Input Tax Credit Rules – 2019
Input tax credit rules will prescribe various rules for claiming ITC. These rules will determine the allowable ITC in different conditions, in what conditions credit will be available and in what conditions not, how to claim input tax credit in special circumstances like mergers and acquisitions, how to claim ITC in case of common credit etc.
For Claiming Input Tax Credit following documents are required:
(a) An invoice issued by supplier of goods or services or both.
(b) An Invoice raised by the recipient in case reverse charge mechanism.
(c) A debit note issued by a supplier of goods or services or both.
(d) A bill of entry or any similar document prescribed under the Customs Act, 1962 or Rules made thereunder for the assessment of Integrated Tax on imports;
(e) An ISD Invoice or ISD Credit Note or any other document issued by an Input Service Distributor for distribution of credit.
Conditions in relation to documents
• All the applicable particulars prescribed in Rule 46 to Rule 55 of the CGST Rules,2017 are contained in the document; and
• The relevant information contained in the document is furnished in FORM GSTR-2 (Details of inward supply) by the recipient.(suspended for the time being)
Further Input tax credit cannot be availed on the tax paid in pursuance of any order where the demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.
Reversal of Input Tax Credit
where the value of the supply along with the tax, has not been paid to the supplier within 180 days from the date of issue of invoice, the input tax credit availed by the recipient will be added to the output tax liability of the recipient.
The recipient will be liable to pay interest from the date of availment of credit till the date of addition to the output tax liability. (Rate of interest is 18%)
Input Tax Credit provisions for Banking Companies
A Banking Company/ Financial Institution engaged in supplying services by way of accepting deposits, extending loans or advances has the following options:
• Option 1: Comply with the provisions of Section 17(2); or
[Section 17(2) – Where the goods or services or both are used by the registered person partly for effecting taxable supplies including zero-rated supplies under this Act or under the Integrated Goods and Services Tax Act and partly for effecting exempt supplies under the said Acts, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies including zero-rated supplies.]
• Option 2: Avail 50% of the eligible input tax credit every month on inputs, capital goods and input services.
A Banking Company/ Financial Institution choosing Option 2 has to follow the following procedure :
• The credit of tax paid on inputs and input services used for non-business purposes and those that are not eligible in terms of Section 17(5) should not be availed.
• The credit of tax paid on supplies by another person having the same PAN can be availed in full
• 50% of the remaining credit will be admissible and should be claimed in Form GSTR-2
• The eligible credit (as mentioned above) will be credited to the Electronic Credit Ledger
Distribution of ITC by ISD
1.The ITC available for distribution by an ISD should be distributed to the recipients in the same month itself and the details should be furnished in Form GSTR-6.
2. ISD is required to distribute the eligible and in-eligible credit separately to a recipient. Further, the integrated tax, central tax and state tax should also be distributed separately.
3. The eligible amount to be distributed in relation to a recipient is to be calculated in the following way:
C1 = (t1/T) x C
C1 = Amount distributed to a recipient
C = Amount of credit to be distributed
t1 = Turnover of the recipient during the relevant period
T = Aggregate of the turnover of all the recipients during the relevant period
4.Distribution of integrated tax, central tax and state tax shall be made in the following manner
(a) Integrated tax as integrated tax.
(b) Central tax as central tax (if the recipient and ISD are located in the same State) and as integrated tax (if the recipient and ISD are not located in the same State).
(c) State tax as state tax (if the recipient and ISD are located in the same State) and as integrated tax (if the recipient and ISD are not located in the same State).
(d) In case of distribution of central/ state tax as integrated tax, it should be ensured that the amount distributed equals the amount of credit of central and state tax put together.
5. Documents required
(a) An ISD is required to issue an ISD invoice indicating that the invoice is issued only for distribution.
(b) Similarly an ISD is required to issue a credit note as prescribed in Rule 54(1) for reduction of credit (if already distributed).
Reversal of Input Tax Credit already distributed by the ISD
(a) he credit reduced by issuance of an ISD credit note will be apportioned to each recipient in the same ratio in which the credit of the original invoice was distributed.
(b) any ITC required to be reduced on account of issuance of a credit note to the ISD by the supplier shall be
(1) reduced from the amount to be distributed in the month in which the credit note is included in the return in FORM GSTR-6; and
(2) Added to the output tax liability of the recipient and where the amount so apportioned is in the negative by virtue of the amount of credit to be distributed is less than the amount to be adjusted.
ITC in case business is sold/ merged/ amalgamated
The registered person is required to furnish the details of sale, merger, amalgamation, de-merger, lease, transfer of business in Form GSTR ITC-02 electronically with a request to transfer the unutilized credit to the transferee.
ITC in case of De-merger
In case of demerger, the credit will be apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
Conditions for transfer of credit on account of sale, merger, amalgamation, de-merger, lease, transfer of business
(a) The details of the sale, merger, amalgamation, de-merger, lease, transfer of business should be furnished in Form GSTR ITC-02.
