Input Tax Credit under GST

Section 16 of the CGST Act lays down the conditions to be fulfilled by GST registered buyers to claim ITC. The conditions are summarised as follows:

• Such input tax credit is eligible for claims if the goods or services purchased are further used for business purposes and not personal use.
• Buyer must hold such tax invoice or debit note or document evidencing payment towards the purchase. 
  For example, Mr Manoj wants to claim an ITC of Rs.5,600 as he found the ITC entry in GSTR-2B of January 2022 as of 10th February 2022 but he has not received the invoice till 20th February 2022, being the date of filing the returns. He cannot claim Rs.5,600 as ITC while filing GSTR-3B of January 2022 due to the absence of the invoice.
• Such tax invoice or debit note is filed by the supplier in Form GSTR-1 and it appears in the buyer’s Form GSTR-2B. 
  For example, Mr Manoj received a tax invoice dated 13th January 2022 for purchases and wants to claim an ITC of Rs.5,600 but has not found the ITC entry in GSTR-2B of January 2022 as of 20th February 2022. He cannot claim Rs.5,600 as ITC while filing GSTR-3B of January 2022.
• From 1st January 2022, the benefit of provisional ITC claims is no longer available as per Section 16(2)(aa). It means the amount of ITC reported in GSTR-3B will be a total of actual ITC in GSTR-2B. The provisional ITC of 5% of actual ITC in GSTR-2B will no longer be allowed. Hence, a regular matching of the purchase register or expense ledger with GSTR-2B is crucial. Until 31st December 2021, a regular taxpayer could have claimed provisional ITC in
• • The buyer has received the goods and/or services. The goods are said to be received if it is delivered by the supplier to the buyer or his representative or agent or another person as directed, against a document of transfer of title of goods. On the other hand, the services are said to be received if it is rendered by the supplier to the buyer or another person as directed. 
    For instance, Mr Manoj received a tax invoice for purchases dated 10th January 2022 but has not yet received goods until 20th February 2022. The taxpayer cannot report ITC on that tax invoice in GSTR-3B for January 2022 and may claim it in future once goods are delivered.
  • The buyer must furnish the GST returns in Form GSTR-3B. 
  • Where the goods are received in lots or instalments, ITC will be allowed to be availed when the last lot or instalment is received.
  • The buyer must pay towards the supply of goods and/or services within 180 days from the invoice date. If they fail to, then the ITC already claimed will need to be paid to the government, along with interest payable under Section 50.* The ITC claim can be again made once the payment is made to the supplier.
  • No ITC will be allowed if depreciation has been claimed on the tax component of a capital good purchased. 
  • ITC on a tax invoice or debit note belonging to a financial year must be claimed within the time limit given by the GST provisions, explained in the next section.
  • Common credit of ITC must be identified and split as it is used together for selling both exempt and taxable supplies, and/or business and non-business activity.
  • There are certain items listed down that are not eligible for ITC claims under Section 17(5) of the CGST Act, known as blocked credits under Section 17(5) of the CGST Act.

  *This provision will come into force once notified by the CBIC.