ITC Related Question

What are the restrictions on claiming ITC?

Input Tax Credit (ITC) is a crucial component of the Goods and Services Tax (GST) system, allowing businesses to offset the tax they paid on their purchases against the tax they collect on their sales. However, there are certain restrictions and conditions on claiming Input Tax Credit.

  1. Valid GST Invoice:
  • To claim ITC, a business must have a valid GST invoice or any other prescribed document for the supply of goods or services. The invoice should contain specific details as required by the GST law.
  1. Registration Requirement:
  • The business claiming ITC must be a registered taxpayer under GST. Unregistered persons or those registered under the composition scheme are generally not eligible to claim ITC.
  1. Time Limit for Availing ITC:
  • ITC can generally be claimed in the return for the month in which the invoice or debit note is received or the goods or services are received. However, there is a time limit, and ITC cannot be claimed beyond the due date for filing the September return of the following financial year or the actual filing of annual return, whichever is earlier.
  1. Specific Goods and Services:
  • ITC can be claimed only for goods or services used or intended to be used in the course of business. Certain goods and services, such as those used for personal consumption, are not eligible for ITC.
  1. Blocked Credits:
  • Certain categories of goods and services are specifically excluded from the eligibility for ITC. These are known as blocked credits. Examples include motor vehicles, goods and services used for personal consumption, etc.
  1. Input Services for Composition Taxpayers:
  • Businesses registered under the composition scheme are not eligible for ITC on input services.
  1. Goods and Services Used for Exempt Supplies:
  • ITC cannot be claimed on goods and services used for making exempt supplies. If a business is engaged in both taxable and exempt supplies, it needs to proportionately determine the credit available.
  1. Non-Compliance with Return Filing:
  • A taxpayer should have complied with the return filing requirements to be eligible for claiming ITC. If a taxpayer does not file the required returns, they may face restrictions on availing ITC.
  1. Reverse Charge Mechanism:
  • ITC on goods and services subject to reverse charge mechanism can be claimed only when the recipient pays the tax to the government.
  1. Distribution of Credit in Case of Input Service Distributors (ISD):
  • Input Service Distributors (ISD) must distribute the ITC in the prescribed manner and within the stipulated time frame.