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Input Tax Credit Rules: EximGuru.com



CHAPTER----
Input Tax Credit

1. Documentary requirements and conditions for claiming input tax credit

(1) The input tax credit shall be availed by a registered person, including the Input
Service Distributor, on the basis of any of the following documents, namely:-
(a) an invoice issued by the supplier of goods or services or both in accordance with
the provisions of section 31;
(b) an invoice issued in accordance with the provisions of clause (f) of sub-section
(3) of section 31, subject to payment of tax;
(c) a debit note issued by a supplier in accordance with the provisions of section 34;
(d) a bill of entry or any similar document prescribed under the Customs Act, 1962 or
rules made thereunder for assessment of integrated tax on imports;
(e) an ISD invoice or ISD credit note or any document issued by an Input Service
Distributor in accordance with the provisions of sub-rule (1) of rule invoice.7.
(2) Input tax credit shall be availed by a registered person only if all the applicable
particulars as prescribed in Chapter ---- (Invoice Rules) are contained in the said document,
and the relevant information, as contained in the said document, is furnished in FORM
GSTR-2 by such person.
(3) No input tax credit shall be availed by a registered person in respect of any tax that
has been paid in pursuance of any order where any demand has been confirmed on account
of any fraud, willful misstatement or suppression of facts.


2. Reversal of input tax credit in case of non-payment of consideration


(1) A registered person, who has availed of input tax credit on any inward supply of
goods or services or both, but fails to pay to the supplier thereof the value of such supply
along with the tax payable thereon within the time limit specified in the second proviso to
sub-section (2) of section 16, shall furnish the details of such supply, the amount of value not
paid and the amount of input tax credit availed of proportionate to such amount not paid to
the supplier in FORM GSTR-2 for the month immediately following the period of one
hundred and eighty days from the date of issue of invoice.
Provided that the value of supplies made without consideration as specified in Schedule I
shall be deemed to have been paid for the purposes of the second proviso to sub-section (2) of
section 16.
(2) The amount of input tax credit referred to in sub-rule (1) shall be added to the output tax
liability of the registered person for the month in which the details are furnished.
(3) The registered person shall be liable to pay interest at the rate notified under sub-section
(1) of section 50 for the period starting from the date of availing credit on such supplies till
the date when the amount added to the output tax liability, as mentioned in sub-rule (2), is
paid.
(4) The time limit specified in sub-section (4) of section 16 shall not apply to a claim for reavailing
of any credit, in accordance with the provisions of the Act or these rules, that had
been reversed earlier.

3. Claim of credit by a banking company or a financial institution

A banking company or a financial institution, including a non-banking financial company,
engaged in supply of services by way of accepting deposits or extending loans or advances
that chooses not to comply with the provisions of sub-section (2) of section 17, in accordance
with the option permitted under sub-section (4) of that section, shall follow the procedure
specified below -
(a) the said company or institution shall not avail the credit of,-
(i) tax paid on inputs and input services that are used for non-business
purposes, and
(ii) the credit attributable to supplies specified in sub-section (5) of section
17,
in FORM GSTR-2;
(b) the said company or institution shall avail the credit of tax paid on inputs and
input services referred to in the second proviso to sub-section (4) of section 17 and not
covered under clause (a);
(c) fifty per cent. of the remaining amount of input tax shall be the input tax credit
admissible to the company or the institution and shall be furnished in FORM GSTR-2;
(d) the amount referred to in clauses (b) and (c) shall, subject to the provisions of
sections 41, 42 and 43, be credited to the electronic credit ledger of the said company or
the institution.

4. Procedure for distribution of input tax credit by Input Service Distributor


(1) An Input Service Distributor shall distribute input tax credit in the manner and subject
to the conditions specified below-
(a) the input tax credit available for distribution in a month shall be distributed in
the same month and the details thereof shall be furnished in FORM GSTR-6 in
accordance with the provisions of Chapter ---- (Return Rules);
(b) the Input Service Distributor shall, in accordance with the provisions of clause
(d), separately distribute the amount of ineligible input tax credit (ineligible under the
provisions of sub-section (5) of section 17 or otherwise) and the amount of eligible
input tax credit;
(c) the input tax credit on account of central tax, State tax, Union territory tax and
integrated tax shall be distributed separately in accordance with the provisions of clause
(d);
(d) the input tax credit that is required to be distributed in accordance with the
provisions of clause (d) and (e) of sub-section (2) of section 20 to one of the recipients
‘R1’, whether registered or not, from amongst the total of all the recipients to whom
input tax credit is attributable, including the recipient(s) who are engaged in making
exempt supply, or are otherwise not registered for any reason, shall be the amount,
“C1”, to be calculated by applying the following formula:-

