Input Tax Credit (GST) – Lecture Review

Flashcards cover key definitions, eligibility conditions, blocked credits, special circumstances, utilisation rules, restrictions, and recent amendments related to Input Tax Credit (ITC) under GST law.

What is ‘input tax’ under GST?

Central tax (CGST), State tax (SGST), Union-territory tax (UTGST) or Integrated tax (IGST) charged on any supply of goods or services to a registered person, including IGST on imports and taxes paid under reverse charge, but excluding composition tax.

What does ‘input tax credit (ITC)’ mean?

The credit of input tax that a registered person is entitled to set off against his output tax liability.

How is ‘input’ defined for ITC purposes?

Any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.

Define ‘input service’.

Any service used or intended to be used by a supplier in the course or furtherance of business.

Define ‘capital goods’ for ITC.

Goods whose value is capitalised in the books of the person claiming ITC and which are used or intended to be used in the course or furtherance of business.

Section that governs eligibility & conditions for taking ITC

Section 16 of the CGST Act.

List the six statutory conditions that must be satisfied to avail ITC.

(1) Possession of a valid tax-paying document; (2) Supplier has furnished the invoice in GSTR-1/IFF and it appears in recipient’s GSTR-2B; (3) Recipient has actually received the goods/services (incl. deemed receipt); (4) ITC not restricted in GSTR-2B as per s.38; (5) Tax has been actually paid to Government; (6) Recipient has furnished the return under s.39 (GSTR-3B).

What is ‘deemed receipt’ of goods/services for ITC?

When goods are delivered or services provided to a third person on the direction of the registered person (Bill-to-Ship-to model), the registered person is deemed to have received them and may claim ITC.

Time limit for payment to supplier to retain ITC

Value of supply plus tax must be paid within 180 days from invoice date; otherwise the ITC must be reversed with interest until payment is made.

When can ITC be taken on goods received in lots/instalments?

Only upon receipt of the last lot or instalment relating to the invoice.

What is the outer time-limit for availing ITC on an invoice/debit note?

Earlier of (a) 30 November following the end of the financial year to which it pertains or (b) date of filing the relevant annual return.

Effect of claiming depreciation on GST component of capital goods

If depreciation under the Income-tax Act is claimed on the tax component, ITC on that component is not allowed (Section 16(3)).

Section that deals with apportionment & blocked credits

Section 17 of the CGST Act.

How is ITC apportioned between taxable and exempt supplies?

Credit attributable exclusively to taxable (incl. zero-rated) supplies is fully available; credit attributable exclusively to exempt or non-business use is disallowed; common credit is split proportionately as per Rules 42 & 43.

Name five categories of BLOCKED ITC under Section 17(5).

(i) Certain motor vehicles, vessels and aircraft and related services; (ii) Food & beverages, outdoor catering, beauty treatment, health services, cosmetic & plastic surgery, life & health insurance; (iii) Membership of clubs, health and fitness centres; (iv) Works-contract services and construction of immovable property (other than plant & machinery); (v) Goods/services used for personal consumption, gifts, free samples, goods lost, stolen, destroyed or written-off.

ITC on motor vehicles – general rule

Blocked for motor vehicles for transportation of persons having approved seating capacity ≤13 (incl. driver) unless used for (A) further supply of such vehicles, (B) passenger transport, or (C) training to drive such vehicles.

Are trucks or dumpers eligible for ITC?

Yes. Motor vehicles for transportation of goods are not restricted; ITC is allowed.

When is ITC on vessels/aircraft allowed?

Allowed if they are used for (i) further supply, (ii) passenger transport, (iii) training (navigation/flying), or (iv) transportation of goods.

ITC on general insurance/servicing/repair of ineligible motor vehicles

Blocked, except when: (a) the vehicle is used for the permitted purposes, (b) received by manufacturer of such vehicles, or (c) received by an insurer for vehicles insured by it.

Rule governing documentary evidence for ITC

Rule 36 of the CGST Rules.

Minimum particulars a document must contain to claim ITC (Rule 36)

Amount of tax, description of goods/services, total value, GSTIN of supplier & recipient, and place of supply in case of inter-State supply.

Is ITC available on food & beverages supplied to employees voluntarily?

No, ITC on food & beverage services is blocked unless it is obligatory for employer to provide under any law or the same category is outwardly supplied.

Condition under which ITC on club membership fees is available

Only when provision of such service to employees is mandated under any law; otherwise blocked.

Works-contract ITC – main rule

ITC on works-contract services for construction of immovable property (other than plant & machinery) is blocked, except when the recipient is further supplying the same works-contract service (sub-contractor).

ITC on self-construction of immovable property for own use

Blocked for goods/services used to construct immovable property (other than plant & machinery) on own account, to the extent of capitalisation.

