GST: Input Tax Credit Analysis Gopal Mondal

1. GST: Input Tax Credit Analysis Gopal Mondal

2. Presently cascading effect in the existing system in India Cascading effect No credit of Entry tax or octroi No credit of VAT to Service providers No credit of CST No Excise duty &Service tax for VAT No credit to exempt Sectors No credit of basic customs duty and custom cess No credit of Swachh Bharat cess to Manufacturer & service provider No credit of KrishiKalyan cess to Manufacturer

3. Aggregate Turnover -Meaning Explanation – Aggregate turnover does not include the value of supplies on which tax is levied on reverse charge basis and the value of inward supplies.

4. Input tax credit and input tax

5. Meaning of Input

6. Meaning of Capital Goods Claim of Input Tax Credit: [Section 36] Every taxable person shall be entitled to take credit as self-assessed in his return and such amount shall be credited on a provisional basis to his electronic credit ledger The credit shall be utilised only for payment of self –assessed output tax liability.

7. Eligibility and Conditions For taking input tax credit [Section 16] Subject to such conditions and restrictions as may be prescribed and within the time and manner specified in Section 44 Every registered taxable person shall be entitled To take credit of input tax charged on any supply of goods or services Which are used or intended to be used in the course or furtherance of his business The said amount shall be credited to the electronic credit ledger of such person

8. Essential requirements for availing ITC under GST (a) Registered taxable person is in possession of a tax invoice, debit note, supplementary invoice or such other taxpaying document as may be prescribed, issued by a supplier registered under GST Act9s) or the IGST Act. Registered taxable person has received the goods and/or services Requirements for availing Input Tax Credit (c) The tax charged in respect of such supply has been actually to the credit of the appropriate Government, either in cash or through utilisation of input tax credit admissible in respect of the said supply; and . (d) Registered taxable person has furnished the return under S 27

9. Time Limit for availing ITC under GST

10. Time Limit for availing ITC under GST Filing of return for September month of next financial year Whichever is earlier Filling of annual return of the financial year

11. Apportionment of credit [Section-17] Where goods and/or services are used by the registered taxable person Section 17(1) Party for the purpose of business Party for other purposes Section 17(2) Party for effecting taxable supplies including zero-rated supplies under this Act or IGST Act. Party for effecting exempt supplies including under reverse charge basis Section 8(3) Amount of credit shall be attributable to the purpose of business [Section 17(1)]/taxable supplies including zero rated supplies [Section 17(2)]

12. Example Supplier “A” in Delhi supplies goods worth INR 500/- to “B” in Delhi. “B” further used 60% of such goods in manufacturing of taxable goods and 40% of such goods in manufacturing exempted goods. After 40% value addition, “B” supplies goods to consumer in Delhi. Let us assume the CGST rate as 9% and SGST rate as 9% to be levied goods supplied. Thus, GST would be levied in the following manner:

13. “A” supplies goods worth Rs. 500 “B” supplies with 40% value addition Consumer Delhi Delhi Delhi Tax to be paid in Cash: Central Govt.: CGST : 37.80 -CGST(45*60%) : 27.00 Paid in cash :10.80 Delhi Govt.: SGST : 37.80 -SGST(45*60%) : 27.00 Paid in Cash :10.80 Total Amount Collected: CG : 45.00+10.80 = 55.80 Delhi Govt.: 45.00+10.80 = 55.80 ITC of GST paid on goods used shall not be available to the supplier. Credit booked on such input shall be reversed in the books of accounts

14. Credit for Banking and Financial Institution

15. List of items not eligible for ITC[ Section-17(4)]

16. List of items not eligible for ITC[ Section-17(4)]

17. List of items not eligible for ITC[ Section-17(4)]

18. Registration vs Input Tax Credit (ITC) • Section 18(1) – explanation with example 30 days X becomes liable to registration on April 1, 2017 Suppose, X has to apply for Registration on April 29, 2017 • X is entitled to ITC in respect of: • Inputs held in stock; and • Inputs contained in semi-finished goods; or • finished goods held in stock • On the day immediately preceding the date of registration (i.e. March 31, 2017) • What about ITC on capital goods and input services as on March 31, 2017? • Section 18(2) – Is ITC on voluntary registration available w.e.f. March 31, 2017 ? Note : Section 23(3) a person may get himself registered voluntarily and all the provisions of the Act as are applicable to a registered taxable person shall apply to such person.

