Goods and Services Tax INPUT TAX CREDIT September 22, 2016 P V SRINIVASAN Corporate Advisor Email: pvs@pvsadvisors.com Mobile: +919845057597 1
Input Tax Credit Key definitions 1. Input : S 2(54): means any goods other than capital goods, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making outward supply in the course or furtherance of business. 2. Input service : S 2(55): means any service, subject to exceptions as may be provided under this Act or the rules made thereunder, used or intended to be used by a supplier for making an outward supply in the course of furtherance of business. 3. Capital goods : S 2(20): means Combination of Excise + State VAT.
Input Tax Credit Key definitions 1. goods : S 2(48): means every kind of movable property other than actionable claims and money but includes securities, growing crops, grass and things attached to forming part of the land which are agreed to be severed before supply or under the contract of supply. 2. services : S 2(88): means anything other than goods. Explanation: Services include intangible property and actionable claim but does not include money. 3. supplier : S 2(91): in relation to any goods and / or services shall mean the person supplying the said goods and / or services and shall include an agent acting as such on behalf of such supplier in relation to the goods and / or services supplied. 4. Outward supply : S 2(73): in relation to a person, shall mean supply of goods and / or services, which by sale, transfer, barter, exchange, license, rental, lease or disposal made or agreed to be made by such person in the course of or furtherance of business except in case of such supplies where the tax is payable on reverse charge basis. 5. Person: 2(74): includes an individual, a HUF, a company, a firm, a LLP, an AOP or BOI, whether incorporated or not in India or outside India, any body corporate incorporated by or under the laws of a country outside India; a co-operative society registered under any law relating to co-operative societies; a local authority, government, society as defined under Societies Registration Act, 1860 (21 of 1860), trust, and every artificial juridical person, not falling within any of the preceding subclauses. 6. Taxable person : S. 2(96) shall have the meaning assigned to it in Section 9 of this Act.
Input Tax Credit Key definitions 1. Electronic cash ledger : S 2(40): means the cash ledger in electronic form maintained at the common portal for each registered taxable person in the manner as may be prescribed in this behalf. 2. Electronic credit ledger : S 2(41): means the credit ledger in electronic form maintained at the common portal for each registered taxable person in the manner as may be prescribed in this behalf. 3. Common Portal : S 2(25) means the common GST electronic portal approved by the Central Government and State Governments, on the recommendation of the Council, for specified purposes, as may be notified under this Act.
Taxable Person Sec 9 1. Taxable person means a person who carries on any business at any place in India / State of and who is registered or required to be registered under Section III of this Act. Provided that an agriculturist shall not be considered as a taxable person; Threshold exemption: Provided further that a person who is required to be registered under paragraph 1 of Schedule III of this Act shall not be considered as a taxable person until his aggregate turnover in a financial year exceeds [Rs ten lakh]; Threshold of Rs 5 lakh will apply only if a taxable person conducts his business in any NE States including Sikkim. 2. The Central Government, a State Government or local authority shall be regarded as a taxable person in respect of activities or transactions in which they are engaged as public authorities other than the activities or transactions as specified in Schedule IV of this Act. 3. The following persons shall not be considered as taxable persons for the purposes of this Act Any person who provides services as an employee to his employer in the course of, or in relation to his employment, or by any other legal ties creating the relationship of employer and employee as regards working conditions, remunerations and employer s liability; Any person engaged in the business of exclusively supplying goods and / or services that are not liable to tax under this Act; Any person, liable to tax u/s 7(3), receiving services of value not exceeding Rs in a year for personal use, other than for use in course or furtherance of his business.
Input Tax Credit Key definitions Under CGST Act 1. input tax : S 2(57) : in relation to a taxable person, means IGST and CGST charged on any supply of goods and / or services to him which are used, or intended to be used, in the course of furtherance of business and includes the tax payable u/s 7(3). Section 7(3) : Reverse Charge Mechanism 2. input tax credit : S.2(58): means credit of input tax as defined in section 2(57).
Input Tax Credit Key definitions Under SGST Act 1. input tax : S 2(57) : in relation to a taxable person, means IGST and SGST charged on any supply of goods and / or services to him which are used, or intended to be used, in the course of furtherance of business and includes the tax payable u/s 7(3). Section 7(3) : Reverse Charge Mechanism 2. input tax credit : S.2(58): means credit of input tax as defined in section 2(57).
Input Tax Credit Key definitions Under IGST Act 1. input tax : S 2(1)(d) : in relation to a taxable person, means IGST, CGST and SGST, as the case may be, charged on any supply of goods and / or services to him which are used, or intended to be used, in the course of furtherance of business and includes the tax payable u/s 4(3). Section 4(3) : Reverse Charge Mechanism 2. input tax credit : S.2(1)(e): means credit of input tax as defined in section 2(1)(d).
Manner of taking ITC (Chapter V) 1. Every registered taxable person shall be entitled to take ITC admissible to him. ITC to be credited to electronic credit ledger. Subject to such conditions and restrictions as may be prescribed. Within the time and manner prescribed in Section 35. 2. Mandatory registration: Registration obtained within 30 days from the date on which becomes liable to registration and has been granted such registration shall be: Entitled to take ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the day on which he becomes liable to pay tax under the provisions of the Act. ITC on pre-registration stock not admissible if registration has not been within 30 days mentioned above.
