What is Input Tax Credit?

The input tax credit is the central tax (CGST), state tax (SGST), integrated tax (IGST), or cess that is paid by a person and has a GST registration on the supply of goods or services. GST input tax includes the tax that is paid on a reverse charge basis and the IGST charged on the import of goods. But, input tax does not include the tax paid on the composite taxation scheme.

The input tax credit is the tax paid by a business on the purchase and this tax is used to reduce the tax liability when a sale is made. The taxation levy is based on the value that is added at each stage of the supply chain until it reaches the consumer.

The Goods and the Service Tax Act is levied on the goods and the services based on the principle of value addition. To negate the cascading effect of the tax liability that is paid on the procurement of the raw materials, consumables, plants, and machinery, etc. This element of offsetting the tax liability is called the input tax credit.

Every person with a GST registration in the supply chain takes part in control, collects the GST tax, and remitting the amount that is collected. To avoid double taxation and the cascading effect of the tax input credit is provided to set off tax paid on the procurement of the raw materials, consumables, goods, or services that are used in the manufacturing, supply, and sale of goods or services.

The business can achieve neutrality using the input tax credit mechanism in the incidence of tax and ensure that the input tax element is not entering into the cost of production or the cost of supply of goods and services.

Eligibility Criteria for Input Tax Credit

The input tax credit can be claimed by a person who is registered under GST only if he is meeting the conditions that are mentioned below:

The input tax credit can be claimed only by a person that has a GST registration and has filed the GSTR 2 returns.
The dealer should possess the tax invoice or the debit note that is issued by the supplier of input or the input services.
The said goods or services or both should be received.
The supplier has made the GST payment that is charged to the government concerning such supply.
When the goods are received in installments the input tax credit can be claimed only when the last lot is received.
No Input tax credit is allowed if depreciation has been claimed on the tax component of a capital good.

Basic Requisites for claiming the input tax credit

The following requisites are mandatory for claiming the input tax credit under the GST:

The Individual must be registered under the GST law.
A tax invoice or the debit note that is issued by the registered supplier showing the tax amount.
The goods or the service should be received.
The supplier should file the returns and pay the tax there on to the government.
Where the goods are received in parts or installments, the input tax credit may be claimed on the receipt of the last lot or the installment.
Where the input tax credit is included in the cost of the capital goods and the depreciation on the tax is claimed, no input tax credit is allowed.
The input tax credit will not be allowed if the same is not been claimed within the prescribed time.

Document Required for GST Registration Cancellation

Invoice

Debit Notes

Bill of Entry

Credit Notes

Supply Bill