The reduction of Input Tax Credit value from GST payable on sales is subject to certain conditions. These conditions, as per GST law, are largely consistent with the pre-GST regime, with a few additional requirements like GSTR-2B. These rules are straightforward and can be stringent.

Input Tax Credit (ITC) refers to the central tax (CGST), state tax (SGST), integrated tax (IGST), or cess that is paid by a person with GST registration on the supply of goods or services. This encompasses taxes paid on a reverse charge basis and IGST charged on imported goods. However, it does not include taxes paid under the composite taxation scheme.

Businesses pay input tax when making purchases, and this tax can be utilized to offset tax liabilities when making sales. The taxation is based on the value added at each stage of the supply chain until the final consumer is reached.

Benefits Of Input Tax Credit

The Input Tax Credit Service in India is an integral part of the Goods and Services Tax (GST), which helps to avoid double taxation and avoid the cascading effect.

For example, when a person purchases raw materials to create a product, they pay a tax called input tax. Later, when the company sells the processed goods from these raw materials, known as output, it can apply a tax credit equal to the tax paid to the supplier or vendor. Therefore, they are only liable because they are responsible for the balance of tax owed. This mechanism prevents double taxation and creates a more equitable tax system.

Conditions Under Which Input Tax Credit Can Be Taken

A person bearing a GST registration can claim ITC if the following criteria are fulfilled:

• GST Registration & GSTR 2 Filing:

The claimant has to be a GST-registered individual and must have filed GSTR-2 returns.

• Tax Invoices/Debit Note:

Those are in possession of a valid tax invoice/debit note from a supplier of goods or services.

• Receipt of Goods or Services: 
• The claimant must have received the goods or services (or both).
• The GST charged on supply must have been paid by the supplier to the government.
• It is a rule that if goods are received in installments, ITC can be claimed only when the final lot is received.

No Depreciation on Capital Goods:

The ITC cannot be claimed on the tax aspect of the capital products if an earnings reduction has been asserted on them through the input tax credit service.

Tax & Process For Input Tax Credit

There are certain conditions that should be fulfilled in order to claim Input Tax Credit (ITC) under GST.

GST Registration: The person should be listed under GST.

Valid tax invoice or debit note: Tax invoice or debit note issued by a registered supplier containing the tax amount to claim input tax credit service. 

Receipt of Goods or Services: The goods or services must have been received.  The Supplier should be paid in returns and tax branch payment.

ITC on Instalments: Where any goods are received in lots or instalments, the said ITC on such goods may be claimed when the last lot or instalment is received. If you avail depreciation on the tax component of capital goods, you cannot claim ITC.

Earlier Claim: Input Tax Credit services can only be claimed within the prescribed time.

How To Claim Input Tax Credit Post GST Filing?

Here is the procedure for claiming Input Tax Credit (ITC) for the normal taxpayers:

• GSTR 3B: Report the ITC in the GSTR 3B return.

GSTR 3B: Provisional Basis: Taxpayer can provisionally take the credit of input tax in GSTR 3B for the month up to 20% of the eligible input tax credit as per the auto-populated GSTR 2A return containing the details of outputs provided by the supplier.

• Confirming GSTR 2A figures is a must before filing GSTR 3B.

Provisional ITC in Form 3B (from 09/10/2019) is restricted to 20% of the eligible ITC as appearing in GSTR 2A.

Thus, the ITC reported in GSTR 3B will include the data of actual ITC in GSTR 2A and provisional ITC, i.e. 20% of eligible ITC in GSTR 2A. This requires accurate tallying of the purchase register with GSTR 2A.

Documents Required For Input Tax Credit

As a registered taxable person, you can claim an Input Tax Credit based on the following documents:

• Invoice issued by the supplier of goods or services.
• Invoice issued by the recipient of goods and services from an unregistered dealer (under the reverse charge mechanism).
• A debit note is issued by the supplier when the tax charged is less than the tax payable for the supply.
• Bill of entry or similar documents for recording integrated tax on imports.
• Invoice or credit note issued by an input service distributor as per GST rules.
• Supply bill from a dealer under the composition scheme, exporter, or supplier of exempted goods.