Definition of ‘plant and machinery’ for ITC exceptions

Apparatus, equipment and machinery fixed to earth by foundation or structural support and used for making outward supplies, including such foundation/supports but excluding land, buildings, telecom towers and pipelines outside factory premises.

Is ITC allowed on goods/services used for Corporate Social Responsibility (CSR)?

No. Section 17(5)(fa) blocks ITC on goods or services used for CSR obligations under Companies Act, 2013.

ITC on tax paid under sections 74, 129, 130 – status after FY 2023-24

Previously, Input Tax Credit (ITC) was entirely blocked for tax amounts paid under Section 74 (fraud, wilful misstatement, or suppression of facts), Section 129 (detention/seizure of goods/conveyances), and Section 130 (confiscation of goods/conveyances) of the CGST Act. However, an amendment effective from 1st November 2024 has altered this position. The ITC now remains blocked only for tax paid under Section 74 for demands relating up to the financial year 2023-24. The blanket block on ITC for taxes paid under Section 129 and Section 130 has been completely removed. This implies that for tax paid under Section 129 or 130 (for any period), and for tax paid under Section 74 relating to periods commencing from FY 2024-25 onwards, the ITC is generally eligible, provided other conditions for availing ITC are fulfilled.

What is Section 18 mainly about?

ITC in special circumstances—registration, voluntary registration, switch from composition, exempt supply becoming taxable, reversal on opposite events, transfer of credit and disposal of capital goods.

Eligibility of ITC when a person obtains registration within 30 days of liability

A person who obtains GST registration within 30 days of becoming liable to pay tax is entitled to claim Input Tax Credit (ITC). This credit can be claimed on inputs, inputs contained in semi-finished goods (WIP), and inputs contained in finished goods (FG) that are held in stock on the day immediately preceding the date on which they became liable to pay tax. This provision, covered under Section 18(1)(a) of the CGST Act, aims to ensure a seamless credit flow for entities transitioning into the GST framework. The declaration for claiming this ITC is typically filed in FORM GST ITC-01.

ITC entitlement when composition taxpayer switches

When a taxpayer registered under the composition scheme switches to the regular scheme of GST, they become eligible to claim Input Tax Credit (ITC). This credit can be availed on:1. Inputs held in stock: This includes raw materials or components used in production.2. Inputs contained in semi-finished goods (Work-In-Progress): These are goods that are still in the process of manufacturing.3. Inputs contained in finished goods: These are completed products ready for sale.4. Capital Goods: For capital goods, the ITC available is reduced by 5\% for every quarter or part thereof from the date of the invoice. The credit is allowed on all such goods held in stock on the day immediately preceding the date from which they become liable to pay tax under the regular scheme. This provision is covered under Section 18(1)(c) of the CGST Act, and the details for claiming this ITC must be declared in FORM GST ITC-01.

Period within which ITC declaration (FORM GST ITC-01) must be filed

Within 30 days of becoming eligible (extendable by Commissioner).

Reversal required when regular taxpayer opts for composition or becomes exempt

Pay back ITC relating to inputs, WIP/FG and remaining useful life of capital goods (5 % per quarter); any balance credit then lapses.

How to compute ITC reversal on sale of capital goods?

Pay higher of (a) ITC reduced by 5 % per quarter of use, or (b) GST on transaction value; for refractory bricks, moulds, dies, jigs & fixtures sold as scrap, pay GST on transaction value only.

Can unutilised ITC be transferred on sale, merger, demerger, etc.?

Yes, if liabilities are also transferred; details filed in FORM GST ITC-02, accepted by transferee; in demerger ITC is apportioned in ratio of value of assets.

Rule for transferring credit between distinct persons within same State

Rule 41A – ITC can be transferred to new GSTINs in the ratio of value of assets via FORM GST ITC-02A within 30 days of new registration.

Sequence of utilisation of ITC under Sections 49(5), 49A & Rule 88A

1) IGST credit → IGST first, then CGST &/or SGST/UTGST in any order; 2) After IGST is exhausted, CGST credit → CGST then IGST; 3) After CGST used, SGST/UTGST credit → SGST/UTGST then IGST; cross-set-off between CGST and SGST/UTGST not permitted.

What does Section 49A mandate about IGST credit?

ITC of IGST must be fully utilised before any credit of CGST or SGST/UTGST can be used toward any tax payment.

Purpose of Rule 86A

Allows Commissioner/authorised officer to block utilisation/refund of credit fraudulently availed or ineligible, for up to one year.

Four situations that can trigger blocking of credit under Rule 86A

(i) Invoices from non-existent supplier; (ii) Goods/services not received; (iii) Tax not paid to Government; (iv) Recipient non-existent or lacks valid invoice.

What is Rule 86B?

