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More on Input Tax Credit

More on Input Tax Credit

1. What is the order of utilization of input tax credit?
Utilisation
Input Tax First Towards Balance Towards Balance Towards
IGST IGST CGST SGST
CGST CGST IGST
SGST SGST IGST
2. What is the time limit for availing input tax credit?
  • The last date for availing input tax credit for any financial year is the earlier of the following two dates:-
    • Last date for filing the monthly return of September of the following year
    • Date of filing of annual return
3. How can a taxable person who becomes liable to be registered avail input tax credit on the opening stock?

A taxable person becomes liable to be registered on 1st Oct 2017. He applies for registration on 23rd Nov 2017 and gets registration.

He is entitled to take input tax credit on inputs, inputs contained in finished and semi-finished goods lying as 30th Sept 2017, for all goods purchased on or after 1st Oct 2016.

Important points are:-

  • Application for registration to be made within 30 days from the date on which the person becomes liable to register
  • Input tax credit is restricted only to inputs and is denied on capital goods and input services
  • Taxable person cannot avail input tax credit if the date of invoice for such supply of goods is more than one year
4. How can a taxable person who voluntarily registers avail input tax credit on the opening stock?

A taxable person voluntarily applies for registration on 1st Oct 2017 and gets registration effective 1st Oct 2017. Input tax credit on inputs, inputs contained in finished and semi-finished goods lying in stock as on 30th Sept 2017 is available provided the goods have been purchased on or after 1st Oct 2016.

There is no provision for availing input tax credit on capital goods and inputs services.

5. How does the transfer of input tax credit occur for a taxable person shifting from composition levy to normal levy?

A taxable person paying tax under composition scheme opts for normal scheme as on 1st Oct 2017. He is eligible for input tax credit on inputs, inputs contained in finished and semi-finished goods held in stock and on capital goods as on 30th Sept 2017. This is also subject to the condition that goods have been purchased on or after 1st Oct 2016.

Input tax credit on capital goods shall be reduced by prescribed percentage.

6. How does the transfer of input tax credit occur when an exempt supply becomes taxable supply?

If exempt supply of goods becomes taxable as on 1st Oct 2017, a taxable person supplying such goods is entitled to take input tax credit on inputs, input contained in finished and semi-finished goods held in stock and on capital goods as on 30th Sept 2017. This is also subject to the condition that goods have been purchased on or after 1st Oct 2016.

Input tax credit on capital goods shall be reduced by prescribed percentage.

7. How can input tax credit be availed on inputs sent to job-worker?

Inputs:-

A taxable person MrLaxman supplies inputs to job worker- MrSiva and also Mr Krishnan from whom Laxman purchases inputs directly suppliesinputs to Mr Siva on 25th Sept 2017 on the instruction of MrLaxman and inputs are received by Mr Siva on 1st Oct 2017.

MrLaxman is entitled to take input tax credit provided Mr Siva supplies the material post job work on or before 30th Sept 2018 ie one year from 1st Oct 2017. In case Mr Siva supplies on or after 1st Oct 2018, the initial supplies to Mr Siva would be taxable along with interest from 25th Sept 2017.

Capital Goods:-

In the above example, MrLaxman supplies capital goods to Mr Siva on 25th Sept 2017 and is received by Mr Siva on 1st Oct 2017.

MrLaxman can avail input tax credit on capital goods provided the capital goods are returned within 30th Sept 2020.

In case Mr Siva returns the capital goods on or after 1st Oct 2018, the initial supply of capital goods would be taxable along with interest from 25th Sept 2017.

The restrictions of one year for inputs and three years for capital goods for returning are not applicable for moulds and dies, jigs and fixtures, or tools sent out to job-worker for job work.

8. How does the flow of matching of input tax credit occur?

9. How input tax credit other than for capital goods is determined when outward supplies include both exempt and non-business supplies?
Computation of Common credit
Total Input tax on all inputs & input services = T
Less:    
Input tax exclusively meant for non-business use = A
Input tax exclusively meant for exempt supply = B
Input tax relating to ineligible inputs and input services = C
Balance of eligible Input tax credit (X) = T-A-B-C
Less:    
Input tax exclusively meant for taxable supplies including zero rated = D
Common Credit (Y) = X-D
Computation of Common credit relating to exempt Supplies
Value of Exempt outward supplies = E
Total turnover in the State = F
Share of Common Credit relating to Exempt Supplies (G) = Y*E/F
Computation of Common credit relating to non- business use
Share of common credit relating to non-business use (H) = Y*5%
Computation of eligible common credit
Common Credit = Y
Less:    
Share of Common Credit relating to Exempt Supplies = G
Share of common credit relating to non-business use = H
Eligible Common Credit = Z


The figures of E & F is for the tax period and if there is no turnover during the tax period, then the figures for the preceding tax period for which turnover is available would be considered. The workings as depicted in the table should be done for the entire year and submitted by 20th of Oct and any excess input tax credit claimed as per such annual working requires to be paid with interest and shortfall to be claimed.

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