Input Tax Credit Guide Under GST: Calculation with Examples

One of the best parts of the GST is the Input tax credit (ITC) which has been incorporated in the country as a major change to the tax structure. The same would permit the businesses to diminish their tax load and save money to invest in the development of the businesses. As per the Central Board of Indirect Taxes and Customs (CBIC), the input tax credit would count as a process to prevent the cascading of taxes or tax on tax. 

Prior to GST, the credit for taxes charged through the central government was not available as a set-off for tax payments imposed via the state governments, and vice versa. The tax paid at each level may be used as a set-off for the payment of tax at each succeeding stage under the GST, nevertheless, the tax levied by the central or state governments is a component of the same tax system

Input tax credit in GST, As defined by section 2 (57) of the MGL (Model GST Law) and section 2 (1) (d) of the IGST Act, Input tax is related to a taxable entity which means the (IGST and CGST) in respect of CGST Act and (IGST and SGST) in respect of SGST Act is levied on every supply of goods or any services on the entity which is used by it or which is intended to to be consumed in the course of the business and subsumes the tax payable under sub-section (3) of section 7. In a simple way, an input tax credit defines that an entity can reduce the taxes it paid on the inputs at the time of paying the taxes on output.

Latest Update on ITC Under GST

• ITC clarification regarding the supply of imported services, ducts, and manholes used for OFCs, etc in the 53rd GST council meeting. View more
• The GST ITC reversal new advisory on reporting for opening balance is now live on the government portal. Read more, View more

• The Karnataka AAR has published the order for Attica Gold Private Limited. Rent, advertisement expenses, commission and professional expenses are eligible for GST ITC under the marginal scheme. Read Order

• “In sub-rule (4), in clause (b), after the words, ―the details of‖, the words, input tax credit in respect of‖ shall be inserted.”
• “A registered person, who has availed of input tax credit on any inward supply of goods or services or both, other than the supplies on which tax is payable on a reverse charge basis, but fails to pay to the supplier thereof, the amount towards the value of such supply along with the tax payable thereon, within the time limit specified in the second proviso to sub-section(2) of section 16, shall pay an amount equal to the input tax credit availed in respect of such supply along with interest payable thereon under section 50 while furnishing the return in FORM GSTR-3B for the tax period immediately following the period of one hundred and eighty days from the date of the issue of the invoice.”
• “Where the said registered person subsequently makes the payment of the amount towards the value of such supply along with tax payable thereon to the supplier thereof, he shall be entitled to re-avail the input tax credit referred to in sub-rule (1).”
• “In clause (c), for the words, letters and figure, ―and shall be furnished in FORM GSTR2‖, the words, letters and figure, ― and the balance amount of input tax credit shall be reversed in FORM GSTR-3B‖ shall be substituted.” Read More

47th GST Council Meeting Updates

• “Refund of accumulated ITC not to be allowed on flowing goods:”
  • Edible oils
  • Coal
• “Like CETPs, common bio-medical waste treatment facilities for treatment or disposal of biomedical waste shall be taxed at 12% so as to allow them ITC”
• “Room rent (excluding ICU) exceeding Rs 5000 per day per patient charged by a hospital shall be taxed to the extent of amount charged for the room at 5% without ITC.”
• “Due to ambiguity in GST rates on supply of ice-cream by ice-cream parlours, GST charged @ 5% without ITC on the same during the period 1.07.2017 to 5.10.2021 shall be regularized to avoid unnecessary litigation.”
• “Change in formula for calculation of refund under rule 89(5) to take into account utilization of ITC on account of inputs and input services for payment of output tax on inverted rated supplies in the same ratio in which ITC has been availed on inputs and input services during the said tax period. This would help those taxpayers who are availing ITC on input services also.”
• “Re-credit of the amount in electronic credit ledger to be provided in those cases where erroneous refund amount sanctioned to a taxpayer on account of accumulated ITC or on account of IGST paid on zero-rated supply of goods or services, in contravention of rule 96(10) of the CGST Rules, is deposited by him along with interest and penalty, wherever applicable. A new FORM GST PMT-03A is introduced for the same. 4. This will enable the taxpayers to get re-credit of the amount of erroneous refund, paid back by them, in their electronic credit ledger.”
• “Retrospective amendment in section 50(3) of CGST Act, with effect from 01.07.2017, to provide that interest will be payable on the wrongly availed ITC only when the same is utilized.”
• “Export of Electricity. This would facilitate the exporters of electricity in claiming refund of utilized ITC on zero-rated supplies.”

