The input tax credit is also known as ITC is the reduction of the tax amount which was already paid on input during payment of tax on output.
When a product is purchased from the dealer, a certain amount of tax is being charged on the product, and then tax is collected on the sale of the final product.
The adjustment of taxes paid during the time of purchase and the sale is known as an input tax credit.
The scope for claiming input tax credit has increased since the introduction of GST.
This means if a manufacturer, supplier, agent, dealer or any person dealing with the business, registered under the GST Act, are eligible to claim an Input tax credit for tax paid by them on their purchases.
With this, the business can reduce its tax credit to the extent of GST paid on purchases.
For Example Total tax payable on the output is Rs.1000.
Total tax paid on various inputs is Rs. 400.
The final amount of tax to be paid is Rs. 600 (Rs 1000-400). The input tax credit is Rs 400.
GST comprises of the flowing levies:
- Central GST (CGST)
- State GST (SGST)
- Union Territory GST (UTGST)
- Integrated GST (IGST)
Input Tax Credit of these components of GST would be allowed in the following manner.
- A credit of CGST: Allowed 1st payment of CGST and the balance can be utilized for the payment of IGST. A credit of CGST is not allowed for payment of SGST.
- A credit of SGST: Allowed 1st payment of SGST /UTGST and the balance can be utilized for the payment of IGST. A credit of SGST/UTGST is not allowed for payment of CGST.
- A credit of IGST: Allowed 1st for payment of IGST, then for payment of CGST and the balance for payment of SGST/UTGST.
- ITC can be claimed by a person registered under GST. For claiming input credit under GST, the person or the business must:
- Have a tax invoice of purchase or the debit note issued by a registered dealer.
- Received the goods/ services. Bill to ship scenarios is also included.
- Tax charged on the purchases has been deposited or paid to the government by the supplier in cash or by claiming input credit and the supplier has filed GST returns.
- If the inputs are received in lots or installments, he would be eligible to avail the ITC only on receiving the final or last installment.
The payment should be made within 180 days from the date of issue of an invoice.
In case the payment is not made within 180 days, the amount of credit availed by the recipient for failed amount would be added to his output tax liability along with interest.
However, once the amount is paid, the recipient can avail the credit.
It is possible to have unclaimed input credit tax. In cases of due to tax on purchases being higher than a tax on the sale, it is allowed to carry forward or claim a refund.