CPE Meeting on Input Tax Credit & Rules DATE: 12.10.2017, Chennai INPUT TAX CREDIT CA. M. SELVAKUMAR
KEY UPDATES Refund claimed by Exporters for July 2017 will be granted by 10 th Oct and Aug 2017 by 18 th Oct Deemed Exports when goods supplied to EPCG scheme, 100% EOU and Advance Authorization units Merchant Export to pay nominal GST of 0.1% and E-Wallet for exporters from 1 st April 2018 All exporters can give LUT instead of Bond/Bank Guarantee - No. 37 /2017 Central Tax dt. 4.10.2017 Tax payers with T.O of Rs. 1.5 Cr will be required to file Quarterly returns 2
KEY UPDATES Exemption from GST for services by GTA to URP RCM suspended for procurement from URP Composition Scheme limit increased to 1 Crore and 75 Lakhs; GSTR-4 and GSTR-6 date has been extended to 15 th Nov 2017 E-way Bill, TDS/TCS deferred till 1 st April 2018 Inter-State Suppliers of Services not required to take registration upto Rs. 20 Lakhs 3
Agenda 10. Questions. 1. Definitions 9. Matching 2. Eligibility 8. Utilization of Credit 3. Blocked Credits 7. Input Service Distributor 4. Restricted Credits 6. Job Work 5. Special Credits 4
Definitions
Definitions Sec. 2(67) Inward supply Receipt of G/S/both whether by purchase, acquisition or any other means with or without consideration Sec. 2(63) Input Tax Credit Means Credit of Input Tax 6
Definitions Sec. 2(62) Input Tax Means Includes Does not include *Central Tax (CT), *State Tax (ST), *Integrated Tax(IT) or *Union Territory Tax (UTT) * IT on import of goods * CT/ST/IT/UTT payable on Reverse Charge Mechanism (RCM) Tax paid on Composition Levy 7
Definitions Sec. 2(59) Input Sec. 2(60) Input Service Sec. 2(19) Capital Goods *Used or Intended to be used *In the course or furtherance of business *Capital Goods - Capitalized in the books 8
Definitions Sec. 2(94) Registered Person Means a person who is registered u/s. 25 But does not include person having UIN Sec. 2(107) Taxable Person Means a person who is registered (or) liable to be registered u/s. 22 (or) 24 Sec. 2(105) Supplier Means a person supplying G/S or both Includes an agent acting as such on behalf of such supplier 9
Eligibility
ITC Eligibility Conditions u/s. 16 Satisfied Not Blocked/ Restricted u/s. 17 Eligible ITC 11
Eligibility to Claim ITC Sec. 16 (1) Every Registered Person Be entitled to take credit of Input Tax Charged on any supply of Goods/Services/Both to him Which are used or intended to be used in the course or furtherance of his business Shall be credited to his Electronic Credit Ledger 12
Sec. 16 (2), (3) & (4) ITC Conditions & Restrictions Claimant is in possession of the tax paying document Claimant has received the Goods/Services Tax on Supply has been paid to the Government Claimant has declared the details in GSTR-2 & Claimant has furnished his GSTR-3 In case of Goods/Services received in lots/instalments ITC only on receipt of last lot/instalment Payment for supply to the supplier should be made within 180 days 13
Sec. 16 (2), (3) & (4) ITC Conditions & Restrictions No ITC where depreciation under Income Tax has been claimed on the tax component Time Limit - Before the return for September following the end of FY (or) before filing of annual return whichever is earlier No ITC where Tax is paid in pursuance of any demand order on account of fraud, willful misstatement or suppression of facts 14
Rule 36 Tax Paying Documents 1) Tax Invoice issued by Supplier u/s. 31 2) Debit note issued by Supplier u/s. 34 3) Bill of Entry/Similar document under Customs Act 4) ISD Invoice issued by ISD 5) Invoice raised by recipient u/s. 31(3)(f) in case of Inward supplies from Unregistered Persons ITC can be availed only if all the applicable particulars as specified in Tax invoice, credit and debit note rules are contained Form GSTR-2 is furnished by such person 15