What Does GST’s ITC Mean?

A GST-registered individual or firm can effectively claim the tax they paid on their inward supplies, inputs, or raw materials as a credit when they are paying taxes on their outward supply or sales of commodities.

What is Net Input Tax Credit (ITC)?

• Net ITC is the input tax credit which is availed by the taxpayer in his ITC ledger or for the month in which the taxpayer has sought. It is the amount of ITC taken by the taxpayer through table 4 of his GSTR 3B returns of the tax period refund is sought.

Now let’s see, how to calculate input tax credit, for example, if a tax payable on the output is INR 450 and the tax paid on the input is INR 300, then the entity can claim an Input tax credit of INR 300 and the remaining amount of INR 150 will be needed to deposit in taxes.

What Method is Used to Compute GST ITC?

For instance, you are an office builder and home furniture and purchase raw materials like wood for Rs 50,000 at a GST of 18%. Rs 9000 will be the tax filed. You sell the furniture that has been made for Rs 1 lakh and charge an 18% GST which amounts to Rs 18000 through your client. Rs 1.18 lakh is the revenue incurred through selling the furniture. 

You are authorized to deduct the tax amount that stood at Rs 9000 which has been paid by you during purchasing the raw material. Therefore your total tax liability shall merely be Rs 9000 rather than Rs 18000. The total GST payable minus GST paid is the net GST paid on the raw materials that have been purchased.

How can Input Tax Credits be Claimed under GST?

For claiming an input tax credit, one must occupy a tax invoice or a debit note which is issued by a registered dealer.

The second thing, which must be kept in mind is that one should have received goods and services, and the taxed purchases have been deposited or paid to the government authority by the supplier in form of cash or by claiming the input tax credit.

For Claiming the GST ITC What Documents Would be Needed?

Invoice, debit note, and bill of supply from the supplier, the invoice issued identical to the bill of supply if the sum is less than Rs 200, bill of entry or other pertinent papers, and document from input service distributor are documents needed to file ITC.

Who Will be Qualified for the GST ITC?

Beyond registering with GST and filing taxes the businesses should secure the tax invoice or debit note from the supplier. As mentioned under section 41 of the GST Act, the input tax must be needed to get paid. The individual must be needed to file for the returns mentioned under section 39 of the GST Act, invoice payment should have been incurred within 180 days, GSTIN of supplier and recipient, and definition of goods and services. All the goods or services must be obtained by the individual.

No ITC on Warehouse Construction for Rent

Recently The Authority for Advance Ruling (AAR), Madhya Pradesh stated that the input tax credit will not be available on the goods and services taken and used on the construction of warehouses and the same are deployed for rent as per the Section 17(5)(d) of CGST Act, 2017.

Then, it must be ensured that the supplier has filed for the GST returns.

How to Avail the Input Tax Credit via Different Routes?

• For making payments to IGST: Take input tax credit from the SGST, CGST and IGST which is paid on the purchases.
• For making payments to CGST: Take input tax credit from the CGST and IGST which is paid on the purchases.
• For making payments to SGST: Take input tax credit from the SGST and IGST which is paid on the purchases.

Note: As per the current notification, the govt has modified some ITC set of rules under which the ITC for IGST is first used completely then the CGST & SGST will be used i.e.

• For making payments to IGST: Take input tax credit from the IGST and then CGST & SGST.
• For making payments to CGST: Take input tax credit from the IGST & CGST
• For making payments to SGST: Take input tax credit from the IGST and SGST.

Here is Shown a GST Input Tax Credit Example Which Will Clarify in a Simple Manner:

Assume that there is a seller Mr A and he sold his goods to Mr B. Now here Mr B which is a buyer will be eligible to claim the input tax credit on purchases based on the invoices. So,

Step 1: Accordingly, Mr A will be uploading the details of all the tax invoices issued in GSTR 1.

