Chapter
V: Input Tax Credit

16

Eligibility and conditions for taking
ITC:

    
ITC
charged on supply used for business can be taken only if:

     
Invoice or debit note is in possession

     
Entire supply has been received

     
Tax has been paid in cash or through utilization of ITC

     
Filed the return u/s 39

    
If the
recipient
fails
to pay
the consideration & tax other than tax on reverse charge, within 180 days from date
of issue of invoice, ITC taken & interest shall be added to his output
tax liability. On payment, he can avail the ITC again.

    
ITC cannot be taken after the due date for filing return u/s 39 for the month of
September following the end of the FY or date of furnishing the relevant
annual return, whichever is earlier.

     
ITC shall not be allowed on the tax component of the cost of capital goods and plant
& machinery if depreciation is claimed
on tax component under IT Act.

 

ITC can be availed in following order as specified u/s 49:

ITC available in electronic credit ledger

To be used only against following taxes in the same order

Integrated
tax

Integrated,
Central & State or Union territory tax

Central
tax

Central
& integrated tax

State
tax

State
& integrated tax

Union
territory tax

Union
territory & integrated tax

The ITC on account of central tax, State tax or Union
territory tax shall be utilized only after the ITC available on account of
integrated tax has first been utilized fully. Further, for payment of
Integrated tax, the ITC on account State tax or Union territory tax shall be
utilized only after ITC on account Central tax has first been utilized fully.

17

Restrictions on ITC:

    
If supply
is
used
partly for business
and
partly otherwise, ITC shall be restricted to so much of input tax which is
attributable to the purposes of business.

    
If supply
is used for effecting
partly taxable supplies
including zero-rated supplies and partly exempt supplies, ITC shall be
restricted to so much of input tax which is attributable to the taxable
supplies. The value of exempt supply shall include supplies on which tax is
paid on reverse charge, transactions in securities, sale of land and subject
to
Schedule II 5(b), sale of building; but excludes the activities referred
to in
Schedule III (except paragraph 5).

    
A banking
company or a financial institution shall have the option to avail 50% of ITC
every month and the rest shall lapse and the option once exercised shall not
be withdrawn during the FY.

    
ITC is not available for:

     
Motor vehicles having approved seating capacity up to 13
persons
(including driver), except
when they are used for making taxable supply of transportation of passengers
or for further supply of such vehicles or for training on driving of such
vehicles.

     
Vessels and aircraft except
when they are used for transportation of goods or making taxable supply of
transportation of passengers or for further supply of such vessels or
aircraft or for training on navigating such vessels or flying such aircraft.

     
Services
of
general
insurance, servicing, repair and maintenance
of
vehicles, vessels or aircraft
referred
above except the case where it is used for the purpose specified above or the
person receiving this service is either a manufacturer of such vehicles or
provider of general insurance services on such vehicles.

     
Supply of
food & beverages, outdoor
catering, beauty treatment, health services, plastic surgery, leasing,
renting or hiring of motor vehicles, vessels or aircrafts
referred above except when used for the
purposes specified above, life insurance and health insurance. However, ITC
is available for inward supply of a category is used for making an outward
taxable supply of the same category or as a part of composite or mixed
supply. Supply of
membership
of a club, health & fitness center

     
Travel benefits given to employees on vacation if employer is not obligated to provide the same under
any law.

     
Works contract services or supplies for construction of an immovable
property
(other than plant &
machinery) except where input service is used for output supply of works
contract service

     
Supply on
which
composition
levy
has been paid u/s 10

     
Supply
used for
personal
consumption

     
Supply received by a non-resident taxable person except on goods imported by him

     
Goods lost, stolen,
destroyed, written off or disposed of by way of gift or free samples

     
Any tax paid u/s 74, 129 & 130

18

ITC on stock:

   
A person
can take credit of input tax in respect of
inputs held in stock and inputs contained in semi-finished or finished goods held
in stock on day immediately preceding the dates given below:

Case

Dates

Applied for registration within 30 days from date of becoming liable to registration and has been
granted such registration

Date from which liable to pay tax

Registered u/s 25(3)

Date of grant of registration

Switch from composition levy to normal levy

Date from which liable to pay tax u/s 9

Exempt supply becomes taxable supply

Date of on which the supply becomes taxable

   
On switch
from composition levy to normal levy or exempt supply becoming taxable
supply, ITC can be taken
on capital goods reduced
by prescribed percentage points, held in stock on the day immediately
preceding the date from which he becomes liable to pay tax.

   
In the
above cases, ITC
cannot
be taken after 1 year
from the
date of
issue
of invoice.

   
If any
person who has
taken
ITC
opts to pay tax u/s 10 or the supply become wholly exempt, input tax in respect of inputs
held
in
stock
and inputs contained in
semi-finished or finished goods held in stock and on capital goods, reduced
by prescribed percentage points, on the day immediately preceding the date of
exercising of such option or the date of such exemption,
shall be paid. After payment, the balance of ITC, if any, in electronic
credit ledger shall lapse.

   
On supply
of
capital
goods
or plant and machinery, on
which
ITC
has been taken,
an amount equal to
the
ITC taken on the said capital goods or plant and machinery reduced
by prescribed percentage points or the tax on the transaction value,
whichever is higher, shall be
paid. However, where
refractory bricks, moulds & dies, jigs & fixtures are supplied as
scrap, the taxable person may pay tax on the transaction value.

   
On sale,
merger, demerger, amalgamation, lease or
transfer of business with specific provisions for transfer of liabilities, ITC which remains unutilised can be transferred to successor.

19

The
principal shall be allowed ITC on inputs & capital goods sent to a
job-worker even if the goods are directly sent to the job worker without
being brought to his place of business. However, inputs should be utilized or
received back within 1 year and capital goods should be received back within
3 years (except moulds & dies, jigs & fixtures or tools).

20

The
Input Service Distributor (ISD) shall distribute the credit against a document of
credit. The ITC on input services attributable to a recipient shall be
distributed only to that recipient. Credit shall be distributed on prorata
basis of the turnover of such recipient to aggregate turnover of all
recipients for relevant period.

Relevant
period is:

   
If the
recipients have turnover in the FY preceding year of distribution, then that
year

   
Otherwise,
the last quarter for which turnover of all the recipients is available,
previous to the month during which credit is to be distributed

‘Turnover’
is the turnover reduced by tax levied under entries 84 and 92A of List I
& entry 51 & 54 of List II of the 7th Schedule to the
Constitution i.e., excise duties and VAT.