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When GST Input Tax Credit Can be Availed

In our earlier blogs we have explained what Input Tax credit (ITC) is and how it can be utilized to pay the outward tax against supplies. In this blog we take you through the scenarios in which Input Tax credit can be utilized.

Scenario 1: I have registered my business under GST, am I now eligible for availing ITC?

YES, you are eligible for taking GST ITC provided following conditions are met:

  1. You must have a tax invoice/ debit note/ credit note issued by a GST registered supplier.
  2. You have received the goods/ services.
  3. You and supplier must have reconciled your books and filed GSTR-3
  4. The tax charged on your purchases has been paid by the supplier to the government in form of cash or adjustment of his input credit. This clause is also referred to as Sequential liability clause i.e. a buyer can get his input credit only when his supplier has paid it.

However, if you are not GST registered and still want to claim GST-ITC on the goods that you had procured, then you must apply for GST registration within the 30 days of the date on which you become liable to register. For example, Mohan Lala & Sons are shoes manufacturer and have crossed the threshold limit for registration on 1st October 2017. You have stock of raw materials worth Rs. 5,00,000 on this date and have paid GST @ 18% (Rs 90,000) on them. You must ensure that you apply for registration within 30 days from 1st October 2017. If not, you will lose the eligible ITC of Rs 90,000 on the raw materials in stock.

Scenario 2: I am a composite tax payer, can I claim GST ITC?

No. A composite tax payer cannot claim ITC and is liable to pay taxes only on a small pre-decided percentage of his turnover. A composite tax payer can have revenue no more than 50 Lacs. However, if turnover of a composite tax payer crosses 50 lacs, he becomes a regular tax payer and hence can claim ITC.

But what happens in the case a composite tax payer has just been converted to a regular tax payer? In such a scenario the stock lying with the composite tax payer entitles him to receive ITC on the same.

E.g. Ravi owns a furniture manufacturing business and he has crossed the turnover on 1st January 2018. As of 31 Dec 2017, the status of stock lying with him is:

In this case Ravi can claim ₹59,400 as Input tax credit on the stocks of raw material, WIP stock and Finished goods as on 31 Dec 2017.

Scenario 3: I have acquired a GST registered company; can I use its ITC?

Yes. Whenever there is a specific provision for transfer of liabilities, the unutilized ITC can be transferred to the sold or acquired, merged or demerged, leased or transferred business.

For example, New Age Hardware recently acquired a hardware shop Nitin Hardware which had unutilized input tax credit of ₹2 Lacs. As per the conditions of the sale agreement all liabilities and assets of Nitin Hardware will be transferred to New Age Hardware. Hence, New Age Hardware can now utilize ₹2 Lacs to offset his tax liabilities [Video Available]

Scenario 4: Through same raw material I manufacture taxable and exempted products; can I claim GST ITC in both?

No. GST-ITC can be claimed only on the raw material utilized for manufacturing taxable products. For the exempted product, GST-ITC cannot be claimed.

For example, Ajay Stationers procures paper worth ₹2,00,000 @ 12% GST rate for manufacturing judicial papers and notebooks. He utilizes ₹1,00,000  worth of paper in manufacturing each product. Now since judicial papers are tax exempted and notebooks attract tax, Ajay Stationers will be able to GST-ITC only on the ₹1,00,000 worth of paper being utilized for manufacturing notebooks (taxable product).

Scenario 5: I have received my lot in installments. When can I claim GST ITC?

If the products are coming against the same invoice you can claim ITC only upon receipt of the last lot or installment.

For example, Soham Enterprises is the dealer of Electronics and recently ordered a consignment of 500 air conditioners from Zoltas Air conditioners on 15 September 2017. Zoltas Air conditioners raised a single invoice and sent 200 ACs on 15 October 2017 and remaining 300 pieces on 15 November 2017. In this scenario, ITC of 28 Lacs can be availed only after the receipt of the second lot of 300 pieces. The input register looks like:


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2 Comments “When GST Input Tax Credit Can be Availed

  • Sushant
    August 2, 2017 7:42 amReply

    If a Manufacturer doing export and domestic sale(india) both, can they utilized input tax credit (IGST/CGST/SGST against purchase of Raw Material for manufactured final product for export ) for domestic sale.

    • moglix
      August 3, 2017 3:02 pmReply

      Yes, you can use ITC of purchase of any raw material against any sales. Condition is purchase and sales should be from same registered GST Number.

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