Manner of taking ITC (Chapter V S. 16) 1. Voluntary registration: Entitled to take ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date of registration. 2. Moving out of composition Levy: Entitled to take ITC in respect of inputs held in stock and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the date from which he becomes liable to pay tax under section 7 (charging section). 3. Time limit for taking credit: No ITC in respect of supply of goods and / or services to him after the expiry of one year from the date of issue of tax invoice relating to such supply. No ITC after filing of annual return i.e. September following FY or earlier filing. No change in return is permitted. ITC would be confirmed only if inward supplies filed by the recipient are matched with outward supplies furnished by the supplier in his returns. Mismatch to be removed in two months, otherwise ITC to be reversed.
Manner of taking ITC (Chapter V S. 16) 4. GAAP : Credit to be calculated in accordance with GAAP in such manner as may be prescribed. 5. Business Purpose: Where goods and / or services are used by a registered taxable person partly for the purpose of business and partly for other purposes, ITC restricted to so much as is attributable to the purpose of his business. 6. Both Taxable and Non-taxable supplies: ITC of goods and / or services attributable to only taxable supplies can be taken by a registered taxable person. Eligible Credit to be calculated in a manner to be prescribed. Credit on capital goods also would be permitted only on proportionate basis.
Manner of taking ITC (Chapter V S. 16) 6. Transfer of ITC: Allowed in case of Sale, merger, demerger, amalgamation, lease or transfer of business. Business transfer should have a provision for transfer of liabilities. 7. Switch into composition levy: Registered taxable person has to pay an amount equivalent to the ITC in respect of inputs held in stocks and inputs contained in semi-finished or finished goods held in stock on the day immediately preceding the switch. Balance of ITC in electronic credit ledger shall lapse. Amount payable will be determined as per GAAP principles. 8. Exemption of goods / services: Similar to Switch
Manner of taking ITC (Chapter V S. 16) 8. Job work related: Principal is eligible to avid ITC on inputs sent to job worker for the job work; Inputs sent for job work should be received back by the principal within 180 days; Principal has to reverse ITC along with interest on inputs which have not been received back from the job worker within 180 days. ITC could be reclaimed once the inputs are received. Capital goods sent for job work has to be received back by the principal in two years.
Manner of taking ITC (Chapter V S. 16) 9. Conditions for obtaining ITC: The registered taxable person should be in possession of tax paying document issued by a supplier; The taxable person must have received the goods and / or services; The tax charged on such supply has been actually paid to the government either in cash or through utilization of ITC; The taxable person should have filed the return u/s 27.
Manner of taking ITC (Chapter V S. 16) 10.Goods against an invoice are received in lots / instalments: The registered taxable person shall be entitled to take ITC upon the receipt of the last lot or instalments. 11.Bill to / ship to scenarios: ITC to be available to the person on whose order goods are delivered to a third person.
Manner of taking ITC (Chapter V S. 16) 11. Negative List for ITC: Sec 16(9): Motor vehicles, except when they are supplied in the usual course of business or are used in providing taxable transportation services; Goods / services provided used primarily for personal use or consumption by any employee; Goods and / or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery; Goods acquired by a principal, the property in which is not transferred (whether as goods or in some other form) to any other person, which are used in the construction of immovable property, other than plant and machinery; Goods and / or services on which tax has been paid u/s 8 (composition levy) Goods and / or services used for private or personal consumption, to the extent they are so consumed.
Manner of taking ITC (Chapter V S. 16) Capital goods on which ITC has been taken are supplied by a taxable person: Registered taxable person shall pay an amount equal to: the ITC taken on the said capital goods reduced by the percentage points as may be specified in this behalf; or The tax on the transaction value of such capital goods, whichever is higher.
Input Tax Credit in GST Cleaner GST CGST Input CGST against IGST IGST Input IGST against CGST SGST SGST Input SGST against IGST 18
Working of IGST Model a) Tax payments by suppliers in Exporting State b) ITC availed by importing dealers (B2B supplies) c) ITC of IGST to be used for payment of IGST, CGST & SGST - in that order d) ITC of CGST to be used for payment of CGST & IGST - in that order e) ITC of SGST to be used for payment of SGST & IGST - in that order f) Clearing house Mechanism: g) Credit of SGST used for payment of IGST to be transferred by Exporting State to the Centre h) Credit of IGST used for payment of SGST to be transferred by Centre to Importing State i) Inter-Governmental Transfers to take place at the end of Tax Period j) Central Government to act as a clearing house and transfer the funds across States. 19
Merits in IGST Model For Taxpayers Uninterrupted ITC chain on inter-state transactions for dealers located across States No refund claim for suppliers in exporting State, as ITC is used up while paying the Tax No substantial blockage of funds for the inter-state supplier or buyer No cascading as full ITC of IGST paid by supplier allowed to buyer Model handles B2B as well as B2C transactions For Tax Administration Upfront tax payments by suppliers in exporting State. No refund claims on account of inter-state supplies. Tax gets transferred to Importing State in accordance with Destination principle. Self monitoring model, results in improved compliance levels. Effective fund settlement mechanism between the Centre and the States.
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