Section 16: Eligibility and conditions for taking ITC
What is the Eligibility Criteria?
Every registered person shall be entitled to take credit of input tax charged on any supply of goods or services or both to him which are used or intended to be used in the course or furtherance of business.
Self note: The tax paid on goods or services which are used for non business purpose cannot be availed as ITC.
What are the Conditions For Availing ITC?
The registered person shall comply with the following cumulative conditions to avail ITC:-
(a) He is in possession of a tax invoice or debit note issued by a supplier registered under this Act or such other tax paying documents as may be prescribed under rule 36.
Rule 36: Documentary requirements and condition for claiming ITC
(1) Eligible documents for availing ITC:-
- An invoice issued by the supplier of goods or services or both
- An invoice issued by recipient along with proof of payment of tax in case of reverse charge.
- A debit note issued by a supplier.
- A bill of entry or any similar documents prescribed under Customs Act for assessment of integrated tax on import.
- Revised invoice
- Documents issued by input service distributor.
(2) Minimum Requirements of particulars for availing ITC:-
- Details of the amount of tax charged
- Description of goods or services
- Total value of supply
- GSTIN of the supplier and the recipient.
- Place of supply in case of inter state supply.
(3) No input tax credit shall be availed in respect of any tax that has been paid on account of any fraud or willful misstatement or suppression of facts.
Example: Central tax officer has served SCN on Mr. X for fraud resulting into tax evasion. Demand order passed on Mr X and differential tax element. Now Mr X is issuing debit note to Mr Y for recovering the differential tax. In this case, Mr Y is not eligible to take ITC of differential tax elements in debit note.
(4) Input tax credit shall not to be availed by the registered person in respect of invoices or debit notes, the details of which have not been furnished under GSTR-1 and shall not exceed 5% of the eligible credit available in respect of invoices or debit notes the details of which have not been furnished under GSTR-1.
Clarifications for sub rule (4)of Rule 36
(1) Where invoice /debit note has been uploaded by the supplier in his GSTR-1:
=> Full ITC available if all other conditions are fulfilled.
(2) where invoices / debit note has not been uploaded by supplier in his GSTR-1:
=> Actual ITC of non uploaded invoices/ debit note or 5% of eligible ITC of uploaded invoices / debit note. (Whichever is lower)can be availed.
(3) whether the said restriction is to be calculated supplier wise or on consolidated basis?
=> Credit available under rule 36(4) is linked to eligible credit from all suppliers against all supplies whose details have been uploaded by the suppliers. Hence restriction imposed is not supplier wise.
Accordingly, those invoices on which ITC is not available under any of the provisions (say under 17(5))would not be considered for calculating 5% of eligible credit available.
(b) he has received the goods and services or both.
Bill to ship to model: It shall be deemed that registered person has received the goods or services where the goods are delivered or services are provided by the supplier to a recipient or any other person on the direction of such registered person.
Example: Mr X located in Pune supplied raw material to Mr Y of Goa on 23-11-2022.During the movement of goods Mr Y directed Mr X to supply the raw material to his agent Mr Z on 25-11-2022.Mr X delivered raw material to Mr Z on 27-11-2022. In this case goods are said to be received by Mr Y on 27-11-2022.
(c) The tax charged has been actually paid to the government either in cash or through utilisation of ITC admissible in respect of said supply.
(d) He has furnished the return under section 39.
What if the goods received in lots/Installments?
Where the goods against an invoice are received in lots or installments, credit shall be taken upon the reciept of last lot or installment.
Example: M/s Zurex Trading Co. Purchased certain goods from Vedant Co. Who agreed to deliver goods in installments as follows :
- 15..8.2022 1st installment
- 15.9.2022. 2nd installment
- 20.10.2022 last installment
In this case ITC of the Goods shall be available only on the reciept of last installment i.e. 20.10.2022.
Is it necessary for the registered person to pay the full consideration including tax payable ,in respect of goods and services, to the supplier and in What time?
Rule 37: Reversal of ITC in case of non payment of consideration. The rule says that where a recipient fails to pay the supplier the consideration for the goods or services along with the tax payable thereon,within period of 180 days from the date of issue of invoice by the supplier ,then following are the consequences :-
The recipient shall furnish the details of the supply, the amount not paid and the ITC proportionate to such amount in FORM GSTR-2 for the month immediately following the period of 180 days from the date of issue of invoice .
The registered person shall be liable to pay interest @18%p.a.from the date of availing the credit till date when amount added to the output tax liability.
No ITC if depreciation is claimed on tax component of capital goods
If the registered person has claimed depreciation on the tax component of cost of capital goods and plant and machinery under income tax,the input tax credit on the said tax component shall not be allowed.
What is the Time limit for availing ITC?
A registered person shall not be entitled to take ITC in respect of any invoice or debit note after the due date of furnishing the return under sec 39 for the month of September following the end of financial year to which such invoice or debit note pertains or furnishing of relevant annual return ,whichever is earlier.
In simple words the time limit is -
20th October of the next financial year or date of filing annual return, whichever is earlier.
This time limit does not apply to claim for re-availing of credit reversed earlier.
The time limit for debit note and original invoice is to be checked separately.
Example- Sam Ltd delivered a plant and machinery to Zen Ltd under Invoice no 20 dated 20th February,2021 and undertook trial runs as per the requirement of Zen Ltd.The amount for Post delivery activities was covered under a debit note raised in May 2021.
In this case, the time limit for taking ITC is to be checked separately for invoice and debit note.
- For Invoice,it will be 20 th October,2022 or Date of filing annual return for F.Y.2020-2021, whichever is earlier.
- For debit note,it will be 20 th October,2023 or Date of filing annual return for FY 2021-2022, whichever is earlier.
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