What is Input Tax Credit (ITC) Under GST? Benefits and Calculation with example

Goods and Services Tax (GST) is viewed as the greatest reforms in India. Notwithstanding, one thing that has become the idea is – the instrument of input credit under GST.

In straightforward words, Input Credit implies at the tax paid on sales or output, you can decrease the tax you have just paid on purchases or input.

In this article, we'll cover all you require to think about Input Tax Credit (ITC) under GST, as far as possible to profit ITC, how to calculate Input Tax Credit, how to claim ITC, the circumstance where you can not benefit ITC and significantly more.

What is Input Tax Credit?

Input tax credit (ITC) is the tax paid by the buyer on acquisition of goods or services.

Such tax which is paid at the buying when diminished from liability payable on outward supplies is called as input tax credit.

All in all, input tax credit is tax diminished from output tax payable on account of sales.

Lets understand with the help of Example

Mr. A bought the goods of Rs. 18,000 on which GST 18% was Rs 3240. He sold the goods worth Rs. 22,000. GST payable 18% is Rs 3960. Lets calculate and understand net GST payable and input GST credit.

Outward GST payable - Rs 3960

Less-GST paid on purchases - Rs 3240

Hence, net GST payable through money Rs 720

From above, we comprehend that Rs 3240 diminished is input tax credit benefited that had been paid on purchases.

What is as far as possible to benefit GST ITC?

ITC can be benefited by an enlisted taxable individual in a particular way and inside a predetermined time period. The table underneath shows the various circumstances wherein the inputs can be claimed for semi-completed goods or stock or completed goods.

Situation --> ITC claims day for semi-outfitted goods/stock/completed goods (hung on prompt going before day)

In the event that an individual has applied for registration or is at risk to enlist or is allowed registration --> Day from when he is obligated to make good on taxes

At the point when an individual takes deliberate registration --> Registration day

At the point when a taxable enlisted individual quits paying taxes in arrangement demand scheme --> Day from when he is obligated to pay tax regularly u/s 7.

Input tax credit for the previously mentioned circumstances can be claimed just on the off chance that it doesn't surpass one year from the tax invoice date of issue identified with supply.

For some other cases, ITC must be claimed before of the accompanying

a) Furnishing of yearly return or

b) Due date of documenting the month to month return (GSTR-3) for the following financial year's September month.

Model For the invoice dated 10/11/2017, ITC must be benefited prior of the accompanying dates –

The due date for September 2018 return – twentieth October 2018

Yearly return recorded (expected) – tenth November 2018

Hence till twentieth October 2018, ITC must be profited.

How to calculate Input Tax Credit?

We should think about a model on the best way to calculate Input Tax Credit:

Assume you have a business. The administration or product you sell pulls in a tax of 18%. You utilize input services or goods during your business. The tax due from you (of 18%) can be acclimated to the taxes paid as of now by you on the acquisition of such inputs. The makers add taxes just for the worth option done and not on the complete product esteem.

(Also Read: What is Reverse Charge in GST?)

How about we consider a case of a steel utensils producer who makes utensils like spoons, plates, and so forth Expect that the producer had purchased an INR 500 worth of raw steel to make a pressure cooker and Rs 100 for other raw materials. How about we accept that the GST for steel is 18%. Additionally, expect that the GST he paid is 28% of other raw materials.

Subsequently, the producer has paid Rs. 28 on other raw materials and Rs. 90 on raw steel which he utilized as inputs. In this way, the absolute input tax paid was Rs 118 by the maker.

Presently, subsequent to considering the expense of assembling steel pressure cooker utilizing the raw materials and including a fair benefit, he chose to offer the pressure cooker to a distributor at INR 800 + GST.

Expect that the steel utensil pulls in a GST of 18%.

Presently the tax on it will be INR 144. So the maker will invoice the pressure cooker for INR 944.

Thus, the maker is gathering INR 144 as GST marked down from the distributor. The producer had paid INR 118 towards GST during the acquisition of his input raw materials. Thus, out of INR 144 of GST, the maker would now be able to claim a credit of INR 118 which he previously paid towards GST for inputs and store the distinction of INR 26 with the public authority.

This tax credit is accessible at all succeeding stages, retailers and distributors charge GST and can claim the Input Tax Credit.

How to claim Input Tax Credit (ITC)?

The accompanying conditions must be met to be qualified for Input Tax Credit under the GST scheme:

• One must be an enrolled taxable individual.

• One can claim Input Tax Credit just if the goods and services got is utilized for business purposes.

• Input Tax Credit can be claimed on exports/zero-evaluated supplies and are taxable.

• For an enlisted taxable individual, in the event that the constitution changes because of consolidation, deal or move of business, at that point the Input Tax Credit which is unused will be moved to the blended, sold or moved business.

• One can credit the Input Tax Credit in his Electronic Credit Ledger in a temporary way on the normal gateway as recommended in model GST law.

• Supporting documents – debit note, tax invoice, supplementary invoice, are expected to claim the Input Tax Credit.

• In the event that there is a real receipt of goods and services, an Input Tax Credit can be claimed.

• The Input Tax should be paid through Electronic Credit/Cash ledger.

• All GST returns, for example, GST-1, 2,3, 6, and 7 should be documented

(Also Read: Process of Claiming ITC under GST)

How Input Tax works under GST?

Assume Mr A will be a dealer. He offers goods to Mr B. The buyer Mr B is currently qualified to claim the buy credit utilizing his buy invoices.

This is the manner by which it works:

Mr A transfers all his tax invoices subtleties as given in GSTR-1.

The subtleties transferred by Mr A is consequently populated or reflected in GSTR-2A. This equivalent information will get reflected when Mr B records the GSTR-2 returns which are only the subtleties of his buy.

The subtleties of the deal are then acknowledged constantly for by Mr B, and accordingly, the buy tax is credited to Mr B's 'Electronic Credit ' He can utilize this to change it later for future output tax liability and get a refund.