INPUT TAX CREDIT

Aggregate Turnover Section 2(6)

"Aggregate turnover" means the aggregate value of—
• all taxable supplies (excluding the value of inward supplies on which tax is payable by a person on
reverse charge basis),
• exempt supplies,
• exports of goods or services or both, and
• inter-State supplies of persons having the same Permanent Account Number, to be computed on all
India basis, —
but excludes — • Central tax, • State tax, • Union territory tax, • Integrated tax, and • Cess

Eligibility and conditions for taking input tax credit [Section 16]:

(1) Only registered person eligible to take ITC [Section 16(1)]: Every registered person shall, —

subject to such conditions and restrictions as may be prescribed, and

in the manner specified in section 49, be entitled to take credit of input tax —
charged on any supply of goods or services or both to him
which are used or intended to be used in the course or furtherance of his business, and the said
amount shall be credited to the electronic credit ledger of such person.
(2) Conditions to be satisfied for taking ITC [Section 16(2)] : Notwithstanding anything contained in
this section, no registered person shall be entitled to the credit of any input tax in respect of any supply
of goods or services or both to him unless, -

a) Possession of tax paying document : He is in possession of a tax invoice or debit note issued
by a supplier registered under this Act, or such other tax paying documents as may be
prescribed;
b) Receipt of goods/ Services : He has received the goods or services or both.

Delivery of goods at registered persons direction is valid receipt of goods [Explanation] : It

shall be deemed that the registered person has received the goods where the goods are delivered
by the supplier to a recipient or any other person on the direction of such registered person, whether
acting as an agent or otherwise, before or during movement of goods, either by way of transfer of
documents of title to goods or otherwise;

c) Tax charged is actually paid to Government: Subject to the provisions of section 41, the tax
charged in respect of such supply has been actually paid to the Government, either in cash or
through utilisation of input tax credit admissible in respect of the said supply; and
d) Furnishing of return : He has furnished the return under section 39.

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 Goods received in lots or instalments - ITC can be taken upon receipt of the last lot or
instalment: Where the goods against an invoice are received in lots or instalments, the
registered person shall be entitled to take credit upon receipt of the last lot or instalment.

Payment is not made within 180 days from date of invoice - ITC availed is to be paid along
with interest: Where a recipient fails to pay —

to the supplier of goods or services or both, other than the supplies on which tax is payable
on reverse charge basis,
the amount towards the value of supply along with tax payable thereon,
within a period of 180 days from the date of issue of invoice by the supplier, an amount
equal to the input tax credit availed by the recipient shall be added to his output tax
liability, along with interest thereon, in such manner as may be prescribed.
Re-credit when payment is made subsequently : However, the recipient shall be entitled to avail
of the credit of input tax on payment made by him of the amount towards the value of supply
of goods or services or both along with tax payable thereon.

(3) ITC not admissible if deprecation claimed on tax component [Section 16(3)]: Where the
registered person has claimed depreciation on the tax component of the cost of capital goods and plant and
machinery under the provisions of the Income-tax Act, 1961, the input tax credit on the said tax
component shall not be allowed.
(4) Time Limit for availing ITC [Section 16(4)]: A registered person shall not be entitled to take
input tax credit in respect of any invoice or debit note for supply of goods or services or both after —
the due date of furnishing of the return under section 39 for the month of September following the end
of financial year to which such invoice or invoice relating to such debit note pertains, or
furnishing of the relevant annual return, whichever is earlier.
(5) Burden of proof - Person taking the credit [Section 155]: Where any person claims that he is eligible
for input tax credit under this Act, the burden of proving such claim shall lie on such person.

AVAILABILITY OF CREDIT IN SPECIAL CIRCUMSTANCES

Availability of credit in special circumstances [Section 18]:

(1) Availability of ITC in special circumstances [Section 18(1)] : Subject to such

conditions and restrictions as may be prescribed —

(a) ITC available on opening stock of inputs at the time of registration [Section 18(l)(a)]: A
person—

• who has applied for registration under this Act within 30 days from the date on which he becomes
liable to registration, and
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• has been granted such registration
• shall be entitled to take credit of input tax in respect of—
• inputs held in stock;
• inputs contained in semi-finished goods held in stock; and
• inputs contained in finished goods held in stock

on the day immediately preceding the date from which he becomes liable to pay tax under the
provisions of this Act.

