Planning to claim ITC? Here’s how you can do it

Simply put, ITC is the tax that’s decreased whereas paying output tax on gross sales.

The cascading impact that lingered beneath excise, VAT and repair tax can be eliminated in Goods and Services Tax (GST) by permitting an uninterrupted and seamless chain of Input Tax Credit (ITC). ITC is the GST paid by the customer when buying items or providers, and it is decreased from legal responsibility payable on outward provides. In easy phrases, ITC is the tax that’s decreased whereas paying output tax on gross sales.

Steps to claim ITC

  • First of all, the recipient needs to be registered beneath GST to claim ITC and may fulfil ALL the circumstances talked about beneath:
  • The recipient possesses the tax bill
  • The items or providers had been obtained
  • The provider filed the returns
  • The provider paid the tax charged to the federal government
  • When items are obtained in instalments, ITC should be claimed solely when the final lot is obtained
  • ITC is not going to be allowed if depreciation has been claimed on the tax part of a capital good

Documents required to claim ITC

  • Coming to the paperwork required for claiming ITC, the registered taxpayer ought to possess a minimum of one doc from the checklist beneath:
  • Invoice issued by a provider of products or providers or each
  • Invoice issued by the recipient together with proof of fee of tax
  • A debit word issued by a provider
  • Bill of entry or related doc in case of imports
  • Revised bill
  • Document issued by Input Service Distributor (ISD)

The ITC claim course of is essential in GST return submitting. The move of ITC begins from the provider’s finish from whom the products or providers are bought. Whenever the provider uploads invoices in his GSTR-1, it might be mirrored within the GSTR-2A and GSTR-2B of the recipient.

It is to be famous that ITC can be claimed just for business functions and isn’t obtainable for any items or providers completely used for exempt provides, personal use, or any provides for which ITC shouldn’t be obtainable.

In the preliminary years of GST, the suppliers haven’t correctly uploaded the invoices in GSTR-1, and few taxpayers haven’t filed the GSTR-1 return in any respect. Hence, the recipient couldn’t get the ITC of their GSTR-2A, and the invoices lacking in GSTR-2A are known as lacking invoices. However, the recipients claimed ITC on lacking invoices with out contemplating GSTR-2A and the GST regulation. Taking benefit of the state of affairs, few taxpayers claimed the ineligible ITC additionally.

What is provisional ITC?

To nudge the suppliers to add invoices, file GSTR-1 and curb the claims of ineligible ITC, the federal government launched the idea of provisional ITC by way of CGST rule 36(4). Provisional ITC refers to ITC, which can be claimed even when ITC shouldn’t be obtainable in GSTR-2A.

Initially, provisional ITC is restricted to 20% of the eligible ITC obtainable in GSTR-2A. Later, the provisional ITC was decreased to 10%, and not too long ago the federal government restricted provisional ITC to the extent of 5% solely. Hence, as per CGST rule 36(4), a taxpayer submitting GSTR-3B can claim provisional ITC solely to the extent of 5% of the eligible credit score obtainable in GSTR-2B (earlier, GSTR-2A was thought-about).

In easy phrases, the full ITC that can be claimed in GSTR-3B is 105% of the eligible ITC showing within the GSTR-2B of a selected interval. So, a taxpayer ought to cross-check the ITC in GSTR-2A earlier than continuing to file GSTR-3B. Hence, one ought to constantly reconcile their ITC utilizing GSTR-2A and follow-up with their suppliers for importing lacking invoices, if any.

What is Rule 86B?

Recently, the federal government launched Rule 86B that limits the usage of ITC obtainable within the digital credit score ledger for discharging the output tax legal responsibility. Rule 86B has an overriding impression on all the opposite CGST Rules. This rule applies to registered individuals with a taxable worth of provide (apart from exempt provide and zero-rated provide) in a month that’s greater than Rs.50 lakh. The restrict has to be checked each month earlier than submitting GSTR-3B.

Rule 86B states that greater than 99% of the output tax legal responsibility can’t be discharged utilizing enter tax credit score. However, the division has given few exceptions to this rule, together with paying greater than Rs.1 lakh earnings tax or an individual who acquired a refund of greater than Rs.1 lakh, authorities division, public sector endeavor, native authority, or statutory authority and so on.

CBIC clarified that 1% is to be calculated on the tax legal responsibility however not on the turnover of the respective month. Hence, one ought to discharge 1% tax legal responsibility in money if he/she doesn’t fall into the exceptions class and performing this process for each GSTIN could be tedious.

Coming to the reporting of ITC, all common taxpayers should report the quantity of ITC of their GSTR-3B. Table 4 of GSTR-3B requires the abstract determine of eligible ITC, ineligible ITC and ITC reversed in the course of the tax interval.

Hence, whereas claiming ITC in GSTR-3B, one ought to possess the required paperwork and think about GSTR-2B, provisional ITC guidelines, rule 86B.

by, Archit Gupta, Founder and CEO – ClearTax

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