GST Input Tax Credit: According to the Central Board of Indirect Taxes and Customs (CBIC), ITC is a mechanism to avoid the “cascading of taxes” or “tax on tax.”
Input Tax Credit under GST: The net GST payable is the overall GST minus GST paid on buying raw material.
Input Tax Credit Claim in GST: The input tax credit (ITC) has been one of the key highlights of the Goods and Services Tax (GST) launched in the country as a major reform to the tax structure. It allows businesses to reduce their tax burden and save money to invest in business growth. According to the Central Board of Indirect Taxes and Customs (CBIC), ITC is a mechanism to avoid the “cascading of taxes” or “tax on tax.”
Before GST, credit of taxes being levied by the central government was not available as a set-off for payment of taxes levied by state governments, and vice versa. However, with GST, as the tax charged by the central or the state governments are part of the same tax regime, credit of tax paid at every stage is available as a set-off for payment of tax at every subsequent stage.
Here are the key things for a small business to know about ITC and how to claim it:
What is ITC under GST?
Essentially, if a GST-registered person or business pays tax on his/her inward supplies or inputs or raw materials, he/she can use this tax paid as a credit while paying tax on their outward supplies or sale of goods.
How to calculate ITC?
Understanding it from an example, let’s say you are a maker of office and home furniture and bought raw materials such as wood for Rs 50,000 at a GST of 18 per cent. Here, the tax paid is Rs 9,000. You sell the furniture made for Rs 1 lakh and levy 18 per cent GST amounting to Rs 18,000 from your customer. The revenue made by selling the furnq¹1iture by you is Rs 1.18 lakh.
Under ITC, you are allowed to deduct the tax amount of Rs 9,000 that you paid at the time of buying the raw material. Hence, your total tax liability will only be Rs 9,000 instead of Rs 18,000. In short, the net GST paid is the total GST payable minus GST paid on raw material purchases.
What documents are required to avail ITC?
Documents required to file ITC are invoice, debit note and bill of supply from the supplier, invoice issued similar to the bill of supply if the total amount is less than Rs 200, bill of entry or other relevant documents, document by input service distributor.
Who is eligible for ITC?
Apart from being registered with GST and paying taxes, the business must have a tax invoice or debit note from the supplier. The input tax should have been paid as defined in section 41 of the GST Act. Moreover, the person should have filed for returns as per section 39 of the GST Act, invoice payment must have been made within 180 days, GSTIN of supplier and recipient, and description of goods and services. The person should have received all the goods or services.
How to file ITC?
- Log in to the GST portal http://www.gst.gov.in and click on Services > Returns > ITC Forms
- In the GST ITC-01 box, click ‘Prepare Online’
- Select your appropriate section from the ‘Claim Made Under’ drop-down list
- Fill in details to create invoice such as GSTIN, Invoice number and date, and item details including goods type, description of inputs, unit quantity code, quantity, value, and amount of ITC claimed; and click on ‘Save’
- Click on ‘Preview’ to preview the form’s draft and then click on ‘Submit’
- Click on ‘Proceed’ on the pop-up alert
- Before filing the submitted form, you will have to update your Chartered Accountant (CA)/Cost Accountant details and upload the CA/Cost Accountant certificate on the GST Portal in case the ITC claimed is more than Rs 2 lakh
- Enter CA details such as the name of the firm, CA’s name, membership number, date of issuance of certificate and upload his certificate in JPEG format; and click on ‘Save CA Details’
- Select the checkbox for the declaration
- In the Authorised Signatory drop-down list, select the authorized signatory. This will enable the two buttons – ‘File ITC with DSC or File ITC with EVC’
- Select the DSC button to file the form with Digital Signature Certificate or the EVC button to file via Electronic Verification Code
- Click on ‘Proceed’ in case of filing via DSC, select the certificate and click on ‘Sign’
- In case of filing via EVC, enter the OTP sent on email and mobile number of the authorized signatory registered at the GST Portal and click ‘Verify’
- The Acknowledgement Reference Number (ARN) is generated successfully after filing and shared with the taxpayer
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