One of the primary characteristics of the Goods and Services Tax (hereafter referred to as “GST”) is the constant and efficient chain of input tax credits. One of the most crucial aspects of the GST system is that it would simultaneously be imposed by the federal and state governments on the entire supply chain. Input Tax Credit (ITC) is a tool used to prevent tax cascading. In other words, “tax on tax” is what is meant by cascading taxes. In accordance with the current taxation structure, state and federal taxes cannot be offset against one another while paying central government taxes. Such a cascade of taxes would be lessened by the Goods and Services Tax (GST). Most indirect taxes levied by the federal government and state governments will be reduced under this new arrangement. The provision of both commodities and services would be integrated collectively under a single tax. The main levies and taxes are planned to be combined or included in the GST. Input tax credit refers to the process of reclaiming the GST paid on goods and services used to further a firm. One of the main justifications for the implementation of GST is the Mechanism of Input Tax Credit, which serves as its foundation. Since GST is a single tax imposed across India (from the point of manufacture of products or services until they are received by the final consumer), the chain is not broken, everyone is able to benefit from it, and credit flows without any interruptions.
GST comprises of the following levies:-
- The Central Goods and Services Tax (CGST), also referred to as the Central Tax, on intra-state or intra-union territory supply of goods or services or both without legislative authorization.
- State Goods and Services Tax (SGST) on intra-state supply of goods or services or both. This tax is also referred to as the state tax.
- The intra-union territory supply of goods or services or both is subject to the Union Territory Goods and Services Tax (UTGST) Input Tax Credit Mechanism under GST [also known as Union territory Tax].
- Interstate supply of goods or services or both is subject to the Integrated Goods and Services Tax (IGST), also referred to as the Integrated Tax. The current levies of Countervailing Duty (CVD) and Special Additional Duty (SAD) on goods imports would be replaced by an Integrated tax.
- Possession of invoice
- Receipt of goods or services
- Tax actually paid by the supplier to the government
- Furnishing of return
- He/she is in possession of a tax invoice or any other approved tax-paid document.
- He/she received the products or services. “Bill to ship” is included.
- The supplier is responsible for paying the tax.
- He/she should furnish the GST Return
- If the inputs are delivered in lots or installments, he /she would only be qualified to collect the ITC upon delivery of the final lot or installment.
Tenure to avail ITC:-
- The deadline for filing the return for the month of September of the next fiscal year is the time limit for claiming an ITC.
- The annual report for the relevant financial year which was filed.
- Since input credits can be used for both goods and services (apart from those that are on the exempt/negative list).
- Capital goods are eligible for input tax credits.
- Goods and services intended for personal use are not subject to input tax.
In rare circumstances, how input tax credits are treated:-In addition to the foregoing, the GST Input Tax Credit rules also include provisions for some unusual circumstances, including:-
- When a regular dealer who has benefited from ITC shifts to the composition scheme
- when taxed goods or services are rendered ineligible