C1 = (t1÷T) × C

where,
“C” is the amount of credit to be distributed,
“t1” is the turnover, as referred to in section 20, of person R1 during the relevant
period, and
“T” is the aggregate of the turnover, during the relevant period, of all recipients
to whom the input service is attributable in accordance with the provisions of
section 20,;
(e) the input tax credit on account of integrated tax shall be distributed as input tax
credit of integrated tax to every recipient;
(f) the input tax credit on account of central tax and State tax or Union territory tax
shall,
(i) in respect of a recipient located in the same State or Union territory in which
the Input Service Distributor is located, be distributed as input tax credit of
central tax and State tax or Union territory tax respectively;
(ii) in respect of a recipient located in a State or Union territory other than that
of the Input Service Distributor, be distributed as integrated tax and the amount
to be so distributed shall be equal to the aggregate of the amount of input tax
credit of central tax and State tax or Union territory tax that qualifies for
distribution to such recipient in accordance with clause (d);
(g) The Input Service Distributor shall issue an ISD invoice, as prescribed in sub-rule
(1) of rule invoice-7, clearly indicating in such invoice that it is issued only for
distribution of input tax credit.
(h) The Input Service Distributor shall issue an ISD credit note, as prescribed in subrule
(1) of rule Invoice-7, for reduction of credit in case the input tax credit already
distributed gets reduced for any reason.
(i) Any additional amount of input tax credit on account of issuance of a debit note to
an Input Service Distributor by the supplier shall be distributed in the manner and
subject to the conditions specified in clauses (a) to (f) and the amount attributable to
any recipient shall be calculated in the manner provided in clause (d) above and such
credit shall be distributed in the month in which the debit note is included in the return
in FORM GSTR-6.
(j) Any input tax credit required to be reduced on account of issuance of a credit note to
the Input Service Distributor by the supplier shall be apportioned to each recipient in
the same ratio in which input tax credit contained in the original invoice was distributed
in terms of clause (d) above, and the amount so apportioned shall be,-
(i) reduced from the amount to be distributed in the month in which the credit
note is included in the return in FORM GSTR-6; or
(ii) added to the output tax liability of the recipient where the amount so
apportioned is in the negative by virtue of the amount of credit under distribution
being less than the amount to be adjusted.

(2) If the amount of input tax credit distributed by an Input Service Distributor is
reduced later on for any other reason for any of the recipients, including that it was
distributed to a wrong recipient by the Input Service Distributor, the process prescribed
in clause (j) of sub-rule (1) shall apply, mutatis mutandis, for reduction of credit.
(3) Subject to sub-rule (2), the Input Service Distributor shall, on the basis of the ISD credit
note specified in clause (h) of sub-rule (1), issue an ISD Invoice to the recipient entitled to
such credit and include the ISD credit note and the ISD Invoice in the return in FORM
GSTR-6 for the month in which such credit note and invoice was issued.