(b) ITC available on opening stock of inputs at the time of voluntary registration [Section
18(1)(b)]: A person who takes registration under Section 25(3) i.e. voluntary registration shall be
entitled to take credit of input tax in respect of—

• inputs held in stock;

• inputs contained in semi-finished goods held in stock; and
• inputs contained in finished goods held in stock

on the day immediately preceding the date of grant of registration.

(c) ITC available on opting out of composition scheme [Section 18(1) (c)]: Where any registered
person ceases to pay tax under section 10 i.e. Composition scheme, he shall be entitled to take credit
of input tax in respect of -

• inputs held in stock;

• inputs contained in semi-finished goods held in stock;
• inputs contained in finished goods held in stock, and
• on capital goods

on the day immediately preceding the date from which he becomes liable to pay tax under section 9.

Reduced credit available in respect of capital goods : The credit on capital goods shall be reduced
by such percentage points as may be prescribed.

(d) ITC available on conversion of exempt supply into taxable supply [Section 18(1)(d)]: Where
an exempt supply of goods or services or both by a registered person becomes a taxable supply, such
person shall be entitled to take credit of input tax in respect of—

• inputs held in stock;

• inputs contained in semi-finished goods held in stock;
• inputs contained in finished goods held in stock, and
• on capital goods exclusively used for such exempt supply

on the day immediately preceding the date from which such supply becomes taxable.

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Reduced credit available in respect of capital goods : The credit on capital goods shall be reduced
by such percentage points as may be prescribed.

(2) Time limit to take ITC - ONE year from date of issue of tax invoice [Section 18(2)] : A
registered person shall not be entitled to take input tax credit under section 18(1) in respect of any
supply of goods or services or both to him after the expiry of one year from the date of issue of tax invoice
relating to such supply.

(3) Transfer of ITC on account of change in constitution [Section 18(3)]: Where there is a change
in the constitution of a registered person on account of—

• sale,
• merger,
• demerger,
• amalgamation,
• lease; or
• transfer of the business,

with the specific provisions for transfer of liabilities, the said registered person shall be allowed to
transfer the input tax credit which remains unutilised in his electronic credit ledger to such—

• sold,
• merged,
• demerged,
• amalgamated,
• leased or
• transferred business

in such manner as may be prescribed.

(4) ITC Reversal on switching to composition scheme/ goods or services becomes wholly exempt
[Section 18(4)] : Where any registered person who has availed of input tax credit—

• opts to pay tax under section 10 i.e. composition levy or,

• where the goods or services or both supplied by him become wholly exempt,

he shall pay an amount, by way of debit in the electronic credit ledger or electronic cash ledger,
equivalent to the credit of input tax in respect of—

• inputs held in stock;

• inputs contained in semi-finished goods held in stock;
• inputs contained in finished goods held in stock, and
• capital goods, reduced by such percentage points as may be prescribed,
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on the day immediately preceding the date of exercising of such option or, as the case may be, the date
of such exemption.

Balance credit to lapse : After payment of such amount, the balance of input tax credit, if any, lying
in his electronic credit ledger shall lapse.

(5) Amount to be calculated in prescribed manner [Section 18(5)] ; The amount of credit under section
18(1) and the amount payable under section 18(4) shall be calculated in such manner as may be
prescribed.

(6) Supply of plant and machinery after use - Credit implications [Section 18(6)] : In case of
supply of capital goods or plant and machinery, on which input tax credit has been taken, the
registered person shall pay higher of the following amounts:

• an amount equal to the input tax credit taken on the said capital goods or plant and machinery
reduced by such percentage points as may be prescribed, or
• the tax on the transaction value of such capital goods or plant and machinery determined u/s 15.

Refractory bricks, moulds and dies, jigs and fixtures are supplied as scrap - Tax leviable on
transaction value is to be paid : Where refractory bricks, moulds and dies, jigs and fixtures are
supplied as scrap, the taxable person may pay tax on the transaction value of such goods determined under
section 15.

