Many small businesses often make the mistake of paying their Input Tax without claiming the same as an ITC. This blog talks about what ITC is, how to calculate ITC, how to claim ITC, and what are the important documents required to claim ITC.
Meaning of Input Tax Credit
ITC-Input tax Credit means the credit of input tax. When a registered person paid tax on inward supplies of goods or services which are used immediately or in the future, the tax paid on the inward supplies can be adjusted with tax payable on the outward supplies.
Let’s understand what is input tax and output tax:
Input tax: A Registered person pays the tax (CGST, SGST, IGST, and UTGST) when he purchases the goods or service. The tax paid on the goods or services can be called input tax.
Output tax: A Registered person collects the tax (CGST, SGST, IGST, and UTGST) when he sells the goods or services. The tax collected on the goods or services can be called output tax.
Input tax credit: When the input tax is more than the output tax, the same can be treated as an input tax credit.
For example- You are registered under GST and doing Fashion and Apparel business You purchase the Items worth Rs.10,000 and paid a GST on that 5% (Let’s assume) The tax paid on those items is Rs.500 that is Input tax for you.
You Sell some items worth Rs.15,000 and you collect tax@5% which is Rs.750 and that is output tax for you.
Now while paying the tax to Govt, you will not pay Rs.750.You will pay only Rs.250 (750-500): Output Tax-Input Tax. After adjusting the input tax, you are paying the balance tax payable to Govt.
Now let’s understand some key points:
Who Can Claim ITC -Input Tax Credit
- He must be registered under the GST -Goods and Service Tax
- He must be having a valid invoice/Debit note/any tax paid document
- He has received the goods and services
- He has paid output tax to the govt either in cash or through the utilization of input tax credit
- He has furnished the GSTR-3B (Monthly return)
- If the goods are received on an installment basis, the input tax credit can be taken only on the receipt of the last installment.
Documents Required to Claim the ITC-Input Tax Credit
- The Invoice should be issued by the supplier of goods or services or both.
- The invoice should be issued as per the provisions of section 31.
- The Invoice should be issued by the recipient (receiving goods or services from an unregistered supplier) in case of reverse charge
- A Debit note issued by the supplier as per the provisions of section 34
- Revised Invoice
- ISD invoice or an ISD credit note issued by the ISD-Input service distributor
The Time Limit for Taking ITC-Input Tax Credit
A registered person shall not be entitled to take the input tax credit in respect of goods or services or both after
- Due date of furnishing return under section 39 for the month of September following the end of the financial year to which such invoice or debit note pertains to that invoice or
- Furnishing the relevant annual return, whichever is earlier.
Input Tax Credit can be claimed by a business or an individual who has paid GST on their purchases and has to pay GST on sale. Certain conditions should be met for claiming ITC. The credit is payable only if the person has not paid or is not required to pay any amount of SGST on the supply of goods or services or both. Any person who is not liable to pay SGST on the total turnover of taxable supplies should not be eligible to claim ITC. To know more on this feel free to write to us at firstname.lastname@example.org