The Central Goods And Services Tax Bill, Input Tax Credit. Arun Kumar Agarwal. 12-Apr-17

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1 The Central Goods And Services Tax Bill, 2017 Input Tax Credit Arun Kumar Agarwal 1

2 Statutory Provisions Chapter Sections 16 to 21, 41 to 43& 53 V info@arsconsultants.net 2

3 Section 16- Eligibility and conditions for taking input tax credit (1) Every registered taxable person shall be entitled to ITC charged on any supply of g/s used or intended to be used in the course or furtherance of business. (2) Conditions for claiming ITC should be in possession of tax invoice, debit notes or any tax paying document has received the goods and / or services tax has been actually paid to the Government Return must be furnished If goods are received in lots credit to be taken upon receipt of last lot make payment to supplier within 180 days from the date of invoice - otherwise availed ITC shall be added to output tax liability. info@arsconsultants.net 3

4 Contd (3) No ITC on capital goods if depreciation claimed on the tax component. (4) Time period to avail ITC Earlier of the followings furnishing of the return for the month of September following the end of financial year to which such invoice or such debit note pertains or furnishing of the relevant annual return. 4

5 Section 17 - Apportionment of credit and blocked credits Partly for business and partly for other purpose Credited restricted to what is attributable to business use only Goods and service used Partly for taxable supply* and partly for exempt supply Credited restricted to what is attributable to taxable supply only *Note: taxable supply to include Zero rated supply also For Banking company, Financial Institutions** Two optionsavailable i. Avail credit to the extent of taxable supplies, or ii.avail an amount equal to 50%of the eligible ITC on inputs, capital goods and input services Provided Restriction of 50% shall not apply if supply made by one registered person to another registered person, both having same PAN **Note: Financial institution shall include non banking company also info@arsconsultants.net 5

6 Contd i) motor vehicles and other conveyances except 1. Used for making taxable supply, namely further supply of such vehicles or conveyances ; or transportation of passengers; or imparting training on driving, flying, navigating such vehicles or conveyances; 2. for transportation of goods ii) supply of g/s, namely, a) Food and beverages, outdoor catering, beauty treatment, health services and plastic surgery except where outward supply is of same category; b) Membership of a club, health and fitness centre, c) rent-a-cab, d) life/ health insurance except which the Govt. to be obligatory for an employer to provide to its employees, e) leave or home travel concession to employees info@arsconsultants.net 6

7 Contd Works contract service for construction of immovable property, other than plant and machinery except where outward supply is also works contract service, goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples G/S received for construction of immovable property other than plant and machinery, on his own account tax recovered on account of fraud, detention & release of goods and confiscation G/S on which tax paid under composition scheme G/S received by nonresident taxable person except on goods imported by him G/S used for personal consumption 7

8 Section 18 - Availability of credit in special circumstances Mandatory registration: A person who has applied for registration within thirty days from date on which he becomes liable to registration and has been granted such registration shall be entitled to take credit of input held in sock as finished or semi finished goods. Including a person who takes voluntary registration. Voluntary registration: Voluntary registered person shall be entitled to take credit of input tax i.r.o. inputs held in stock, semi-finished or finished goods. Person ceases to pay tax under composition scheme - entitled to avail credit of inputs held in stock, semi-finished goods held and on capital goods reduced by percentage points as prescribed in Rules on the day preceding the day when he becomes liable to pay tax under section 8. info@arsconsultants.net 8

9 Section 18 - Contd... If an exempted goods/services become taxable then credit for inputs held in stock of semi- finished and finished goods, and capital goods reduced by percentage points as prescribed in Rules used for such exempt supply shall be allowed. Credit to be taken with 1 year from date of issue of invoice in respect of such supply. Unutilized credit is allowed to be transferred in case of change in constitution of business. If the goods/services are exempted or the person switches to composition scheme, then he shall pay an amount of credit availed on input held in semi- finished and finished goods held in stock and on capital goods When Capital Goods or Plant & machinery is supplied, on which ITC is taken, an amount equal to ITC taken shall be reduced by Percentage points to be prescribed Tax on value as per Sec 15, which ever is higher info@arsconsultants.net 9

10 ITC Rules:- manner of taking ITC in special Circumstances ITC on capital goods shall be reduced by 5% points/quarter of a year or part thereof from the date of invoice on which the capital goods were received by the taxable person. The registered person shall within 30 days make a declaration clearly specify the details relating to the inputs lying in stock of semi-finished or finished goods, or capital goods, electronically, on the Common Portal in FORM GST ITC-01, duly certified by a practicing chartered account or cost accountant if the aggregate value of ITC claim exceeds two lakh rupees. In case of change in constitution of business, transferor shall furnish details of such change in FORM GST ITC-02 along with a request to transfer the unutilized input tax credit to transferee. He should also submit a certificate issued by a practicing chartered account or cost accountant certifying that such change has been done with a specific provision for transfer of liabilities. After acceptance of details furnished above, by the transferee, the unutilized ITC shall be credited to the electronic credit ledger of the transferee. info@arsconsultants.net 10

11 Section 19 - Taking input tax credit in respect of inputs sent for job work Principal (sent inputs/capital goods whether directly or not) entitled to ITC if inputs / capital goods Job worker Inputs and capital goods not received back within a period of one year and three years respectively of their being sent out - Deemed that such inputs/capital goods had been supplied by the principal to the job-worker on the day when the said inputs/capital goods were sent out. info@arsconsultants.net 11