5. Manner of claiming credit in special circumstances


(1) Input tax credit claimed in accordance with the provisions of sub-section (1) of section 18
on the inputs held in stock or inputs contained in semi-finished or finished goods held in
stock, or the credit claimed on capital goods in accordance with the provisions of clauses (c)
and (d) of the said sub-section, shall be subject to the following conditions -
(a) The input tax credit on capital goods, in terms of clauses (c) and (d) of sub-section (1) of
section 18, shall be claimed after reducing the tax paid on such capital goods by five
percentage points per quarter of a year or part thereof from the date of invoice or such other
documents on which the capital goods were received by the taxable person.
(b) The registered person shall within thirty days from the date of his becoming eligible to
avail of input tax credit under sub-section (1) of section 18 shall make a declaration,
electronically, on the Common Portal in FORM GST ITC-01 to the effect that he is eligible
to avail of input tax credit as aforesaid.
(c) The declaration under clause (b) shall clearly specify the details relating to the inputs held
in stock or inputs contained in semi-finished or finished goods held in stock, or as the case
may be, capital goods–
(i) on the day immediately preceding the date from which he becomes liable to pay
tax under the provisions of the Act, in the case of a claim under clause (a) of subsection
(1) of section 18,
(ii) on the day immediately preceding the date of grant of registration, in the case of a
claim under clause (b) of sub-section (1) of section 18,
(iii) on the day immediately preceding the date from which he becomes liable to pay
tax under section 9, in the case of a claim under clause (c) of sub-section (1) of
section 18,
(iv) on the day immediately preceding the date from which supplies made by the
registered person becomes taxable, in the case of a claim under clause (d) of subsection
(1) of section 18.
(d) The details furnished in the declaration under clause (b) shall be duly certified by a
practicing chartered accountant or a cost accountant if the aggregate value of claim on
account of central tax, State tax, Union territory tax and integrated tax exceeds two lakh
rupees.
(e) The input tax credit claimed in accordance with the provisions of clauses (c) and (d) of
sub-section (1) of section 18 shall be verified with the corresponding details furnished by
the corresponding supplier in FORM GSTR-1 or as the case may be, in FORM GSTR-
4, on the Common Portal.

(2) The amount of credit in case of supply of capital goods or plant and machinery, for the
purposes of sub-section (6) of section 18, shall be calculated by reducing the input tax on the
said goods at the rate of five percentage points for every quarter or part thereof from the date
of issue of invoice for such goods.

6. Transfer of credit on sale, merger, amalgamation, lease or transfer of a business


(1) A registered person shall, in the event of sale, merger, de-merger, amalgamation, lease or
transfer or change in ownership of business for any reason, furnish the details of sale, merger,
de-merger, amalgamation, lease or transfer of business, in FORM GST ITC-02,
electronically on the Common Portal along with a request for transfer of unutilized input tax
credit lying in his electronic credit ledger to the transferee:
Provided that in the case of demerger, the input tax credit shall be apportioned in the ratio of
the value of assets of the new units as specified in the demerger scheme.
(2) The transferor shall also submit a copy of a certificate issued by a practicing chartered
account or cost accountant certifying that the sale, merger, de-merger, amalgamation, lease or
transfer of business has been done with a specific provision for transfer of liabilities.
(3) The transferee shall, on the Common Portal, accept the details so furnished by the
transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02
shall be credited to his electronic credit ledger.
(4) The inputs and capital goods so transferred shall be duly accounted for by the transferee
in his books of account.

7. Manner of determination of input tax credit in respect of inputs or input services and reversal thereof


(1) The input tax credit in respect of inputs or input services, which attract the provisions of
sub-section (1) or sub-section (2) of section 17, being partly used for the purposes of business
and partly for other purposes, or partly used for effecting taxable supplies including zero
rated supplies and partly for effecting exempt supplies, shall be attributed to the purposes of
business or for effecting taxable supplies in the following manner, namely,-
(a) total input tax involved on inputs and input services in a tax period, be denoted as ‘T’;
(b) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be
used exclusively for purposes other than business, be denoted as ‘T1’;
(c) the amount of input tax, out of ‘T’, attributable to inputs and input services intended to be
used exclusively for effecting exempt supplies, be denoted as ‘T2’;
(d) the amount of input tax, out of ‘T’, in respect of inputs and input services on which credit
is not available under sub-section (5) of section 17, be denoted as ‘T3’;
(e) the amount of input tax credit credited to the electronic credit ledger of registered person,
be denoted as ‘C1’ and calculated as:

C1 = T- (T1+T2+T3);