Rule 37 Non-Payment of Consideration ITC Reversal Amount + Tax not paid to supplier within 180 days from the date of invoice ITC availed + Interest u/s. 50(1) added to output tax liability Furnish the details in Form GSTR-2 Schedule 1 Supplies Deemed to have been paid within 180 days Credit can be re-availed after making payment. Time limit u/s. 16 (4) is not applicable. 16
Blocked Credits
Sec. 17 (5) Blocked Credits Motor Vehicles and Other Conveyances Further supply Transportation of passengers Imparting training on driving Transportation of goods F&B, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery Providing outward supply of same category (or) as an element of Composite/Mixed Supply Membership of club, health and fitness center Rent a cab, life insurance, health insurance Obligation of employer to provide to employees Providing outward supply of same category (or) as an element of Composite/Mixed Supply 18
Sec. 17 (5) Blocked Credits Travel benefits extended to employees on vacation such as LTC Works contract for construction of immovable property other than P&M When it is used as an input service for further supply of works contract service Goods or Services used in construction of any immovable Property (other than P&M) on his own account Construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalization, to the said immoveable property Plant & Machinery means apparatus, equipment and machinery fixed to earth by foundation or structural support that are used for making outward supplies but excludes: Land, building or any civil structure Tele-communication towers Pipelines laid outside factory premises 19
Sec. 17 (5) Blocked Credits Goods/services on which tax has been paid under Composition Scheme Supplies received by a NRTP Except on goods imported by him Inward supplies used for Personal Consumption Goods lost, stolen, destroyed, written off or disposed off by way of gift or free samples Taxes if any paid under the following circumstances: Wrongful utilization u/s. 74 Detention, seizure and release of goods and conveyances in transit u/s. 129 Confiscation of goods/conveyances and levy of penalty u/s. 130 20
Restricted Credits
Basis for Restriction ITC allowed to the extent of tax attributable to: Taxable Supplies Purpose of Business 22
Types of Supply Sec. 2(108) Taxable Supply Supply of G/S/Both Leviable to tax Zero rated supplies Sec. 2(47) Exempt Supply Supply of G/S/Both Attracts NIL Rate of tax Wholly exempt from Tax u/s. 11 of CGST (or) 6 of IGST Act Includes Non-Taxable Supply RCM outward supplies Sec. 2(78) Non-taxable Supply Supply of G/S/Both Not leviable to tax 23
Sec. 17 Reduction in ITC Sec. 17 (1) - Partly for business and partly for other purposes Sec. 17 (2) Partly for taxable supplies (incl. Zero rated Supplies) and partly for Exempt supplies Sec. 17 (3) Value of Exempt supplies includes the supplies on which recipient is liable to pay tax on RCM Sec. 17 (4) Banking Company (or) Financial Institution including NBFC: Option 1 Credit to the extent of taxable supplies Option 2 50% credits on monthly basis Option once exercised cannot be reversed for the entire year. Restriction of 50% is not applicable for supplies between distinct persons 24
Rule 42 Claim & Reversal of ITC on Inputs & Input Services T = Total ITC T1 = Exclusive for Non-Business T2 = Exclusive for Exempt Supplies T3 = Blocked Credit T4 = Exclusive for Taxable Supplies Common Credit = C2 = T (T1+T2+T3+T4) 25
Rule 42 Claim & Reversal of ITC on Inputs & Input Services C2 = Common Credit D1 = (E/F)*C2 (Exempted Supply) D2 = 5% * C2 (Non-Business) C3 = C2 (D1+D2) Taxable + Business 26
Example Particulars Amount (Rs.) Total ITC = T 72,000 Exclusive for Non-Business = T1 14,400 Exclusive for Exempt Supplies = T2 18,000 Blocked Credit = T3 Exclusive for Taxable Supplies = T4 Common Credit = C2 10,800 21,600 7,200 Value of Exempt supplies = E 2,50,000 Value of Total turnover = F 7,50,000 27