Step 2. All the details in accordance with the sales to Mr B will auto-populate in GSTR 2A, and the same data will be taken when Mr B will file GSTR 2 (i.e. details of inward supply). (Currently, the GSTR 2 is suspended and not available on the portal, therefore, Mr. B can avail credit in the GSTR- 3B)

How GSTR Forms Operate & How They Reconciled?

The GST Council has appointed 2 types of forms which are mandatory to be filled in every month, namely GSTR 1 for all the sales done and GSTR 2 for all the purchases done. (Currently, GSTR 2 forms are not available on the portal)

The GSTR 1 form will have to be filled on the 10th of every month includes all the details regarding the sales done by the business unit. There is also GSTR form 1A (Currently, GSTR 1A forms are not available on the portal) included which is majorly for the importance of reconciliation.

Basically, Details of outward supplies as added, corrected or deleted by the recipient in Form GSTR-2 (Currently, GSTR 2 forms are not available on the portal) will be made available to the supplier. The due date for the particular form is 20th of succeeding month.

Recommended: GST Forms: Return Filing, Registration, Rule, Refund, Challan, Invoice

Coming to the GSTR 2 form, it is for the details of inward supplies of taxable goods and/or services for claiming the input tax credit. Additions (Claims) or modifications in Form GSTR-2A should be submitted in Form GSTR-2.

On the basis of this, a form GSTR 2A is available which emerges with Auto-populated details of inward supplies made available to the recipient on the basis of Form GSTR-1 furnished by the supplier. The due date of this form is On 11th of the succeeding Month.

Post-GST era, the government allowed business entities to file their GST returns on a self-assessment basis in the starting two months. GSTR 3B is a return form for filing returns under the Goods and Services Tax Regime, TRAN I is the form in which business entities will be required to furnish all the information details of credit that they are claiming for the payment of taxes they had already paid before the implementation of the new tax regime.

According to Finance Minister Arun Jaitley, “Transitional forms (TRANS 1) for claiming input tax credit is now available at GSTN portal, under the Goods and Services Tax Regime.

A senior official of the revenue department said, The transitional form is almost ready and we are working to upload it by 21st August so that businesses can start filing TRAN 1.” All normal taxpayers registered in the new tax regime are required to file July month returns by 25th August which was passed out.

What is the Method to File the Input Tax Credit?

• Log in to the GST portal http://www.gst.gov.in and tap on Services > Returns > ITC Forms
• In the GST ITC-01 box, tap on the ‘Prepare Online
• Choose your relevant section from the claim made under the drop-down list.
• Fill in the information for creating the invoice like  GSTIN, Invoice number and date, and item details including goods type, description of inputs, unit quantity code, quantity, value, and amount of ITC claimed; and click on ‘Save’
• Tap on ‘Preview’ to preview the form’s draft and then tap on ‘Submit’
• Tap on ‘Proceed’ on the pop-up alert
  • Prior to filing the submitted form you shall need to update your Chartered Accountant (CA)/Cost Accountant information and upload the CA/Cost Accountant certificate on the GST Portal for the ITC claimed exceeds Rs 2 lakh.
• Insert the information of CA like the name of the firm, CA’s name, membership number, and date of issuance of the certificate, and upload his certificate in JPEG format; and tap on ‘Save CA Details’
• For the declaration select the checkbox
• In the Authorised Signatory drop-down list, choose the authorized signatory. The same shall enable the two buttons – ‘File ITC with DSC or File ITC with EVC’
• For filing the form with Digital Signature Certificate choose the DSC button or the EVC button to file through the Electronic Verification Code.
• For filing through DSC tap on the proceed, choose the certificate, and tap on the sign.
• For filing through EVC insert OTP sent on the email and mobile number of the authorized signatory who is registered at the GST portal and tap to verify.
• Post filing the Acknowledgment reference number (ARN) would get generated and shared with the assessee.

ITC FAQs After GST Implementation for Traders & Consumers