Everything You Need To Know About Input Tax Credit

The most important aspect of the Goods and Services Tax (GST) is the inclusion of a new input credit system.

When you purchase goods or services from a registered dealer you pay taxes on the purchase and while making sales, the tax is collected and the same is adjusted periodically with the tax you had already paid at the time of purchase and balance liability of tax must be paid to the government.This mechanism is known as utilisation of Input Tax Credit, that is the adjustment of tax on purchases against tax liability on output i.e. sales.

What input tax credit actually is? What is the difference between input tax credit under the existing VAT and under the GST regime?

• INPUT CREDIT

The input credit concept basically allows the assessee to reduce the tax he owes to the government by allowing him to claim a credit on what he has paid on inputs.

• INPUT CREDIT IN GST

The mechanism of input credit is available if the assessee is registered under the GST Act. The people covered under GST include manufacturers, suppliers, agents, e-commerce operators, aggregators and individuals in any other sector. The assessee is eligible to claim input credit for taxes paid by him.

• CLAIMING INPUT CREDIT UNDER THE GST ACT

The following steps must be taken to claim input credit under the GST act–

1. It is vital to have the tax invoices of all the purchases made.
2. Goods or services stated should have been received;
3. The tax paid on purchases must be deposited or paid to the government by the supplier either in cash through input credit claim;
4. The supplier should file for GST returns.
5. The assessee must not be enrolled in the GST Composition Scheme.

Input credit is only available if the supplier of the products has deposited the tax that he has collected from the receiver. Claims made with regards to input credit will be thus, verified and validated before the input credit comes through successfully.

The suppliers must thus, comply with GST. This approach of making everyone concerned with GST, accountable and validated is one of the prime features of GST, especially input credit.

• UNCLAIMED INPUT CREDIT

The probability of an unclaimed input credit exists. This happens when the tax on purchases is higher than the tax on the sale. In this case, the assessee is allowed to carry forward the same or claim a refund.

However, if the tax on output is higher than the one on input, then the assessee must settle and pay the balance amount.

• Input tax credit cannot be claimed on purchase invoices that are more than a year old. The time period of the same is calculated from the date of the tax invoice
• Input credit can be claimed for both Goods and services, except those which do not fall under the category of GST.
• Capital goods are also mentioned under the input tax credit clause.
• Input credit on goods and services is not available for personal use.
• No input credit will be allowed after GST returns have been filed for September following the end of the financial year pertaining to such an invoice or filing of a requisite annual return.