Example Particulars D1 = (E/F)*C2 (Exempted Supply) Reversal D2 = 5% * C2 Partly Business) Reversal C3 = C2 (D1+D2) Taxable + Business Amount (Rs.) 2,400 360 4,440 Total Eligible ITC (T4 + C3) 26,040 28
www.company.com 29 Rule 43 Claim and Reversal of ITC on Capital Goods Only for Taxable Supply Full ITC Capital Goods Put to Use Partly for Nonbusiness/Exempt Supply Claim Full ITC and Reverse on Pro-rata basis for every tax period with Interest Only for Nonbusiness/Exempt Supply No ITC Text Here Text Here Useful life of capital goods with common credit is 60 months Te = (E/F) * Tr. Proportionate reversal for every period with interest 29
Rule 38 Claim of Credit by Bank/FI/NBFC Procedure for availing credit u/s. 17 (4) No credit on blocked supplies u/s. 17 (5) No credit on supplies used for non-business purpose 50% of the remaining amount can be claimed as ITC Furnish the details the in FORM GSTR-2 Amount of credit shall be credited in Electronic Credit Ledger 30
Special Credits
Sec. 18 (1) Special Circumstances Credits Inputs Capital Goods Taxable Person New Registration Input Services YES NO NO Voluntary Registration YES NO NO Composition to Normal YES YES NO Exempt to Taxable YES YES NO 32
Sec. 18 Special Circumstances New Registration The date of becoming liable to pay tax (if registration is applied within 30 days of becoming liable, and granted) Voluntary Registration The date of grant of Registration Composition to Regular The date from which he becomes liable to pay tax under the regular scheme of levy Exempt Supply to Taxable Supply The date supply becomes taxable: Inputs in relation to supply of exempt supplies Capital goods used exclusively for exempt supplies 33
Sec. 18 Special Circumstances Rule 40 - Credit will be allowed subject to the below Conditions Credit on capital goods to be reduced by 5% per quarter (whole/part), calculated from the date of invoice Declaration in Form GST ITC-01 to be filed within 30 days of becoming eligible for credit under the 4 special cases 18(1) (a)/(b)/(c)/(d) To be certified by a CA/Cost accountant if claim > Rs. 2 Lakhs Details in declaration will be verified with details in Form GSTR-1 and GSTR-4 on GST portal. Sec. 18(2) - Credit only in respect of those invoices which are not older than 1 year Sec. 18(3) Change in Constitution or Transfer of Business Unutilized credit can be transferred to the acquiring entity 34
Sec. 18 Special Circumstances Sec. 18(4) Taxable to Exempt/Composition Scheme Reverse credit of tax paid on stock Capital Goods (Reduced by % points prescribed) Any excess credit balance to Lapse On the day immediately preceding the Date of Exemption (From Taxable to Exemption) Date of Switchover (From Normal to Composition) Sec. 18(6) - Supply of Capital Goods Input tax credit taken reduced by % points, calculated from the date of invoice (or) Tax on Transaction value WEH In case of refractory bricks, moulds and dies, jigs an fixtures are supplied as scrap Tax shall be paid on Transaction value 35
www.company.com 36 Rule 44 Reversal under Special Circumstances Sec. 18(4) - Taxable to Exempt Sec. 18(4) - Normal to Composition Sec. 18(6) (or) 29(5) - Sale/Disposal Stock of Capital Goods Pro rata value based on Remaining Useful life (or) Transaction value WEH No ITC Stock of Inputs Pro rata based on Invoice value/market Price Amount of tax shall be added to output tax liability and details in GST ITC-03 (or) GSTR-10 (or) GSTR-1 36
Rule 41 Transfer of Business In the event of sale, merger, demerger, amalgamation, lease or transfer of business or change in ownership of business Furnish details in FORM GST ITC-02 Request for transfer of unutilized ITC to transferee Certificate issued by CA/Cost Accountant in practice that there is specific provision for transfer of liabilities Transferee shall accept GST ITC-02 and then amount will be credited to his Electronic Credit Ledger 37
JOB WORK & ISD