19. Registration vs Input Tax Credit (ITC) • Section 18(3) – composition scheme (Section 9) X’s taxable turnover exceeds INR 50 lakhs on May 1, 2017 (Section9) X will not enjoy the benefit of Section 9 • X is entitled to ITC in respect of : • Inputs held in stock; and • Inputs contained in semi-finished goods; or • finished goods held in stock , and • Capital goods, immediately preceding the date of May 1, 2016 [i.e. on April 30, 2017] Section 9: (a) Permission requires from proper officer; (b) tax rate not less that 2.5% for manufacturer and 1% for other cases (c) no permission to service provider, inter-state supplier, E-commerce operator; (d) applicable to all taxable person having same PAN (e) no ITC (f) permission withdrawn on > 50 lacs.

20. Registration vs Input Tax Credit (ITC) • Conditions for eligible ITC to a taxable person switching over from composition scheme under this Act. (Section 172): Such input and or goods are used or intended to be used for making taxable supplies under this Act; The said person is not paying tax under Section 9 the said taxable person is eligible for input tax credit on such inputs under this Act The said taxable person is in procession of invoice and /or other prescribed documents evidencing payment of duty under earlier law in respect of such inputs; and Such invoices are not earlier than 12 months immediately preceding the appointed day.

21. Registration vs Input Tax Credit (ITC) Section 18(7) – Switches over to composition scheme (S9) & exempt supply (S11) X, a taxable person, switch over to Section 9 or Section 11 • X shall pay an amount by way of debit in the electronic credit or cash ledger equivalent to the credit of: • Inputs held in stock; and • Inputs contained in semi-finished goods; or • Finished goods held in stock and • Capital goods • On the day immediately preceding the day of such switchover or the date of such exemption

22. Registration vs Input Tax Credit (ITC) • Section 18(4) – exempt supply becomes a taxable supply of goods and services Where an exempt supply of goods or services by a taxable person becomes a taxable supply • Such person is entitled to ITC in respect of : • Inputs held in stock; and • Inputs contained in semi-finished goods; or • finished goods held in stock and • capital goods • Exclusively used for such exempt supply on the day immediately preceding the date from which such supply becomes taxable. A taxable person shall not be entitled to take input tax credit under sub section (1), (2), (3) or (4) as the case many be, in respect of any supply of goods and/or services to him after the expiry of 1 year from the date of issue of tax invoice relating to such supply [S 18(5)].

23. Disposal of Capital Goods under Section 18(10) Registered taxable person Supply of capital goods or plant/machinery With/without consideration Shall pay an amount equal to ITC taken on said CG or P&M reduce by the % points as may be specified The tax on transactional value of CG or P&M Whichever is higher

24. ITC FOR JOB WORK (b) Supplier of Goods Job Worker (a) Intra/Inter-State Purchase (c) With one year Principal • Purchase from Supplier: Allow ITC to principal on inputs sent to a job worker for job work. • Input directly sent to job worker without being first bough to his place of business: Allow ITC on input directly sent to a job worker. • If the inputs are not received back by the principal: • after completion of job work, or • otherwise, or • not supplied from the place of business of the Job Worker. • Within a period of 1 year of being sent out, it shall be deemed to be supplied on the day when the said inputs are sent out.

25. Manner of Distribution of ITC by ISD Centre will transfer IGST Credit to state State will transfer SGST Credit to centre

26. Manner of Distribution of ITC by ISD (a) Credit can be distributed against a prescribed document issued to each of the recipients the amount of the credit distributed shall not exceed the amount of credit available for distribution (c) Credit of tax paid on input services attributable to a supplier shall be distributed only to that supplier. Conditions for distributing Input Tax Credit by ISD (d) Credit of tax paid on input services attributable to more than one recipient, shall be distributed on pro rata on the basis of the turnover in a State of such recipient. (e) Credit of tax paid on input services attributable to all recipient, shall be distributed on pro rata on the basis of the turnover in a State of such recipient,

27. Export Goods and/or Service Outside India (a) Zero rated supply Export India Taxable person SEZ developer Supply of good and/or services Credit of input tax may be availed for making zero rated supplies Export without payment IGST and claim refund of unutilized input tax credit (Section 48) Export with payment of IGST and claim refund of IGST paid on goods and services.

28. Summary of Discussion Submission of last return with due care ITC and Matching concept (section 37) condition for availing ITC Depreciation on capital goods vs. ITC Apportionment of credit: Business vs. other purpose separate guideline Banking & Financial Institution Restriction of seamless credit system Tax planning in case of newly registration under this Act. ITC for Jon work and ISD