Input Tax Credit ( ITC)


Fincrif India

Sep 20

01:45 AM

The tax that a company pays on purchases is known as the input tax credit, or ITC, and it can be used to lower the amount of taxes it owes when it sells something.

The tax that a company pays on purchases is known as the input tax credit, or ITC, and it can be used to lower the amount of taxes it owes when it sells something. In other words, companies can lessen their tax obligation by claiming a credit for the amount of GST they paid on purchases.

In an integrated tax system known as the Goods and Services Tax (GST), each business's purchase must be matched by a business's selling. Due to this, credit flow is a fluid operation throughout the entire supply chain.

How Does ITC Work ? 

In order to collect GST, a merchant must know the HSN of the items being sold to customers as well as the location of the final destination. Assume that the product's MRP is INR 1000 and the appropriate GST rate is 18%. As a result, the consumer will pay INR 1180 for the commodity in total, which includes INR 180 in GST. The trader will be required to pay the government 180 INR without ITC. The trader can lower the overall amount of tax it will have to pay the government by using input tax credit, or ITC. This is the procedure.

Let's assume that the dealer has a cost of INR 825 for the good. This also includes 125 INR in GST. The dealer can claim INR 125 as input tax credit, which will lower his initial tax burden of INR 180. To put it another way, the merchant will only have to give the government INR 55 (INR 180 - INR 125).

Condition for Claiming ITC 

If the following requirements are satisfied, a firm may claim ITC :-

  • The bill is GST-compliant.

  • The invoice from its supplier has been posted to the GSTN.

  • Its supplier has reimbursed the government for GST.

  • The returns have been submitted

The input tax credit is not available to businesses operating under the composition scheme. For commodities that are exempt or intended for personal use, ITC cannot be claimed.

Eligibility and Conditions to Obtain ITC 

Section 16 of the CGST Act outlines requirements that suppliers of goods and services must meet in order to be entitled to claim ITC. These requirements are as follows :-

  • First and foremost, you have to be GST-registered. 

  • You also have the tax invoice or debit note that was sent to you by the provider of inputs or input services. 

  • Both the items and the services must be delivered to you.

  • The GST owed to the government in relation to such a supply must have been paid by your inputs supplier. 

  • You were supposed to file the returns under section 39.

  • You can submit an ITC claim once the final lot of goods has been received if you receive them in lots or installments.

  • You cannot receive an ITC on the cost of your capital goods' tax component if you have already claimed depreciation on that portion of the cost.

  • If you don't claim your ITC by the deadline, you won't be eligible to get it. 

Documents Required for Claiming ITC 

The following documentation will be used to support your ITC application as a registered taxable person :-

  • A bill sent to you by the company that provided the goods or services.

  • Invoice that you have issued as a consumer who has received goods and services from an unregistered vendor. This type of supply is covered by the reverse charge mechanism. A supply made by someone who is not registered and given to someone who is involved in this system.

  •  In the event that the tax charged in an invoice is lower than the tax due in relation to such a supply, your supplier will issue you a debit note.

  • A Bill of Entry or other document matching the specifications needed for an integrated import tax.

  • An invoice or credit note issued in accordance with GST regulations by an input service distributor.

  • A Bill of Supply issued by a dealer who chooses the composition scheme, an exporter, or a supplier of exempt items.

Reversal of ITC 

The utilised input tax credit may need to be reversed in some circumstances. When the following occurs :-

  • Default on your payment obligations to your supplier after 180 days have passed since the supplier's invoice issuance date.

  • Use products and services for personal use only

  • Use resources such as commodities and services to create exempt supplies

  • Utilise investment property for individual usage.

  • Sell equipment, machinery, and capital items

  • Transform the standard GST into the composite Levy


As time has gone on, GST has changed as a result of the government's proactive response to taxpayer complaints and efforts to ensure easy compliance. The input tax credit (ITC) is a key component of the overall GST legislation and has a direct impact on how businesses operate. Taxpayers should be aware of the aforementioned requirements to make sure they claim their rightful and timely credits for the input tax credit.

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