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 Practical Problems
Illustration 1
From the following information determine the amount of Input tax credit admissible to ABC Ltd. in
respect of various inputs purchased during the month of September, 2023.

Purchase CGST & SGST

(Rs.)
1 Goods purchased without invoice 25,000
2 Goods purchased from PQR Ltd. (Full Payment is made by ABC 1,20,000
Ltd to PQ
Ltd. against such supply but tax has not been deposited by PQR Ltd.
3 Purchases of goods not to be used for business purpose 18,000
4 Purchases of goods from TT Ltd. (Invoice of TT Ltd. is received in 24,000
month of September 2023, but goods were received in month of
October 2023)
5 Goods purchased against valid invoice from FF Ltd. Tax has been 36,000
deposited by FF Ltd. ABC Ltd has made payment to FF Ltd. for
such purchases in the month of October 2023

Illustration 2
Goods received in Lots or installment: S Ltd. a registered manufacturer of Jaipur entered in a contract
with a supplier for supply of Input 'X' in October, 2023. As per contract it was agreed that 10,000 kgs of
Input 'X' will be supplied for Rs. 7,28,000 (inclusive of CGST and SGST @ 6% each) in 4 lots. Invoice
of Rs. 7,28,000 has been issued with supply of first lot of Input 'X'. Following further information has
been provided regarding supply of Input received in subsequent lots.
Briefly explain whether S Ltd. eligible to take credit on proportionate basis.
Input 'X' (in lots) Quantity in Kgs Date of Receipt of Supply
First Lot 2,500 19-10-2022
Second lot 3,000 21-10-2022
Third Lot 1,500 12-11-2022
Fourth Lot 3,000 01-12-2022

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Illustration 3
X Ltd. a registered manufacturer engaged in taxable supply of goods procured the following goods during
the month of October, 2023. The same has been capitalized in the books of accounts of X Ltd. Determine
the amount of Input Tax credit available by giving necessary explanations for treatment of various items.
Items Input tax (Rs.)
Electrical transformers used in the factory 2,16,000
Moulds and dies used in the factory 26,000
Pollution control equipment used in the factory 2,34,000
Capital Goods purchased on which depreciation has been taken on full value 1,35,000
including input tax thereon
Capital goods used as parts purchased from supplier who paid tax of Rs.
10,000 under composition scheme and the composite tax has not been
collected from X Ltd.

Illustration 4
ABC Pvt. Ltd. a registered manufacturer is engaged in taxable supply of goods. It procured the following
goods during the month of November, 2023. Determine the amount of Input Tax credit available by giving
necessary explanations for treatment of various items.
Items Input tax (Rs.)
Laptops used in office within factory 36,000
Truck used for transportation of inputs in the factory 2,24,000
Capital goods used exclusively for non business purposes 54,000
Pumps obtained from the unregistered supplier on which tax has been paid 4,500
by ABC Pvt. Ltd on reverse charge basis
Goods used in construction of office building 45,600
Capital Goods used exclusively for making outward supplies to SEZ unit 28,800

Illustration 5 - Input Eligibility - Motor vehicles, Conveyance etc. : An Elite Training institute
provides service of training pilot in flying commercial aircraft so that candidates become eligible for
obtaining Aviation license. Determine whether the institute is eligible to take credit on aircraft
purchased for imparting training.

Illustration 6 - Input tax credit - Input services ; Compute the Input tax credit available with Ujjwal
Motors Ltd., manufacturer of cars, in respect of the following services availed by it in the month of
October, 2023:
S. Services billed Input tax paid
No. (Rs.)
Accounting and Auditing Services 7,200
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2 Health insurance services for employees (Services are not provided under 16,200
Government obligation)
Routine maintenance of the cars manufactured by Ujjwal Motors Ltd. 18,000
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4 Repair services for office building (cost of repairs is charged to Profit and 14,400
loss Account
Hotel accommodation and Conveyance facility to employees on vacation 3,360
5

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 Testing services availed for car engines 9,000
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Illustration 7 - Eligibility of ITC : XYZ Ltd. is engaged in supply of works contract services. It
gives a part of the construction work to a sub-contractor. The sub-contractor charges GST in his
invoice to XYZ Ltd. You are required to advice XYZ Ltd. if it can avail Input tax credit of the GST
charged to it by the sub-contractor.

