Oct 13, 2017
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Input tax credit rules relating to Goods and Service Act (GST), 2017

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Input tax credit rules

Input tax credit rules mean the rules made by The Central Board of Excise and Customs under Goods and Service Tax Act(GST India) on the recommendation of council.

What are the documentary requirement for claiming input tax credit under Input Tax Credit Rules, 2017 (rule 1) ?

The input tax credit shall however avail by a registered person, including the Input Service(Rule 1)

Distributor, on the basis of any of the following documents, namely:-

  • An invoice issued by the supplier of goods or services or both in accordance with the provisions of section 31
  • A debit note issued by a supplier in accordance with the provisions of section 34
  • A bill of entry
  • An invoice issued in accordance with the provisions of clause (f) of sub-section (3)of section 31
  • A document issued by an Input Service Distributor in accordance with the provisions of sub-rule (1) of rule invoice.7
  • A document issued by an Input Service Distributor, as prescribed in clause (g) of sub-rule (1) of rule 4.

(Above sections are available in reference to The Central Goods and Service Tax Act, 2017)

What are the conditions for claiming the Input Tax Credit?

Conditions for claiming input tax credit

  • Input tax credit shall avail by a registered person only
  • If all the applicable particulars as prescribed in Chapter — (Invoice Rules) so contained in the said document, and the relevant information, as contained in the said document, is furnished in FORM GSTR-2 by such person.
  • However, No input tax credit shall avail by a registered person in respect of any tax that has paid in pursuance of any fraud, wilful misstatement or suppression of facts.

What are reversal of  input tax credit in case of non-payment of consideration under Input Tax Credit Rules, 2017?

Rule(2)-Reversal of input tax credit in case of non-payment of consideration

  • A registered person, who has availed of input tax credit on any inward supply but fails to pay to the supplier shall pay along with the tax payable thereon within the time limit
  • shall furnish the details of such supply and the amount of input tax credit availed of in FORM GSTR-2 for the month immediately following the period of 180 days from the date of issue of invoice.
  • The amount of input tax credit referred to in sub-rule (1) shall thus added to the output tax Liability of the registered person for the month in which the details so furnished.
  • The registered person shall be liable to pay interest at the rate as for the period starting from the date of availing credit on such supplies till the date when the amount added to the output tax liability.

State the claims that can be made by banking or a financial institution under Input Tax Credit Rules, 2017?

Rule (3)-Claim of credit by banking company or a financial institution

A banking company or a financial institution, including a non-banking financial company, chooses not to comply with the provisions of sub-section (2) of section 17, in accordance with the option permitted under sub-section (4) of that section, shall follow the procedure specified below –

1.The said company or institution shall:

Not avail the credit of tax paid on inputs and input services that are used for non-business purposes and the credit attributable to supplies specified in sub-section (5) of section 17, in FORM GSTR-2

2.The said company or institution shall:

Avail the credit of tax paid on inputs and input services referred to in the second proviso to sub-section (4) of section 16 and not covered under clause (a).

3.50% of the remaining input tax shall be:

The input tax credit admissible to the company or the institution and shall  furnish in FORM GSTR-2.

4.The amount referred to in clauses (b) and (c) shall, be credited to the electronic credit ledger of the said company or the institutions.

State the procedures that need to follow by the input tax distributor for availing input tax credit under Input Tax Credit Rules, 2017?

Rule 4 of the input tax credit rules deals with the procedure relating to input tax credit distribution by input tax distributor

