Input tax credit

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Querist : Anonymous

Querist : Anonymous (Querist)

09 May 2012 how can a assesse get input tax credit in indirect taxes?
is that before sale or not?

Amol Gopal Kabra (CA,CS,DISA)

Amol Gopal Kabra (CA,CS,DISA) (Expert)
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09 May 2012 It is not necessary to sell the goods. After purchase of goods and on receipt of a valid tax invoice, the input tax credit can be claimed. However, if the supplier fails to pay the tax to the Government, then it is collected from the purchaser, i.e. the one who has claimed the input tax credit.

Querist : Anonymous

Querist : Anonymous (Querist)

10 May 2012 what is the difference between input tax credit and cenvat credit??

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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01 August 2024 **Input Tax Credit (ITC)** and **Cenvat Credit** are both mechanisms to claim credit on taxes paid on inputs, but they apply under different tax regimes and have some distinctions. Here’s a detailed comparison:

### **1. Input Tax Credit (ITC)**

**Applicability:**
- ITC is a concept under the **Goods and Services Tax (GST)** regime, which replaced the earlier VAT and Service Tax systems in India from July 1, 2017.

**Scope:**
- **Goods and Services:** ITC can be claimed on both goods and services used in the course of business, provided they are used for making taxable supplies or for furtherance of business.

**Eligibility:**
- **Registered Person:** Only entities registered under GST can claim ITC.
- **Conditions:** The credit is available if the supplier has paid the tax to the government, the purchase is made from a registered supplier, and the purchase is for business purposes.

**Mechanism:**
- ITC allows businesses to offset the tax paid on inputs against their output tax liability, thereby reducing the overall tax burden. For example, if you buy raw materials and pay GST on them, you can claim credit for that GST against the GST you collect on your sales.

**Documentation:**
- Businesses need to maintain proper documentation such as tax invoices, debit notes, and GST returns to claim ITC.

### **2. Cenvat Credit**

**Applicability:**
- Cenvat Credit was a concept under the **Central Excise Duty** and **Service Tax** regimes before GST came into effect.

**Scope:**
- **Excise Duty:** Cenvat Credit was available on excise duty paid on raw materials, components, and capital goods used in the manufacture of final products.
- **Service Tax:** Cenvat Credit could be claimed on service tax paid on input services used in the course of business.

**Eligibility:**
- **Registered Manufacturer/Service Provider:** Only entities registered under Excise or Service Tax could claim Cenvat Credit.
- **Conditions:** The credit was available if the inputs or services were used in the production of taxable goods/services.

**Mechanism:**
- **Excise Duty:** Allows businesses to offset the excise duty paid on inputs and capital goods against their excise duty liability on finished goods.
- **Service Tax:** Allows businesses to offset the service tax paid on input services against their service tax liability on output services.

**Documentation:**
- Similar to ITC, businesses needed to maintain proper records such as invoices and payment receipts to claim Cenvat Credit.

### **Key Differences:**

1. **Tax Regime:**
- **ITC:** Applicable under GST.
- **Cenvat Credit:** Applicable under Excise Duty and Service Tax regimes (pre-GST).

2. **Scope of Credit:**
- **ITC:** Covers both goods and services.
- **Cenvat Credit:** Covered excise duty on goods and service tax on services.

3. **Claiming Procedure:**
- **ITC:** Claimed through GST returns and reconciled with the GST portal.
- **Cenvat Credit:** Claimed through service tax returns and excise documentation before GST.

4. **Legislative Changes:**
- **ITC:** Implemented as part of the GST system to unify indirect tax credits.
- **Cenvat Credit:** Phased out with the implementation of GST.

### **Summary:**

- **Input Tax Credit (ITC)** is part of the GST regime, applicable to both goods and services, and is used to reduce the GST liability.
- **Cenvat Credit** was used under the Excise and Service Tax regimes to offset excise duty and service tax liabilities.

With the introduction of GST, Cenvat Credit has been replaced by ITC, and the rules and procedures under GST are now applicable for claiming tax credits.