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Goods and Services Tax is the biggest taxation reform that has been introduced in the India. There are several terms and provisions that one needs to understand before getting registered into it. People who are running businesses can avail the benefit of the new taxation reform in the form of Input Tax Credit (ITC). However, before availing it, you need to have proper understanding of ITC. Input Tax Credit is the method of reducing the tax on sales that you’ve already paid on purchases. Businesses that deal with the supply of goods and services are eligible to claim for ITC under the GST regime.

To clear all your doubts, in this post, we discuss everything you want to know about ITC under GST registration. Take a look.

What is ITC?

ITC stand for Input Tax Credit which is the finest way to reduce the taxes paid on inputs from the taxes that have to be paid on the purchases or the output. When any type of services or goods are supplied to a taxable person, the GST levied on it is the Input tax. Previously, it was in the form of service tax, excise duty and VAT. Earlier it wasn’t possible to claim the ITC for different taxes such as luxury tax, central State Tax and Entry Tax. However, GST has widen the scope of ITC. The only condition to claim ITC under GST is critical as it can’t be applied to all types of inputs because it depends on the state-wise provisions.

How to Avail ITC?

Input Tax Credit can be availed by any taxable person following the provisions as mentioned under every state within a certain time limit. There are different situations under which ITC can be claimed such as when the person has applied for registration, when he/she gets voluntarily registered and so on. However, in both the situations, ITC can be claimed only if it does not exceed one year from the date of tax invoice. 

How to Claim ITC?

Input Tax Credit can be claimed under the GST scheme when certain conditions are fulfilled:

  • If the person is registered under the GST and is a taxable person of India.
  • ITC can be availed on zero rated supplies or exports that are taxable.
  • ITC can be claimed only if the goods and services received by the person are used for business purposes.
  • All sorts of GST returns needs to be filed for claiming ITC
  • The ITC that should be paid through Electronic Credit/Cash Ledger.
  • Supporting documents are required to claim ITC such as debit note, tax invoice, and so on.
  • Actual receipt of goods and services is helpful in claiming the ITC.

Documents Required For Claiming ITC

Each taxable person while claiming ITC need to have certain documents such as:

  • Invoice issued by the supplier on the supply on goods and services.
  • A debit note issued by the supplier on the supply of goods and services in case of taxable value or tax payable specified in the invoice.
  • Entry bill date.
  • An invoice or a credit note issued by Input Service Distributer.
  • Bill of Supply.

These documents should be carried by the taxable person at the time of claiming ITC and filing the GSTR-2 form. If the person fails to submit these documents the request to claim ITC either be rejected or need to be resubmitted again with all the required documents. The ITC, on the other hand, can’t be claimed for the taxes paid on goods and services for any fraud cases or wilful misstatement. ITC is made available at each stage of supply to the business person who is registered under the GST and is expected to bring down the overall taxes charged on the product.

The Bottom Line

To avail the benefit of ITC, GST registration is mandatory and the person should be dealing with the supply of good and services. ITC has been introduced under the GST regime to reduce the cascading effect of taxes which was seen in the previous indirect taxation regime. It is considered as one of the key factors of GST that is attracting many business owners to get registered under the GST even voluntarily. Before claiming the ITC, make sure you have all the documents required and a bit of knowledge about the provision under the GST.