Section 2(63) of the CGST Act, 2017 defines Input Tax Credit (“ITC”)as the credit of input tax. ITC is available only to a registered person under GST and includes-

•          IGST charged on import of goods;

•          Tax payable under Section 9 of the CGST including tax paid under reverse charge mechanism;

•          Tax payable under Section 5 of the IGST including tax paid under reverse charge mechanism;

•          Tax payable under Section 9 of the respective SGST Act including tax paid under reverse charge mechanism;

•          Tax payable under Section 7 of the respective UTGST Act including tax paid under reverse charge mechanism

[Note: Specific exclusion – Tax paid under the composition levy]

OBJECTIVE OF INPUT TAX CREDIT

• ITC is one of the key features of Goods and Services Tax;

• ITC is a solution to avoid payment of ‘tax on tax’ also known as cascading of taxes;

• It has been introduced with objective of uninterrupted and seamless credit throughout the supply chain. Since, the entire supply chain is subject to the same tax, tax paid at every stage would be available for set off for payment of tax at successive stage;

CONDITIONS FOR AVAILING ITC

• Provisions have been provided under Section 16 of the CGST Act, 2017;

• Goods and/ or services are ‘used or intended to be used’ ‘in course’

or ‘furtherance’ of ‘business in terms of section 16 (1);

• Input and/ or input services are not covered under the ‘negative list’

as prescribed under Section 17 (5) of the CGST Act (provisions related to block credit where credit is not admissible);

• Possession of tax invoice or any other specified tax paying document;

• Received the goods or services (“Bill to ship” scenarios also included);

• Tax charged by the supplier is actually deposited / paid;

• Returns is filed by the recipient in terms of the provisions of Section 39 of the CGST Act;

Note: 

(i)        If the inputs are received in lots, he will be eligible to avail the credit only when the last lot of the inputs is received.

(ii)       In case payment against supply of goods / services along with GST component is not made by the recipient (person availing ITC) within 180 days from the date of issue of invoice, ITC has to be reversed along with applicable interest thereon. Whether proportionate credit would be reversed in case of part payment is made within a period of 180 days.

(iii)      Once the amount is paid after the expiry of 180 days, the recipient will be entitled to avail the credit again.