Conditions for claiming ITC- Section 16
Input tax credit or ITC means GST paid on purchase of goods and services by a registered person which he can use as a credit for payment of GST on his sales. ITC is a benefit provided by the Government to the taxpayers to avoid cascading effect of tax.
A cascading tax is imposed repeatedly at each stage of a product’s journey along the supply chain. A cascade tax inflates the price of a product due to the compounding effects of taxes on top of taxes. To avoid such an effect, Input tax credit is allowed while paying outward taxes.
To know more about Input Tax credit, read our blog Input Tax credit under GST.
Conditions for claiming Input Tax Credit:
Section 16 of CGST Act, 2017 deals with Eligibility and conditions for taking input tax credit. Following are the key points to note while claiming ITC:
- Input tax credit can be claimed only if the person claiming it is registered under GST. Unregistered persons can not claim ITC.
- Input tax credit should be claimed while filing Form GSTR 3B for the tax period. GSTR 3B has a dedicated table (Table №4) for entering information about Input Tax Credit.
- Section 16(2) specifically states below conditions for claiming ITC:
- A person should have a tax invoice or debit note issued by a supplier.
- Such an invoice should be declared by the supplier in his GSTR 1. It means such ITC should be reflected in GSTR 2B/2A of the buyer.
- When you’re claiming Input Tax Credit (ITC), it’s crucial to check that the credit isn’t marked as not allowed in your GSTR 2B for that period.
According to section 16(2)(ba) of the CGST Act, it’s a must that “the details of input tax credit in respect of the said supply communicated to such registered person under section 38 has not been restricted.”
Simply put, if your GSTR 2B shows that you can’t avail credit for certain supplies, like if the supplier didn’t pay taxes through GSTR 3B or claimed more credit than allowed, you won’t be able to claim that ITC, even if the supplier mentioned it in their GSTR 1.
- To claim Input Tax Credit (ITC), it’s important that you get the goods or services first. If the items are still on their way or there’s a delay in delivery, you should wait before taking the credit.
In simple terms, you’re considered to have received goods when they are delivered by the supplier to you or someone else on your instructions, either before or during the movement of the goods.
For services, they are considered received when the supplier provides them to anyone based on your instructions. If you receive goods in multiple parts, you can claim credit once you get the last part.
- ITC can be claimed only through filing of GSTR 3B. Mere depositing of tax in cash ledger does not fulfill the requirement of claiming ITC.
- If the person fails to make the payment to the supplier within 180 days from the date of invoice, such ITC should be reversed. It can be re-claimed when the payment is actually made to the supplier.
- In case of capital goods, ITC can be claimed only if depreciation is not claimed on the ITC part by the buyer as per the provisions of Income-tax Act, 1961.
- As per section 16(4) of the CGST Act, 2017, ITC of the current financial year can be claimed up to 30th November of the next financial year or furnishing of annual return, whichever is earlier. After such a date, the credit is lapsed. To know more about this, read our blog Input Tax credit under GST.
The ITC should be listed in the blocked credit list as per section 17(5) of the CGST Act, 2017. To know more about section 17(5), read our blog on Blocked credit- Section 17(5) of CGST Act
Conclusion:
A person should consider all conditions before claiming ITC. Also, ITC should be tracked and continuously reconciled in order to claim maximum benefit. LogiTax provides regular reconciliations of ITC with GSTR 2B with minimum manual intervention.
Now, streamline your PAN-level ITC claims, categorize invoices as eligible or ineligible, and claim ITC with ease using LogiTax!!
