GST ITC: What to take, What not to take and When to take


GST ITC: With time, GST is getting complicated. It sometimes gets difficult to understand regarding Input Tax Credit (ITC)- what to claim, when to claim and how to claim. Lets understand in detail through an example.

Baba tax was asked by Mr. Sunil that can I claim GST ITC for the products which I purchased for my personal use as I’m registered under GST and have fulfilled all the necessities required. They replied that no you can’t avail ITC on this. When he asked why. They told the subsequent reasons.

Reasons for Non -Availability of ITC

ITC will be availed only for business purposes. It’s unavailable for product or services exclusively used for:

1.  Personal use

2. Exempt supplies

3. Supplies, ITC is specifically not available

Eligibility for Taking ITC

As per section 16(1), “Every registered person shall, subject to such conditions and restrictions as may be prescribed and, in the manner, specified in section 49, be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business and the said amount shall be credited to the electronic credit ledger of such person.”

In simple language-

  1. Registered Person: ITC can be taken by registered person. And on supplies of goods, services or both, with tax charged on it, are allowed to take credit. This is as per ITC conditions under section 49 and the terms and conditions of the rules.
  2. In the course of or in furtherance of business: The goods/services are used or intended to be used in the course of or in furtherance of his business.

Can ITC be taken on all goods and services?

ITC can be claimed by every registered taxable person, in the course of or for the furtherance of business except in certain cases.

In the following cases, the input Tax credit wouldn’t be allowed are mentioned below: –

S. No.ITC DisallowedException
1.Motor Vehicles & other ConveyanceAllowed only when they are supplied in the normal course of business or are used for providing the following taxable services: – a.  Transportation of Passengers, or b. Transportation of Products or c.  Imparting Training on Motor Driving Skills
2.Food & Beverages, Outdoor Catering, Beauty Treatment, Health Services, Cosmetic & Plastic SurgeryThe credit would be available or will be allowed as long as the Product and Services are taken to deliver the identical category of services or as a part of composite supply.
Example: Baba Tax purchased cosmetic creams to provide to their customer. During the case, ITC paid on purchases would be allowed.
3.Clubs, Fitness and Health CentreMembership fee.
4.Cab Rental service, Health Insurance, and Life InsuranceAllowed only if a. The Government has made it obligatory for the employers to provide it to their employees. or b.  In cases where the product and services are usedfor delivering the same category of services or as a part of composite supply.
5.Travel Benefits to Employees.
6.Works Contract Services, just in case of the Construction of Immovable PropertyAllowed when a. Works Contract Services is supplied for Construction of Plant & Machinery. b. When one Work Contract Service is input for some other works contract service.
7.Product and or Services for Construction of Immovable Property, either used or to be used for Personal or Business use.
8.Product and Services on which GST has been paid under the Composition Scheme
9.Product and Services received by a Non-Resident Taxable personAllowed for Product and Services, imported by a Non-Resident taxable person.
10.Product and Services used for Personal Consumption
11.Productthose are either lost or stolen, destroyed, written off, gifted as free sample
12.Any tax paid because of
a. Non-payment of tax, orb. Short payment of tax, orc. Excessive Refund
13.ITC used or availed
a. Fraudently
b. misstatements made intentionally, or Facts suppressed intentionally.

The above table is showing all the main points regarding the product or products that are allowed and disallowed for ITC.

Is ITC available to importers?

Yes, importers get the edge of claiming GST benefit, they will take IGST ITC. However, they won’t get the advantage of credit of Basic Customs Duty (BCD) during this case. With ITC of IGST, they will get GST Compensation Cess benefit also, for claiming these importers need to declare GSTIN in the Bill of Entry without fail.

GST portal will verify the transaction by contacting the Customs EDI system for the validating ITC. However, the Bill of entry of Non-Edi locations are first digitized and then are used for validation of input tax credit provided by the portal.

For example, Mr. ABC is transferring their business to Baba Tax and had Rs 100 lakh ITC balance left with them. As per the provisions of the GST Act, like in case of amalgamations or mergers, or transfer of business. The transferor needs to transfer the available ITC to the transferee at the time of transfer of business. So, within the given case Mr. ABC will transfer the ITC to the babatax.

Now, since we’ve understood the ITC, when it’s available and when it isn’t. On which products it’s available and those it’s not. So, when to take ITC?

Conditions for Claiming ITC

ITC can be claimed only if:

  • Tax invoice or Debit Note or document evidencing payment received.
  • Receipt of goods and/or services
  • Document of transfer of title of goods in case of a bill to ship model.
  • Furnishing of the GST return in form GSTR-3B
  • In case of lots or installments, ITC can be availed after the last lot or installment is received.
  • If the supplier fails to supply goods and/or services within 180 days from the date of invoice, ITC already claimed by the recipient will be added to output tax liability and interest to be paid on such tax involved. And after payment to the supplier, ITC can be claimed again.
  • No ITC will be allowed if depreciation has been claimed on the tax component of a capital good. 
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