Input credit under GST
What is Input credit
In simple words taking input, credit means taking credit of GST paid on various purchases
A registered person is entitled to take credit of GST charged on the purchase of goods or services which are used or intended to be used in the course or furtherance of his business
The said amount shall be credited to the electronic credit ledger of such a person.
Conditions for taking Input credit
1. You must possess a tax invoice or debit note issued by a supplier registered under this Act, or such other tax paying documents.
2. You have received the goods or services.
3. Tax charged on an invoice or any other document has been paid to the government.
4. You have filed the required returns to claim the Input credit.
5. The said goods or services or both are used or intended to be used in the course or in the furtherance of his business
Goods received in Instalments
One of the conditions to avail input credit is that you must have received goods or services. If goods are received in installments against a single invoice, credit can be taken upon receipt of the last installment of goods
Reversal of credit on non-payment of dues to supplier beyond 180 days from the date of invoice
If a recipient of goods or service has not paid the supplier within 180 days from the date of invoice, he would be liable to add back (to the output liability) the input credit availed on such an invoice along with the interest.
Non-payment of the value of Invoice to the supplier must be furnished in the form GSTR 2. The said input tax credit can be re-availed on payment of the value of supply and tax payable thereon.
Capital goods on which depreciation is claimed
Where the registered person has claimed depreciation on the tax component of the cost of capital goods and plant and machinery under the provisions of the Income Tax Act, 1961, the input tax credit shall not be allowed on the said tax component.
Apportionment of credit
Where the goods or services or both are used by the registered person partly for the purpose of any business and partly for other purposes, the amount of credit shall be restricted to so much of the input tax as is attributable to the purposes of his business.
Similarly, Where the goods or services or both are used by the registered person partly for
effecting taxable supplies and exempt supplies, the amount of credit shall be restricted to so much of the input tax as is attributable to the said taxable supplies.
No Input credit for the following
1. Motor vehicles & other conveyances
A person is not eligible to take input credit on the purchase of motor vehicle except for those people who use a motor vehicle for the following purposes:
- For the transportation of goods
- For transportation of passengers
- For imparting training on driving
- A person who makes a further supply of vehicles can also take credit
2. Goods and services like Food & beverages, outdoor catering, beauty treatment, health services, etc except where these are used by a registered person for making an outward taxable supply
3. Membership of a club, health & fitness center.
4. Rent a cab, life insurance & health insurance except where these are used by a registered person for making an outward taxable supply
5. Travel benefits extended to employees
6. Goods or services used for personal consumption
7. GST paid on works contract services will be allowed only if the output is also working contract services.
8. Goods or services or both on which the tax paid under composition scheme.
Some frequently asked questions
Q1. Whether Input tax credit on Inputs and Capital Goods is allowed in one installment?
Yes. The input tax credit will be available in full with respect to inputs and capital goods in one installment, unlike previous law, where credit on capital goods was available on installment.
Q2. Whether the registered person can avail the benefits of input tax credit and depreciation
on the tax component of capital goods and plant and machinery?
No. only one of the above is available, a person can either take credit of tax paid or take depreciation on tax component of capital goods including it in the cost of such capital goods
Q3. Whether input tax credit will be available on taxable goods which are given by way of gift or free samples under the sales promotion?
No. GST laws specifically restrict input tax credit on goods disposed of by way of gift or free samples.
Q4. Whether Input tax credit is available in respect of Input tax paid on the use of mobile phones/laptops/as given to employees?
Yes. The mobile phones/ laptops would be covered under the definition of inputs as they are used in the course/ furtherance of business and hence, the input tax paid on such goods will be available as an input tax credit.