(f) the amount of input tax credit attributable to inputs and input services intended to be used
exclusively for effecting supplies other than exempted but including zero rated supplies, be
denoted as ‘T4’;
(g) ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall be determined and declared by the registered person at the
invoice level in FORM GSTR-2;
(h) input tax credit left after attribution of input tax credit under clause (g) shall be called
common credit, be denoted as ‘C2’ and calculated as:
C2 = C1- T4;
(i) the amount of input tax credit attributable towards exempt supplies, be denoted as ‘D1’ and
calculated as:
D1= (E÷F) × C2
where,
‘E’ is the aggregate value of exempt supplies during the tax period, and
‘F’ is the total turnover in the State of the registered person during the tax period:
Provided that where the registered person does not have any turnover during the said tax
period or the aforesaid information is not available, the value of ‘E/F’ shall calculated by
taking values of ‘E’ and ‘F’ of the last tax period for which details of such turnover are
available, previous to the month during which the said value of ‘E/F’ is to calculated;
Explanation: For the purposes of this clause, the aggregate value of exempt supplies and total
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the
Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule.
(j) the amount of credit attributable to non-business purposes if common inputs and input
services are used partly for business and partly for non-business purposes, be denoted as ‘D2’,
and shall be equal to five per cent. of C2; and
(k) the remainder of the common credit shall be the eligible input tax credit attributed to the
purposes of business and for effecting supplies other than exempted supplies but including
zero rated supplies and shall be denoted as ‘C3’, where,-
C3 = C2 - (D1+D2);
(l) the amount ‘C3’ shall be computed separately for input tax credit of central tax, State tax,
Union territory tax and integrated tax;
(m) the amount equal to aggregate of ‘D1’ and ‘D2’ shall be added to the output tax liability
of the registered person:
Provided that where the amount of input tax relating to inputs or input services used partly for
purposes other than business and partly for effecting exempt supplies has been identified and
segregated at invoice level by the registered person, the same shall be included in ‘T1’ and
‘T2’ respectively, and the remaining amount of credit on such inputs or input services shall be
included in ‘T4’.
(2) The input tax credit determined under sub-rule (1) shall be calculated finally for the
financial year before the due date for furnishing of the return for the month of September following the end of the financial year to which such credit relates, in the manner prescribed
in the said sub-rule and,
(a) where the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’ exceeds
the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and ‘D2’, such
excess shall be added to the output tax liability of the registered person in the month not later
than the month of September following the end of the financial year to which such credit
relates and the said person shall be liable to pay interest on the said excess amount at the rate
specified in sub-section (1) of section 50 for the period starting from first day of April of the
succeeding financial year till the date of payment; or
(b) where the aggregate of the amounts determined under sub-rule (1) in respect of ‘D1’ and
‘D2’ exceeds the aggregate of the amounts calculated finally in respect of ‘D1’ and ‘D2’, such
excess amount shall be claimed as credit by the registered person in his return for a month not
later than the month of September following the end of the financial year to which such credit
relates.


8. Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases


(1) Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of
capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, being
partly used for the purposes of business and partly for other purposes, or partly used for
effecting taxable supplies including zero rated supplies and partly for effecting exempt
supplies, shall be attributed to the purposes of business or for effecting taxable supplies in the
following manner, namely,-
(a) the amount of 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) the amount of input tax in respect of capital goods used or intended to be used
exclusively for effecting supplies other than exempted supplies but including zero-rated
supplies shall be indicated in FORM GSTR-2 and shall be credited to the electronic
credit ledger;
(c) the amount of input tax in respect of capital goods not covered under clauses (a) and
(b), denoted as ‘A’, shall be credited to the electronic credit ledger and the useful life of
such goods shall be taken as five years from the date of invoice for such goods:
Provided that where any capital goods earlier covered under clause (a) is subsequently
covered under this clause, the value of ‘A’ shall be arrived at by reducing the input tax
at the rate of five percentage points for every quarter or part thereof and the amount ‘A’
shall be credited to the electronic credit ledger;
Explanation: An item of capital goods declared under clause (a) on its receipt shall not
attract the provisions of sub-section (4) of section 18 if it is subsequently covered under
this clause.
(d) the aggregate of the amounts of ‘A’ credited to the electronic credit ledger under
clause (c), to be denoted as ‘Tc’, shall be the common credit in respect of capital goods
for a tax period:
Provided that where any capital goods earlier covered under clause (b) is subsequently
covered under clause (c), the value of ‘A’ arrived at by reducing the input tax at the rate
of five percentage points for every quarter or part thereof shall be added to the
aggregate value ‘Tc’;
(e) the amount of input tax credit attributable to a tax period on common capital goods
during their useful life, be denoted as ‘Tm’ and calculated as:-