JOB WORK Job Work means: Undertaking ANY treatment or process By a Person On goods belonging to another Registered Person The expression job worker shall be construed accordingly 39
Sec. 19 - ITC ON JOB WORK Principal can avail credit on inputs/ CG sent for job work Credit can availed on the inputs/ CG directly sent to the job worker Time limit for return Inputs - 1 year Time limit for return Capital goods 3 years. No time-limit for moulds and dies, jigs and fixtures or tools Not received within the time limit to be treated as deemed supply from the original date of supply 40
ITC REVERSAL Destroyed Lost/Stolen Disposed Off At the Job Worker s Premises 41
Rule 45 Job Work Conditions & Restrictions Inputs/Semi-finished goods/capital goods shall be sent to job worker under cover of a challan issued by the principal Challan shall contain details as per Rule 55 Details of challans shall be furnished in quarterly in Form GST ITC-04 on or before 25 th day of the month If inputs or capital goods not returned within the given time limit Deemed supply and included in GSTR-1 42
Sec. 20 Manner of Distribution of ISD ISD in Tamilnadu IGST, CGST, SGST Credits Unit 1 in Tamilnadu IGST as IGST, CGST as CGST, SGST as SGST Unit 2 in Kerala IGST as IGST, CGST as IGST and SGST as IGST Distribution of credits to other branches/locations: Credit attributable to a particular recipient Credit attributable to more than one recipient Credit distribution based on previous year turnover (or) Credit distribution based on previous quarter turnover Credit to be distributed by issuing an invoice to the recipient Sec. 21 - Excess Credit To be recovered from the recipient 43
Rule 39 Procedure for ISD ITC for the month shall be distributed in that month and details are furnished in Form GSTR-6 ISD shall distribute both eligible and ineligible credit to the recipients Proportionate credit shall be distributed to the recipient by applying the following formula C1 = (t1/t) * C ISD shall issue an ISD invoice for distribution of ITC ISD may issue a ISD credit note for reduction of ITC distributed earlier If the amount to be apportioned for a month is in negative (ISD invoice + ISD credit notes) it shall be added to output tax liability of recipient 44
Utilization of Credit & Matching
Input Tax Credit Utilization for Paying Output Tax IGST Credit 1) IGST 2)CGST 3)SGST CGST Credit 1)CGST 2) IGST SGST 1)SGST 2) IGST To be utilized in sequence from left to right No cross utilization between CGST and SGST 46
Sec. 42 and 43 - Credit Matching Fields which are matched: GSTIN of Supplier GSTIN of Recipient Invoice/Debit Note Number Invoice/Credit Note Date Taxable Value and Tax Amount When the supplier has not paid the tax/filed the returns, it will be treated as unmatched. 47
Sec. 42 and 43 - Credit Matching Case Recipient ITC = Supplier OT Impact The transactions are treated as matched. Recipient ITC < Supplier OT Recipient Eligible ITC = 1 Recipient entered ITC = 1 + 1 Recipient ITC > Supplier OT. Recipient Eligible ITC = 1 Recipient entered ITC = 1 + 1 (or) Recipient ITC > Supplier OT In case supplier corrects the data subsequently The transactions are treated as matched. Form MIS-1 Communication to recipient MIS 1 to Recipient MIS 2 to Supplier Failed to Rectify. Added as Output tax liability of Recipient Output tax liability can be reduced by recipient in his portal and get refund of interest paid by credit to E-Cash ledger 48
Sec. 42 and 43 - Credit Matching Outward Supplies On or before 10 th Next Month GSTR 1 GSTR 2A Auto Populated Verify and take action 11 th to 15 of next month Accept, Add, Modify, Delete On or before 15 th Next Month GSTR 2 GSTR 1A No Action, Accept, Reject 16 th or 17 th of Next Month 49
ITC Funnel SEAM LESS CREDIT Blocked Non-Business Exempt Matching SEEMS LESS CREDIT 50
51 Any Questions 51
Thank You! CA. M. SELVA KUMAR Email: selvakumarca@gmail.com Mobile: +91 97910 31074 52