Restricts use of ITC: where taxable turnover (excluding exempt & zero-rated) in a month exceeds ₹50 lakh, at least 1 % of output tax liability must be paid in cash.

List one key exemption to Rule 86B cash-payment requirement

Not applicable if proprietor/MD/partners etc. paid income-tax > ₹1 lakh each in each of the last two FYs; other exemptions include refunds >₹1 lakh, 1 % cash payment cumulatively, and government entities.

Define ‘exempt supply’.

Supply attracting nil rate or wholly exempt under Section 11/IGST Section 6 and includes non-taxable supply.

Define ‘zero-rated supply’.

Exports of goods/services and supplies to SEZ developer/unit for authorised operations (IGST Act s.16).

Difference between exempt and zero-rated supply w.r.t. ITC

ITC is NOT available for exempt supplies but IS available (and refundable) for zero-rated supplies.

Meaning of ‘business’ under Section 2(17)

Wide definition covering trade, commerce, manufacture, profession, vocation, adventure etc., and incidental activities, with or without pecuniary benefit, including supply at start/closure and activities of clubs, race clubs, government authorities etc.

What is GSTR-2B?

Auto-generated, static ITC statement for a recipient, based on supplier’s GSTR-1/IFF filings; ITC can be availed only on invoices reflected therein (subject to other conditions).

Documentary forms that can support ITC claim (Rule 36(1))

(a) Supplier’s tax invoice; (b) Invoice issued under RCM; (c) Debit note; (d) Bill of Entry; (e) ISD invoice/credit note.

Is ITC allowed on tax paid due to fraud (Sec.74) after FY24-25?

ITC on such tax remains blocked only for demands relating up to FY 2023-24; tax paid for later periods is eligible for ITC (post-amendment w.e.f. 1-11-2024).

Can ITC be claimed on demo vehicles by motor-vehicle dealers?

Yes. Demo vehicles are treated as being used for further supply of such vehicles; ITC not blocked (CBIC Circular 231/25/2024-GST).

What is the effect of non-payment by supplier of tax (Rule 37A)?

Recipient must reverse ITC (with interest) if supplier hasn’t filed corresponding GSTR-3B by 30 Sept following FY; credit may be re-availed once supplier pays tax.

Rate of reduction per quarter for capital-goods ITC when switching or selling

Five percent of input tax per quarter or part thereof from date of invoice.

Is ITC available on inputs used to make free samples or gifts?

No. Section 17(5)(h) blocks ITC on goods disposed of by way of gift or free samples.

Definition of ‘non-resident taxable person’.

A person who occasionally supplies goods/services in India with no fixed place of business/residence in India.

ITC availability for non-resident taxable person (NRTP)

Blocked except on goods imported by him; ITC on domestic procurements or imported services is not available.

What happens to balance ITC when taxpayer switches to composition?

ITC equivalent to inputs, WIP/FG and remaining life of capital goods must be paid/reversed; any remaining credit lapses.

Which form is used to reverse ITC when switching to composition or on cancellation?

FORM GST ITC-03 (or GSTR-10 for cancellation).

Meaning of ‘composition levy’ for ITC blocking

Supplies made by taxpayer paying tax under section 10; recipients cannot claim ITC on such inward supplies.

Is ITC available on ducts & manholes for optical fibre networks?

Yes. They qualify as plant & machinery; ITC not blocked (CBIC Circular 219/13/2024-GST).

Can ITC be claimed on travel benefits like leave travel concession to employees?

Only if provision is mandatory under any law; otherwise blocked under Section 17(5)(b)(iii).

Which rule prescribes order of utilisation of IGST credit?

Rule 88A.

What is the QRMP scheme’s relevance to ITC?

Suppliers filing GSTR-1 quarterly may upload invoices monthly via IFF; recipients can claim ITC once invoices reflect in GSTR-2B.

Are inward supplies used for personal consumption eligible for ITC?

No. Section 17(5)(g) blocks ITC on goods or services used for personal consumption.

What is the condition for availing ITC on invoices found after annual return is filed?

Cannot be availed; once earlier of 30 Nov after FY or filing of annual return passes, ITC is time-barred (except for re-credit after reversal).

Can ITC on import IGST be restricted by GSTR-2B?

No. GSTR-2B restriction applies only to supplies covered by Section 37(1); IGST on imports, RCM self-invoices, and ISD documents are outside this scope.

Which form is used to transfer unutilised ITC on business re-organisation?

FORM GST ITC-02 (or ITC-02A for internal branch transfers).

Can ITC be availed on goods destroyed in fire?

No. Goods lost, destroyed or written-off are specifically blocked under Section 17(5)(h).

Core principle of GST credit mechanism

Tax is collected at every stage of supply chain with seamless credit of taxes paid at preceding stages, thereby eliminating cascading.