the same services category or as part of a composite supply.

• Membership in a club, health, and fitness center.

• Rent-a-cab, health insurance, and life insurance, except in specific cases:
  • When government mandates employers to provide it to their employees by law (e.g., mandatory cab services for female staff during night shifts).
• • When used for the same services category or as part of a composite supply.

• Leasing, renting, or hiring motor vehicles, vessels, or aircraft, except in specific cases.
• Works contract service for constructing an immovable property (except for plant & machinery or providing a further supply of works contract service).

• Goods and services for constructing an immovable property for personal or business use.
• Goods and services where tax has been paid under the composition scheme.
• Goods and services used for personal use.
• Goods or services received by a non-resident taxable person (except for certain imported goods).
• Goods are lost, stolen, destroyed, written off, disposed of by gift, or provided as free samples.

• ITC is unavailable if tax is paid due to non-payment or short tax payment, excessive refund, or fraudulent activities.

• Standalone restaurants charging 5% GST cannot claim ITC on inputs.

• Expenditure on Corporate Social Responsibility (CSR) initiatives by corporates.