(1) subject to condition specified

  • –> Avaibale for distribution in a month & distributed in same month and details furnished in form GSTR-6.
  • –>Seperately distribute the amount of in-eligible input credit, with referance to clause(d)
  • –>CGST, SGST, IGST & UTGST need to be seperately distributed.
  • –> Refrence to clause (d) & (e) of section 20(2), distribution done tp one of receipient(R1) from among all receipient including engaged in making exempt supply or not registered shall amount to C1 C1 = (t1÷T) × C
{where, “C” the amount of credit to distribute,
“t1” is the turnover, as referred to in section 20, of person R1 during the relevant period, and
“T” is the aggregate of the turnover of all recipients during the relevant period}
  • –>The IGST credit will be distributed as IGST credit.
  • –>The CGST / SGST / UTGST credit will be distributed as under,
a) In case the recipient  in the same state in which ISD located then,
➢ CGST will transferred asCGST
➢ SGST will transferred asSGST
➢ UTGST will transferred as UTGST
b) In case the recipient in the different state in which ISD locate then CGST, SGST/UTGST credit will transferred as IGST credit.
  • –> Input service distributor will be required to issue as Invoice for distribution of credit
  • –>In case of reduction of input tax credit,the same will be reduced by way of issuing credit note by the Input Service Distributor.
  • –>However additional tax credit on account of increase in the input tax credit on account of revision in prices further same can be distributed in the same month in which the debit notereported in GSTR-6.
  • –>In case of reduction in the tax credit on account of decrease in the input tax credit on account of revision in value of the supply needs to bereversed by adopting following method,
    • (a) the tax amount to distribute will reduce by the tax amount as per credit note
    • (b)added to the output tax liability of the recipient and where the amount so apportioned is in the negative by virtue of the amount of credit to distribute is less than the amount to adjust.

(2) In case of reduction in distribution amount for any reason, the above mentioned methodology will adopt.

(3)Input Service Distributor Credit Note and the Input Service Distributor invoice needs to report in GSTR-6 for the month in which such credit note and invoice so issued.

What is the Manner of claiming credit in special circumstances under input tax credit rules, 2017?

 Rule (5) – Manner of claiming credit in special circumstances

(1) Input tax credit claimed on the inputs lying in stock or inputs contained in semi-finished or finished goods lying in stock, or the credit claimed on capital goods shall be subject to the following conditions –

  • The credit of input tax paid on capital goods will allowed after reducing credit by 5% per quarter from the date of invoice.
  • Registered person will required to file Form GST ITC-01 within 30 days from the date of becoming eligible declaring that he is eligible for availing input tax credit.
  • Thus declaration under clause (b) shall clearly specify the details relating to the inputs lying in stock or inputs contained in semi-finished or finished goods lying in stock, or as the case may be, capital goods–on the day immediately preceding –
    • The date from which he becomes liable to pay tax under the provisions of this Act;

    • Date of grant of registration, in the case of a claim;

    • The date from which he becomes liable to pay tax under section 9;

    • The date from which supplies made by the registered person becomes taxable;

Under clause (a), (b), (c) & (d) of sub-section (1) of Section 18 respectively.

  • In case of claim of credit in excess of Rs.2, 00,000 certificate from practicing Chartered Accountant or Cost Accountant needs to obtain.
  • The input tax credit claimed shall be verified with the corresponding details furnished by the corresponding supplier in FORM GSTR-1 or in FORM GSTR- 4, on the Common portal.

2) The amount of credit in case of supply of capital goods or plant and machinery, however calculated by reducing credit by 5% per quarter or part there off  from the date of invoice.

Which rule deals with Transfer of credit on sale, merger, amalgamation, lease or transfer of a business under input tax credit rules,2017?

Rule(6)- Transfer of credit on sale, merger, amalgamation, lease or transfer of a business

  1. A registered person furnish the, in FORM GST ITC-02 electronically on the Common Portal: Provided that in the case of demerger, the input tax credit shall thus apportioned in the ratio of the value of assets of the new units as specified in the demerger scheme.
  2. Transferor shall also submit a copy of a certificate issued by a practicing chartered account or cost accountant.
  3. The transferee shall, on the Common Portal, accept the details so furnished by the transferor and, upon such acceptance, the un-utilized credit specified in FORM GST ITC-02 shall thus credited to his electronic credit ledger.
  4. The inputs and capital goods so transferred shall thus duly accounted for by the transferee in his books of account.

Rule that deals with Manner of determination of input tax credit in certain cases and reversal thereof (Rule 7):

(1) Under this Rule manner of identification of credit of taxes paid on Input and Input services pertaining to taxable, exempt supplies, zero rated supplies, non-business purpose thus identified.