12 Section 20 - Manner of distribution of credit by Input Service Distributor ISD shall distribute the credit of CGST as CGST or IGST. IGST as IGST or CGST Credit to be distributed subject to these conditions Credit to be distributed to recipient against a document containing details as may be prescribed Amount distributed shall not exceed than what is available for distribution Credit of tax on Input Service attributable to a recipient shall be distributed to him only, however when such credit is attributable to more than one recipient, it shall be pro rata on basis of Turnover in a State or UT, during the relevant period. info@arsconsultants.net 12

13 ITC Rules- Procedure for distribution of input tax credit ITC available in a month shall be distributed in same month and details to be furnished in form GSTR-6 ITC on account of central tax, state tax, union territory tax and integrated tax shall be distributed separately ITC which is to be distributed to more than one unit is to be computed using formula C1 = (T1 T) C where, C is the amount of credit to be distributed, T1 is the turnover of person to whom ITC is to be distributed during the relevant period, and T is the aggregate of the turnover of all recipients during the relevant period; ITC on account of IGST shall be distributed to every recipient; info@arsconsultants.net 13

14 ITC Rules- Contd ITC on account of central tax and State tax, If recipient of ITC and ISD located in same state be distributed as input tax credit of central tax and State tax respectively. If recipient of ITC and ISD located in different states - be distributed as integrated tax which shall be equal to the aggregate of central tax and State tax. ISD shall issue an Invoice/credit note clearly indicating that invoice is issued for distribution of ITC only / reduction of Credit of ITC respectively. If credit note issued to ISD- ITC distributed earlier shall stand reduced in same ration in which it was distributed. The ISD shall, on the basis of the ISD credit note issue an Invoice to the recipient entitled to such credit and include the ISD credit note and the Invoice in FORM GSTR-6 for the month in which such credit note and invoice was issued info@arsconsultants.net 14

15 Section 21 - Manner of recovery of credit distributed in excess Excess distribution of credits to one or more recipients of credit shall be recovered from such recipient along with interest. info@arsconsultants.net 15

16 Section 41 Claim of ITC and provisional acceptance thereof Credit to be taken in return, as self-assessed. ITC credited to electronic credit ledger on provisional basis. Utilization of ITC only for payment of self-assessed output tax as per the return. 16

17 Section 42 - Matching, reversal and reclaim of input tax credit A. Details of every inward supply furnished by the recipient shall be matcheda) with the corresponding details of outward supply furnished by the supplier b) with IGST paid under Customs Tariff Act, 1975, for goods imported, and c) for duplication of claims of ITC B. Claim of ITC matched or mismatched or duplication shall be communicated to both supplier and recipient. C. Discrepancy not rectified by supplier in his return amount added to the output tax liability of the recipient in the return of succeeding month and shall be payable along with interest info@arsconsultants.net 17

18 Contd. D. If ITC claim is in excess on account of duplication- same shall be added to Output liability of recipient E. Supplier provides details of invoice or debit note in his return against any mismatch - amount added before shall be reduced in output liability of recipient along with interest paid earlier to be refunded to such recipient. info@arsconsultants.net 18

19 Section 43 - Matching, reversal and reclaim of reduction in output tax liability A. Details of credit note of outward supply by the supplier shall be matcheda) with the corresponding reduction in the claim for ITC by the recipient. b) for duplication of claims for reduction in output tax liability B. Reduction in output tax liability of output supplier => corresponding reduction in claim of ITC of recipient => discrepancy communicated to both supplier & recipient. C. Rectification in the return not done within time limit by the recipient amount to be added to output liability of supplier and be payable along with interest D. If reduction in output liability on account of duplication- same shall be added to Output liability of supplier and be payable along with Interest info@arsconsultants.net 19

20 Contd. E. If ITC claim is in excess on account of duplication- same shall be added to Output liability of recipient E. Supplier provides details of credit note in his return amount shall be reduced in output liability of supplier along with interest paid earlier to be refunded to such supplier. 20

21 Section 53 Transfer of ITC ITC availed under CGST Act but utilized for payment under IGST Act CG shall transfer the amount equal to the amount so utilized from the CGST/SGST account to the IGST account. 21

22 Documentary requirements for claiming ITC i. Tax invoice issued by supplier ii. Debit note issued by a supplier iii. bill of entry iv. document issued by an Input Service Distributor GST Rules- ITC Document shall contain all particulars as prescribed in Invoice Rules and the same is furnished in Form GSTR-2 No ITC of any tax paid on account of order passed. Payment not made to supplier within 180 days of issue of invoicefurnish details of such availment of ITC in return for the period immediately following 180 days. Such amount shall be added to output liability of such person payable along with applicable interest. info@arsconsultants.net 22

23 Contd Conditions and restriction in respect of inputs and capital goods sent to the job worker The inputs / capital goods shall be sent to the job worker under the cover of a challans issued by the principal containing the details specified in Invoice Rules. Details of challans i.r.o goods dispatched to / received from a job worker shall be included in FORM GSTR-1 If the inputs or capital goods are not returned to the principal within 1 year and 3 year respectively of their being sent out, the challans issued above shall be deemed to be an invoice for the purposes of this Act. For determining the value of an exempt supply u/s 17:- (a) the value of land and building will be same as taken for paying stamp duty (b) the value of security shall be taken as 1% of sale value of such security. info@arsconsultants.net 23

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