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TYBcom: goods & service tax

Illustration 8
M/S Sunil and Company trader is a registered person giving following information for the month of
June 2018. Compute the GST Payable.
Supplies
Commodity GST Rate SGST rate Amount
A 2.5% 2.5% 5,00,000
B 6% 6% 8,40,000
C 9% 9% 30,80,000
D 14% 14% 20,70,000
Service 9% 9% 6,00,000
Purchase
Commodity GST Rate SGST rate Amount
A 2.5% 2.5% 3,50,000
B 6% 6% 4,60,000
C 9% 9% 20,40,000
D 14% 14% 16,40,000
Service 9% 9% 4,00,000

Illustration 9
M/S Sushanti & company of Mumbai gives following information for the month of August 2018.
You are required to compute the tax payable by the company.
Supply of goods @ 18% Rs 15,40,000
Purchase of goods @ 18% Rs 14,20,000
18% includes CGST 9% and SGST 9%

Illustration 10
M/S X ltd being a registered person supplying taxable goods in the following manner:

Particulars Amount
Intra state supply of goods 18,00,000
Inter-state supply of goods 13,00,000
Intra state purchase 13,00,000
Inter state purchase 1,50,000
ITC at the beginning of the relevant tax period
CGST 1,30,000
SGST 1,30,000

9|prof.NareshDhanawade
TYBcom: goods & service tax

IGST 1,70,000
Rate of CGST, SGST and IGST is 9%, 9% and 18% respectively
Inward and outward supplies are excusive of tax.

Illustration 11

Govind has the ITC balance brought forwarded from December CGST Rs 12,200, SGST Rs 13,100
and IGST rs 11,200. He furnishes the following details for the month of January.

Nature of Supply Value of supply

28% 18% 12% 5%
Outward Intra 2,60,000 2,28,000 3,60,000 4,20,000
state supply
Outward inter- 1,20,000 75,000 1,63,000 1,85,000
state supply
Inward intra state 1,12,000 1,50,000 3,20,000 3,15,000
supply
Inward interstate 1,90,000 1,60,000 1,65,000 1,40,000
supply

Illustration 12
M/s ABC co dealing in trading of stainless steel items, recored the sale of Rs 1,50,00,000 in the
mont of April 2021, out of which the Rs 80,00,000 pertains to Inter state sale and Rs 70,00,000
petains to Intra state sale. The GST rate is 18% on the items. The Inter state purchase of the month
is Rs 1,45,00,000.
Outward supplies

Particulars Amount Tax

Intra- state sale 70,00,000 12,60,000
Inter- state Sale 80,00,000 14,40,000
Inward Supplies

Particulars Amount Tax

Intra- state Purchase -- --
Inter- state Purchase 1,45,00,000 26,10,000

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TYBcom: goods & service tax

Illustration 13

M/s ABC co dealing in trading of stainless steel items, recored the sale of Rs 1,50,00,000 in the
mont of April 2021, out of which the Rs 80,00,000 pertains to Inter state sale and Rs 70,00,000
petains to Intra state sale. The GST rate is 18% on the items. The Inter state purchase of the month
is Rs 1,45,00,000.

Outward supplies

Particulars Amount Tax

Intra- state sale 70,00,000 12,60,000
Inter- state Sale 80,00,000 14,40,000
Inward Supplies

Particulars Amount Tax

Intra- state Purchase 1,45,00,000 26,10,000
Inter- state Purchase --- ---

Illustration 14
M/s ABC co dealing in trading of stainless steel items, recored the sale of Rs 1,50,00,000 in the
mont of April 2021, The GST rate is 18% on the items. The Inter state purchase of the month is Rs
75,00,000 and intra state purchases is Rs 70,00,000..

Outward supplies

Particulars Amount Tax

Intra- state sale 1,50,00,000 27,00,000
Inter- state Sale -- --
Inward Supplies

Particulars Amount Tax

Intra- state Purchase 70,00,000 12,60,000
Inter- state Purchase 75,00,000 13,50,000
Compute the net tax payable.

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