(b) A certificate issued by a practicing Chartered/ Cost Accountant should be furnished certifying that the sale, merger, amalgamation, de-merger, lease, transfer of business has been done along with a provision for transfer of liabilities.
(c) Upon acceptance of the details by the transferee, the credit specified in Form GSTR ITC-02 will be credited to the electronic credit ledger.
(d) The inputs and capital goods so transferred are to be accounted in the transferee’s books.
Credit of Inputs or Input Services attributable to exempt supplies
D = (E/F) x C
Where D = Credit attributable to exempt supplies
E = aggregate value of exempt supplies (all supplies other than taxable and zero rated supplies)
F = total turnover of the person in the tax period
C = Common Credit i.e. Total input tax in a period reduced by:
• Tax attributable exclusively for non-business purpose
• Tax attributable exclusively for exempt supplies
• Ineligible credits as per Section 17(5)
• Tax attributable exclusively for taxable supplies (including zero rated supplies)
Credit of Inputs and Input Services attributable to non-business purposes
The credit attributable to non-business purpose will be equal to 5% of common credit.
Input Tax Credit of capital goods attributable to exempt supplies
(a) Input tax in respect of capital goods used or intended to be used exclusively for non-business purposes or used or intended to be used exclusively for effecting exempt supplies shall be indicated in FORM GSTR-2 and shall not be credited to his electronic credit ledger
(b) Input tax in respect of capital goods used or intended to be used exclusively for effecting taxable supplies including zero-rated supplies shall be indicated in FORM GSTR-2 and shall be credited to the electronic credit ledger
(c) Out of the total input tax credit on capital goods, the amount of input tax credit in (a) and (b) shall be deducted from total input tax credit and shall be credited to the electronic credit ledger and the useful life of such good shall be taken as five years.
(d) The common input tax credit attributable to exempt supplies shall be calculated as a ratio of the aggregate value of exempt supplies to the total turnover of the person in the tax period.
(e) In case if the turnover details are not available then the values for the preceding tax period shall be taken for calculation.
Reversals of input tax credit in case of special circumstances
Reversals of input tax credit in case of special circumstances i.e. change of the scheme from Regular to Composition scheme, supplies becoming exempt which were earlier taxable and cancellation of registration
(a) the reversal of input tax credit relating to inputs lying in stock will be calculated proportionately on the basis of corresponding invoices on which credit had been availed.
(b) for capital goods, the input tax credit relating to the remaining residual life in months shall be computed on pro-rata basis, taking the useful life as five years.(Part of the month shall be ignored while calculation)
(c) the amount shall be determined separately for input tax credit of `Central/State/Union Territory Tax.
(d) Furthermore, the amount shall form part of output tax liability of registered person and details of the amount shall be furnished in Form GST ITC-03, where such amount relates to any event of change of the scheme from Regular to Composition scheme, supplies becoming exempt which were earlier taxable and in Form GSTR-10, where such amount relates to the cancellation of registration.
Reversals of input tax credit in case of such special circumstances if the tax invoices are not available
The prevailing market price of goods on the effective date of occurrence of the events i.e. change of the scheme from Regular to Composition scheme, supplies becoming exempt which were earlier taxable and cancellation of registration, should be considered for estimation.
Reversal of input tax credit of Additional duty of Customs in respect of Gold dore bar
In terms of Rule 44A of the CGST Rules inserted vide Notification No. 22/2017 – Central Tax dated 17.08.2017, the credit of Central tax in the electronic credit ledger taken in terms of the provisions of section 140 relating to the CENVAT Credit carried forward which had accrued on account of payment of the additional duty of customs levied under section 3(1) the Customs Tariff Act, 1975, paid at the time of importation of gold dore bar, on the stock of gold dore bar held on the 1.07.2017 or contained in gold or gold jewellery held in stock on the 01.07.2017 made out of such imported gold dore bar, shall be restricted to one-sixth of such credit and five-sixth of such credit shall be debited from the electronic credit ledger at the time of supply of such gold dore bar or the gold or the gold jewellery made therefrom.
Conditions prescribed in respect of inputs/ capital goods sent for job work
(a) The inputs, semi-finished goods or capital goods are to be sent to the job worker under the cover of a challan issued by the principal including cases where the inputs, semi-finished goods or capital goods are sent directly to job worker;
(b) The challan issued by the principal should contain the details as specified in Rule 55 of the CGST Rules, 2017
(c) The details of challan in respect of goods dispatched to/ received from a job worker or sent from one job worker to another during a quarter shall be included in Form GST ITC-04 furnished for that period on or before the 25th day of the month succeeding the said quarter or within such further period as may be extended by the Commissioner by a notification in this behalf.
(d) If the inputs/ capital goods are not returned within the 1 year/ 3 years, respectively, it shall be deemed that such inputs or capital goods had been supplied by the principal to the job worker on the day when the said inputs or capital goods were sent out and the said supply shall be declared in Form GSTR-1. Further, the principal shall be liable to pay the tax along with applicable interest.