  1. Identify total input tax credit (T)
  2. The input tax credit exclusively linked to non-business purpose (T1)
  3. Input tax credit exclusively linked to exempted supplies (T2)
  4. Input tax credit which is not eligible as credit (T3)
  5. Reduce the above ineligible tax credit from the total credit. The balance credit will be termed as (C1). {Formula : C1 = T- (T1+T2+T3)}
  6. Identify taxable supplies including that of zero rated supplies (T4)
  7. ‘T1’, ‘T2’, ‘T3’ and ‘T4’ shall determined and declared by the registered person at the invoice level in FORM GSTR-2
  8. Input tax credit left after attribution of input tax credit under clause (g) shall called common credit, denote as ‘C2’ and calculated as: C2 = C1- T4;
  9. The amount of input tax credit attributable towards exempt supplies, denoted as ‘D1’ and calculated as: D1= (E÷F) × C2
  10. Amount of credit attributable to non-business purposes if common inputs and input services used partly for business and partly for non-business purposes, denote as ‘D2’, and shall equal to five per cent. of C2; and
  11. The remainder of the common credit shall the eligible input tax credit attributed to the purposes of business and for effecting taxable supplies including zero rated supplies and shall denoted as ‘C3’, where,-C3 = C2 – (D1+D2);
  12.  Amount ‘C3’ shall compute separately for input tax credit of central tax, State tax, Union territory tax and integrated tax;
  13. The amount equal to ‘D1’ and ‘D2’ shall added to the output tax liability of the registered person

(2) The input tax credit determined under sub-rule (1) shall calculate finally for the financial year before the due date for filing the return for the month of September following the end of the financial year to which such credit relates, in the manner prescribed in the said.

Manner of determination of input tax credit in respect of capital goods and reversal thereof in certain cases (Rule 8)

  1. Subject to the provisions of sub-section (3) of section 16, the input tax credit in respect of capital goods, which attract the provisions of sub-sections (1) and (2) of section 17, partly used for the purposes of business and partly for other purposes, or partly used for effecting taxable supplies including zero rated supplies and partly for effecting exempt supplies, shall attribute to the purposes of business or for effecting taxable supplies in the following manner, namely,-

(a) the amount of input tax in respect of capital goods used or intended to used exclusively for non-business purposes or used or intended to used exclusively for effecting exempt supplies shall  indicated in FORM GSTR-2 and shall not credit to his electronic credit ledger;

(b) however amount of input tax in respect of capital goods used or intended to used  exclusively for effecting taxable supplies including zero-rated supplies shall  indicated in FORM GSTR-2 and shall credit to the electronic credit ledger;

(c)thus amount of input tax in respect of capital goods not covered under clauses (a) and (b), denoted as ‘A’, shall credit to the electronic credit ledger and the useful life of such goods shall taken as five years

(d)however the aggregate of the amounts of ‘A’ credited to the electronic credit ledger under clause (c), to denote as ‘Tc’, shall be the common credit in respect of capital goods for a tax period:

(e) the amount of input tax credit attributable to a tax period on common capital goods during their residual life, denote as ‘Tm’ and calculated as:- Tm= Tc÷60

(f) the amount of input tax credit, at the beginning of a tax period, on all common capital goods whose residual life remains during the tax period,  denote as ‘Tr’ and shall be the aggregate of ‘Tm’ for all such capital goods.

(g) However, the amount of common credit attributable towards exempted supplies,denote as ‘Te’, and calculated as: Te= (E÷ F) x Twhere,

‘E’ is the aggregate value of exempt supplies, that is, all supplies other than taxable and zero rated supplies, during the tax period, and

‘F’  the total turnover of the registered person during the tax period

(h) the amount ‘’Te’’ along with applicable interest shall, during every tax period of the residual life of the concerned capital goods, added to the output tax liability of the person making such claim of credit.

2. The amount ‘’Te’’ shall computed separately for central tax, State tax, Union territory tax and integrated tax.

 

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Renuka is a Final Year LL.B. student at Siddharth College of Law. She has done her Bachelors in Banking & Insurance and has also completed her Masters in Business Management . She likes to participate in legal workshops and Moot Courts. Besides her interest in law, she has a keen aptitude for legal research and is good at putting her analysis into words.

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