Basics of Input Tax Credit (ITC) under GST

This article deals with the concept of Input Tax Credit (ITC) under GST. What is Input tax Credit, how it can be claimed, what is the maximum time limit and other related questions regarding ITC has been answered. I have tried to explain the concept in simple language for better understanding.

Q1- What is Input Tax Credit (ITC)?

Ans- Concept of Input Tax Credit has been introduced in GST to remove the cascading effect of tax. That means, Tax shall only be levied on the taxable amount and not on the tax amount. We can better understand this concept with the help of an example. Suppose Supplier A sold goods to Supplier B for Rs 100 and charge GST @ 5% i.e Rs 5. Now when Supplier B will sold the goods to some another party he will charge the GST on Rs 100 not on Rs 105. Thereby Tax has not been levied on Rs 5 (i.e. Tax amount, hence cascading effect is removed). To make it possible, Input Tax Credit of Rs 5 will be provided to Supplier B.

Q2- How to claim the Input Tax Credit?

Ans- Input Tax Credit should be claimed while filing GSTR-3B of the relevant period (For example- if return is filed for May 21 then the relevant period will be 01 May 2021 to 31 May 2021). Taxpayer has to declare the amount of Input tax credit which is accumulated from the inward supplies made during the relevant period. It is pertinent to note that the amount of purchases cannot be declared in the GST return, Only the amount of ITC can be declared.

Q3- What are the type of returns that are required to be filed?

Ans- Currently, there are two type of GST returns which are required to be filed by the taxpayer on the GST portal namely GSTR-1 and GSTR-3B. In GSTR-1, Taxpayer has to declare the detail of outward supplies (i.e Sales) made in the relevant period, while GSTR-3B is the summary return in which the summary of supplies made during the relevant period and Input Tax Credit available shall be declared. If the amount of ITC along with opening balance available is more than the output GST then it will be carry forwarded. If output GST is more than the ITC along with opening balance, then it shall be paid in cash to the government.

Q4- Can I carry forward the Balance Input Tax Credit to the next year? If yes, then what is the time limit available for which I can carry forward the ITC?

Ans- There is no time limit to carry forward the ITC. If there is any unutilized Input Tax credit available in the Electronic Credit Ledger, either it can be set off with the Output GST or it can be carry forward.

Q5- What is the maximum time limit in which I can claim the Input Tax Credit?

Ans- Last date to claim the ITC for the invoice or debit note is the earlier of following-

1. Due date of filing for return of September following the end of financial year for which the Invoice or debit note relates

2. Date of filing of annual return whichever is earlier.

It is important to note here that the time limit says due date of filing the return of September and not the date of filing. Suppose if a taxable person has the Purchase Invoice dated 23/05/2020, then the ITC for that invoice can be claimed before the due date of filing the GST return for the month of September 2021 or the date of filing of annual return, whichever is earlier.

Q6- What are the conditions for claiming the Input Tax Credit?

1. He is in possession of Tax Invoice or debit note for which the ITC has been claimed.

2. He has received the goods or service in respect of such invoice or debit note.

3. Tax charged in such invoice has been actually paid by the supplier to the government either in cash or by utilization of Input Tax Credit.

4. The supplier has shown such Invoice in the GST return i.e GSTR-1 and the invoice is reflected in GSTR 2A of taxable person who is claiming the ITC (Condition added in the Budget of 2021)

5. He has furnished the return as required.