What is Input Credit under GST & How to Claim It?

Introduction

The introduction of the Goods and Services Tax (GST) brought about a significant change in the way taxes are levied in India. One of the key mechanisms introduced by GST is the concept of input credit. Input credit allows businesses to reduce the tax they have already paid on inputs when paying tax on the final output. In this article, we will explore what input credit is, how it works under GST, and how businesses can claim it.

Understanding Input Credit

The ability of a taxpayer to claim a credit for the tax paid on their purchases or inputs is referred to as an input credit in the context of GST. The tax owed on the final product or sales can then be reduced by using this credit. In essence, it permits companies to lower their tax obligations by the amount of tax already paid on inputs.

Certain requirements must be completed in order to claim input credit under GST. The taxpayer must first register with the GST Act. Manufacturers, suppliers, agents, online merchants, and other registered companies are therefore qualified to submit claims for input credit. Second, the taxpayer needs to have a tax invoice or debit note for the purchases made that was issued by a licenced dealer. The taxpayer must also have received the goods or services.

It is important to note that input credit can only be claimed if the tax charged on the purchases has been deposited or paid to the government by the supplier. The supplier must also have filed their GST returns and uploaded the invoice details in their GSTR-1, ensuring that the information appears in the GSTR-2B of the recipient or buyer.

How to Claim Input Credit

To claim input credit under GST, the following steps need to be followed:

1. Obtain a Tax Invoice or Debit Note: The taxpayer must have a valid tax invoice or debit note issued by a registered dealer for the purchases made.
2. Receive the Goods/Services: The taxpayer should have received the goods or services for which input credit is being claimed.
3. Ensure Supplier's GST Compliance: The supplier must be GST compliant and have filed their GST returns. The invoice details should appear in the GSTR-2B of the recipient or buyer.
4. Validate and Accept the Details: The recipient or buyer should validate and accept the invoice details reported by the supplier in their GSTR-2A or GSTR-2B.
5. Claim Input Credit: Once the details have been accepted, the tax on purchases will be credited to the Electronic Credit Ledger of the recipient or buyer. This credit can then be adjusted against future output tax liability or claimed as a refund.

Types of Taxes under GST

GST replaces various existing taxes such as VAT, CST, Excise Duty, Service Tax, and Entertainment Tax. Under GST, there are three types of taxes:

1. State GST (SGST): This tax is levied by the state government on intra-state supplies of goods and services.
2. Central GST (CGST): This tax is levied by the central government on intra-state supplies of goods and services.
3. Integrated GST (IGST): This tax is levied by the central government on inter-state supplies of goods and services and imports.

Input Credit under Different Taxes

Input credit can be claimed on both goods and services under GST, except for those that are exempted or on the negative list. It is also allowed on capital goods. However, input tax credit cannot be claimed for goods and services used for personal purposes.

Conditions for Availing Input Credit

While input credit is available under GST, certain conditions must be met to claim it. These conditions include:

1. Possession of Valid Tax Invoice: The taxpayer must possess a valid tax invoice or debit note issued by a registered dealer for the purchases made.
2. Receipt of Goods/Services: The goods or services for which input credit is claimed should have been received by the taxpayer.
3. Payment of Tax to the Government: The tax charged on the purchases should have been deposited or paid to the government by the supplier.
4. GST Compliance of Supplier: The supplier must be GST compliant and have filed their GST returns. The invoice details should appear in the GSTR-2B of the recipient or buyer.
5. Matching and Validation: The recipient or buyer should validate and accept the invoice details reported by the supplier in their GSTR-2A or GSTR-2B.
6. Timely Claim: Input credit should be claimed within the prescribed time limits and in the relevant GST returns.

Calculation of Input Credit

The calculation of input credit under GST involves the following steps:

1. Determine Eligible Inputs: Identify the inputs on which input credit can be claimed. These inputs should be eligible for input credit under GST rules.
2. Calculate Total Input Tax: Calculate the total tax paid on eligible inputs during the tax period for which input credit is being claimed.
3. Ensure Valid Invoices: Ensure that the tax paid on purchases is supported by valid tax invoices or debit notes issued by registered dealers.
4. Adjustments and Reversals: Make adjustments and reversals, if necessary, as per the provisions of the GST law.
5. Claim Input Credit: Claim the input credit in the relevant GST return by reporting the eligible input tax credit amount.

Restrictions on Input Credit

While input credit is available under GST, there are certain restrictions and exceptions to be aware of. These include:

1. Blocked Input Credit: Input credit cannot be claimed for certain goods and services, such as motor vehicles, goods used for personal purposes, and works contract services for construction of immovable property.
2. Time Limit for Claim: Input credit should be claimed within the prescribed time limits. In general, input tax credit cannot be claimed after the due date of filing the GST return for September following the end of the financial year or filing the relevant annual return, whichever is earlier.
3. Mismatch in Invoices: Input credit can only be claimed if the details of the purchases reported by the supplier match the details reported by the recipient or buyer.
4. Reversal of Input Credit: Input credit claimed on invoices that are not paid within a specified time period may need to be reversed along with interest.

Conclusion

Input credit under GST is a valuable mechanism that allows businesses to reduce their tax liability by claiming credit for the tax paid on their purchases or inputs. By following the prescribed conditions and procedures, businesses can optimize their tax liabilities and comply with the GST regulations. Understanding the concept of input credit and how to claim it is essential for businesses operating under the GST regime to ensure proper compliance and maximize their tax benefits.