INput tax credit under gst

Input Tax Credit under GST

1. What is Input Tax Credit (ITC)?
ITC is the GST you paid on purchases (goods, services, capital goods) used for business. You can deduct it from the GST you collect on sales, so GST is paid only on the value you add.
Example: A trader buys goods for ₹10,000 + 18% GST (₹1,800). He sells them for ₹15,000 + 18% GST (₹2,700).

• GST payable to the government = 2,700 − 1,800 = ₹900. That is 18% of the ₹5,000 profit margin.
• Without ITC he would pay ₹2,700 and the ₹1,800 would become a cost. This "tax on tax" is called the cascading effect.

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Basic conditions to claim ITC:

1. You hold a valid tax invoice.
2. You have received the goods or services.
3. The supplier has actually paid the tax to the government, which shows up as the invoice appearing in your GSTR-2B.
4. You have filed GSTR-3B.
5. You pay the supplier within 180 days.
6. You claim before 30 November following the financial year, or before filing the annual return, whichever is earlier.

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ITC REVERSAL UNDER GST
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What is ITC Reversal?
ITC Reversal means reducing or giving back Input Tax Credit that is no longer eligible or is required to be reversed under GST rules.
Simple ExamplePurchase GST = ₹18,000
ITC claimed = ₹18,000
ITC to be reversed = ₹3,000
Net Eligible ITC = ₹18,000 − ₹3,000 = ₹15,000

Common Examples of ITC Reversal
1. Supplier Not Paid Within 180 Days
If payment of value + GST is not made to the supplier within 180 days from the invoice date, the applicable ITC has to be reversed.
Example:
GST ITC = ₹18,000
→ Reverse applicable ITC if payment is not made within 180 days.

2. Common ITC – Taxable & Exempt Supplies
When common purchases/input services are used for both taxable and exempt supplies, the ITC relating to exempt supplies has to be reversed as per the prescribed calculation.
Example:
Common ITC = ₹20,000
ITC relating to exempt supplies = ₹5,000
ITC Reversal = ₹5,000

3. Supplier Credit Note
If a supplier issues a credit note reducing the taxable value or GST, the corresponding ITC needs to be reduced/reversed as applicable.
Example:
Original GST = ₹18,000
Credit Note GST = ₹3,600
ITC reduction/reversal = ₹3,600

4. Blocked / Ineligible ITC
Certain goods and services are specifically restricted from ITC under GST.
Example:
GST paid on a blocked/ineligible expense = ₹36,000
If wrongly claimed, the ₹36,000 ITC has to be reversed/corrected, as applicable.

Key Points

• ITC Reversal reduces the ITC available for payment of output GST.
• ITC should be claimed only after checking its eligibility.
• Some reversals are temporary and may become eligible for re-availment when the prescribed conditions are subsequently satisfied.
• Always reconcile Purchase Register + GSTR-2B + ITC Reversal before filing GSTR-3B.

Easy Formula
Eligible ITC − ITC Reversal = Net ITC Available

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​Blocked Credit under GST
What is Blocked Credit?
Blocked Credit means GST paid on certain goods or services for which ITC is not allowed under GST law, even though GST is charged on the invoice.
The main provisions are under Section 17(5) of the CGST Act, 2017.
Common Examples

1. Motor Vehicles 🚗
   ITC on motor vehicles is generally blocked when used for personal transportation.
   Example: Car purchased for office staff use.
2. Food & Catering 🍱
   ITC on food, beverages and outdoor catering is generally blocked, subject to specified exceptions.
   Example: Staff lunch/catering.
3. Employee Travel ✈️
   Certain travel benefits provided to employees for personal travel are restricted.
   Example: Flight tickets for an employee's vacation.
4. Club / Fitness Membership 🏋️
   ITC on membership of clubs, health and fitness centres is generally blocked.
   Example: Gym membership for employees.
5. Insurance / Rent-a-Cab 🚕
   Certain rent-a-cab, life insurance and health insurance credits are restricted, subject to exceptions.
   Example: Health insurance premium for employees.
6. Construction of Immovable Property 🏗️
   ITC is generally blocked for works contract/construction relating to immovable property, subject to prescribed exceptions.
   Example: Office building construction.
7. Personal Use 🛍️
   Goods or services used for personal consumption are not eligible for ITC.
   Example: Personal household items.
8. Gifts & Free Samples 🎁
   ITC on goods disposed of as gifts or free samples is generally not available.
   Example: Free products given to customers.
9. Lost / Stolen / Destroyed Goods 📦
   ITC is restricted on goods that are lost, stolen, destroyed, written off or disposed of by way of gift/free samples.
10. Certain Other Supplies 💄
    Certain beauty treatment, health services, cosmetic/plastic surgery and similar supplies are restricted, subject to exceptions.