Tm= Tc÷60


(f) the amount of input tax credit, at the beginning of a tax period, on all common
capital goods whose useful life remains during the tax period, be denoted as ‘Tr’
and shall be the aggregate of ‘Tm’ for all such capital goods.
(g) the amount of common credit attributable towards exempted supplies, be denoted
as ‘Te’, and calculated as:
Te= (E÷ F) x Tr‘E’ is the aggregate value of exempt supplies, made, during the tax period, and
‘F’ is the total turnover of the registered person during the tax period:
Provided that where the registered person does not have any turnover during the said tax
period or the aforesaid information is not available, the value of ‘E/F’ shall be calculated by
taking values of ‘E’ and ‘F’ of the last tax period for which details of such turnover are
available, previous to the month during which the said value of ‘E/F’ is to calculated;
Explanation: For the purposes of this clause, the aggregate value of exempt supplies and total
turnover shall exclude the amount of any duty or tax levied under entry 84 of List I of the
Seventh Schedule to the Constitution and entry 51 and 54 of List II of the said Schedule;
(h) the amount Te along with applicable interest shall, during every tax period of the useful
life of the concerned capital goods, be added to the output tax liability of the person making
such claim of credit.
(2) The amount Te shall be computed separately for central tax, State tax, Union territory tax
and integrated tax.


9. Manner of reversal of credit under special circumstances


(1) The amount of input tax credit relating to inputs held in stock, inputs contained in semifinished
and finished goods held in stock, and capital goods held in stock shall, for the
purposes of sub-section (4) of section 18 or sub-section (5) of section 29, be determined in
the following manner namely,-
(a) for inputs held in stock and inputs contained in semi-finished and finished goods held
in stock, the input tax credit shall be calculated proportionately on the basis of
corresponding invoices on which credit had been availed by the registered taxable
person on such input;
(b) for capital goods held in stock the input tax credit involved in the remaining useful
life in months shall be computed on pro-rata basis, taking the useful life as five
years.
Illustration
Capital goods have been in use for 4 years, 6 month and 15 days.
The useful remaining life in months= 5 months ignoring a part of the month
Input tax credit taken on such capital goods= Ç
Input tax credit attributable to remaining useful life= C multiplied by 5/60
(2) The amount, as prescribed in sub-rule (1) shall be determined separately for input tax
credit of integrated tax and central tax.
(3) Where the tax invoices related to the inputs held in stock are not available, the registered
person shall estimate the amount under sub-rule (1) based on the prevailing market price of
goods on the effective date of occurrence of any of the events specified in sub-section (4) of
section 18 or, as the case may be, sub-section (5) of section 29. (4) The amount determined under sub-rule (1) shall form part of the output tax liability of the
registered person and the details of the amount shall be furnished in FORM GST ITC-03,
where such amount relates to any event specified in sub-section (4) of section 18 and in
FORM GSTR-10, where such amount relates to cancellation of registration.
(5) The details furnished in accordance with sub-rule (3) shall be duly certified by a
practicing chartered accountant or cost accountant.
(6) The amount of input tax credit for the purposes of sub-section (6) of section 18 relating to
capital goods shall be determined in the same manner as prescribed in clause (b) of sub-rule
(1) and the amount shall be determined separately for input tax credit of IGST and CGST.
Where the amount so determined is more than the tax determined on the transaction value of
the capital goods, the amount determined shall form part of the output tax liability and the
same shall be furnished in FORM GSTR1.


10: Conditions and restrictions in respect of inputs and capital goods sent to the job worker


(1) The inputs, semi-finished goods or capital goods shall be sent to the job worker under
the cover of a challan issued by the principal, including where such goods are sent directly to
a job-worker.
(2) The challan issued by the principal to the job worker shall contain the details specified
in rule Invoice.10:
(3) The details of challans in respect of goods dispatched to a job worker or received from a
job worker during a tax period shall be included in FORM GSTR-1 furnished for that period.
(4) Where the inputs or capital goods are not returned to the principal within the time
stipulated in section 143, the challan issued under sub-rule (1) shall be deemed to be an
invoice for the purposes of the Act.
Explanation.- For the purposes of this Chapter,-
(1) “capital goods” shall include “plant and machinery” as defined in the Explanation to
section 17;
(2) for determining the value of an exempt supply as referred to in sub-section (3) of section
17:-
(a) the value of land and building shall be taken as the same as adopted for the purpose of
paying stamp duty; and
(b) the value of security shall be taken as one per cent. of the sale value of such security.


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