Procedures For Claiming Input Tax Credit (ITC) Under Goods & Service Tax

1. Conditions for Claiming ITC

These are the conditions that a business must satisfy in order to avail ITC through the top input tax credit agency in India, as a Services plus with the below relevant information:

• Possession of a Tax Invoice or Any Other Relevant Document:

The applicant must hold a tax invoice, debit note, bill of entry, or any other specific document. Receipt of Goods or Services; the registered person should receive the goods or services for which ITC is claimed.

• Supply Tax Payment:

The supplier needs to pay the tax amount to the government in cash or from the existent ITC. The GSTR-2B, a statement that is generated under the GST system and provides the eligible ITC to the recipients based on the filings of the suppliers in GSTR-1 and GSTR-5, inter-alia, should reflect the ITC.

• Filing of GST Returns:
• To availing ITC, the claimant should have filed GSTR-3B, a summary return for the month.
• Compliance of the Time Limit for ITC: ITC should be claimed earlier of:
• Filing due date of GSTR-9 (annual return) for the applicable financial year.
• Northern Hemisphere (July 30, September 30, November 30 of the preceding financial year.

2. Documents Required to Claim ITC in GST

In the case, the tax invoice or debit note issued by a registered supplier.

• Bill of Entry (for imports).
• Invoice of Reverse Charge Mechanism (RCM) (if applicable)
• Receipt of Goods / Services (delivery challan / transport document, etc.)
• Status of supplier’s GSTR-1 filing status for invoice reflection in GSTR-2B

3. The Process of Claiming the ITC, Step By Step

A. Check Compliance of Supplier Check Compliance of Supplier GSTR-1 and paid tax to the government.

B. Ensure that the invoice details are reflected properly in GSTR-2B

• GSTR-2B: Reconcile Input Tax Credit (ITC)
• Download GSTR-2B from GST portal
• Cross-reference invoices in your purchase register to GSTR-2B entries
• Find out ‘mismatched, missing or ineligible (like blocked ITC u/s 17(5)’ credits.

C. Populate ITC Portion in GSTR-3B

• Log in on GST Portal (www. gst. gov.in).
• Go to: Returns → GSTR-3B → ITC Section
• Report eligible ITC in the following fields :
  
  

• IGST, CGST, SGST and Cess as per invoice breakup.
• Reverse charge basis (RCM) — ITC claimed
• Denied credits (e.g., personal expenses, motor vehicles not for commercial purposes).

D. Set off ITC from GST Liability

• The ITC is set off against IGST liability in the first place and then against CGST and SGST.
• Any ITC in excess can be carried forward to the subsequent period.

E. File GSTR-3B

• Validate final ITC claim and file GSTR-3B
• If you've got a balance tax liability, pay it in cash.

4. ITC Reversal Scenarios

• Certain exceptions apply and ITC has to be overturned in cases, such as:
• Failure to pay the supplier within 180 days from the invoice date.
• Goods or services consumed for personal, family, or household use.
• Discrepancy or duplication in GSTR-2B and purchase register.
• Property lost, stolen or destroyed.

5. ITC Under Special Cases

• Input Tax Credit (ITC) on Reverse Charge Mechanism (RCM)

• The recipient must pay GST on his/her account and can take ITC in the same month.
• ITC will be allowed only post the payment of tax through GSTR-3B.

• ITC on Imports

• The importer can avail ITC as per the Bill of Entry and IGST payment.

• ITC on Capital Goods

• ITC shall be available 100% subject to exceptions (blocked credits e.g., vehicles used for personal purposes).

• ITC Under Composition Scheme

• Businesses under Composition Scheme may not be able to claim ITC.