Easy Rule to Remember
​GST charged on invoice ≠ ITC automatically available.
Always check ITC eligibility + Section 17(5) before claiming credit.
Blocked ITC → Do not claim / reverse if wrongly claimed.

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​What is RCM?
RCM (Reverse Charge Mechanism) means the recipient/buyer pays GST directly to the Government instead of the supplier, for supplies notified under GST.
Normal GST vs RCM
Normal GST:
Supplier → Charges GST → Pays GST to Government
RCM:
Recipient → Pays GST → Government

Common RCM Examples

1. Legal Services – Services received by a business from an advocate.
2. GTA Services – Specified goods transport services received under RCM.
3. Director Services – Specified services provided by a director to a company/body corporate.
4. Motor Vehicle Renting – Certain specified renting services.
5. Sponsorship Services – Certain sponsorship services received by specified recipients.

RCM applies only where the relevant GST notification/conditions cover the particular supply.

RCM Example
Legal ServiceProfessional fee from Advocate = ₹50,000
GST @ 18% = ₹9,000
For an intra-State example:

• CGST @ 9% = ₹4,500
• SGST @ 9% = ₹4,500

Treatment
Step 1: Recipient pays ₹9,000 RCM GST to Government.
Step 2: If eligible, recipient can claim ₹9,000 as ITC after payment.

Example: Legal Service
ABC Ltd. receives legal service from an advocate:

• Service value = ₹10,000
• GST @ 18% = ₹1,800
• CGST = ₹900
• SGST = ₹900

GSTR-3B
Step 1 – Show RCM Liability
Table 3.1(d):

• CGST = ₹900
• SGST = ₹900

➡️ Pay ₹1,800 through Cash Ledger

Step 2 – Claim ITC
After paying RCM, if eligible:
Table 4(A)(3):

• CGST ITC = ₹900
• SGST ITC = ₹900

➡️ ITC claimed = ₹1,800

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ITC Set Off Rules

​How to utilize the Input Tax Credit?
RULE 1: Credit can be utilized to pay off the liabilities in the following manner:

• (a) IGST input tax credit shall first be utilized towards payment of IGST liability and the amount remaining, if any, may be utilized towards the payment of CGST, SGST/UTGST liabilities in any order, before utilizing the CGST, SGST/UTGST credit.
• (b) CGST input tax credit shall first be utilized towards payment of CGST liability and the amount remaining, if any, may be utilized towards the payment of IGST liability. CGST credit shall be utilized only if IGST credit is not available.
• (c) SGST/UTGST input tax credit shall first be utilized towards payment of SGST/UTGST liability and the amount remaining, if any, may be utilized towards payment of IGST liability (if no CGST credit is available). SGST/UTGST credit shall be utilized only if IGST credit is not available.
• (d) CGST input tax credit cannot be utilized towards payment of SGST/UTGST liabilities and
• (e) SGST/UTGST input taxed credit cannot be utilized towards payment of CGST liabilities.

RULE 2: ITC cannot be utilized for payment of reverse charge liabilities.
RULE 3: ITC can be utilized for payment of tax only.
RULE 4:  ITC can’t be utilized for payment of TDS/TCS/interest/penalty/fee/others.
RULE 5: The amount allowed to be entered for utilization of credit can’t be more than the amount of balance available in the Electronic Credit Ledger.
RULE 6: A unique transaction number shall be generated at the Common Portal for each debit or credit to the electronic cash or credit or liability ledger and the same will be reflected in the corresponding ledgers of the taxpayer.
RULE 7: Credit availed on input CESS paid on inward supplies will be available for set-off against any output tax liability of Cess only. There is no Inter head adjustment for Cess Input Tax Credit. this as image with summary

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Input Tax Credit under GST
ITC Blocked Credit under GST
ITC Reversal under GST
RCM under GST
​ITC Set Off Rules under GST

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