GST Input Tax Credit Explained [Video]

Last updated on July 16th, 2017 at 10:54 pm

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This post has been updated on 21, October 2016 to incorporate latest changes.

One of the fundamental features of GST is the seamless flow of input credit across the chain (from the manufacture of goods till it is consumed) and across the country. In this section, let’s discuss about various conditions laid down by law to avail GST input tax credit on supply of goods or services.

All of the following conditions need to be satisfied to avail GST Input credit:
• The dealer should be in possession of Tax Invoice / Debit or Credit Note / Supplementary Invoice issued by a supplier registered under GST Act.
• The said goods/services have been received.
• Returns (GSTR-3) have been filed.
• The tax charged has been paid to the government by the supplier.

What do these conditions imply?

Once Form GSTR-1 (Outward supply details) is filed by the supplier, the recipient has a visibility of the purchase through the auto-populated Form GSTR-2A (Inward supplies details). After necessary modification, additions (if any) and acceptance in Form GSTR-2, the Input credit will be credited to the recipient’s electronic credit ledger on a provisional basis.

The addition and modification done by the recipient in Form GSTR-2 will be made available to supplier in Form GSTR- 1A for his acceptance.

Input credit will be available only when the Monthly returns (Form GSTR-3) are filed by the supplier along with payment tax. The final acceptance of Input Tax credit will be communicated in Form GST MIS-1.

Let us understand this with an example

Super Cars Ltd, a manufacturer of cars purchased 30 tons of steel from Ratna Steels. Ratna Steels supplied steel and issued tax invoice on 5th April with GST of 2, 40,000.

With this example, let us examine the process to understand the flow of availing input credit.

Notes
GSTR-1: Furnish all outward supply details on or before 10th of the Subsequent month.
GSTR-2A: Auto-populated by System on 11th of subsequent month. This includes all inward supplies details
GSTR-3: Monthly Return auto-populated by the system on 20th of subsequent month

More articles coming soon on:
• Uploading of Returns
• Reversal and re-claim of Input Tax Credit

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About the author

Pugal T & Yarab A

31 Comments

  • This is in case of B2B Scenario where Surlier has to upload every invoice on GSTN but in case of B2C where goods has been sold to end consumer who is not going to claim ITC so how ivnocies going to be upload under GSTR1. I dont think so each invoice would be needed in case of B2C cases.

    • Input credit is applicable only to registered dealers when they purchase taxable goods or services from other registered dealers. In case of B2C transactions, there is no concept of input credit. The supplier has to, however, furnish details of supplies made to customers in Form GSTR-1.

  • Details on input are required.
    What happens when the buying dealer has made full payment to the supplier and the supplier defaults on GST payment or fails to upload GST returns in time? Will the buyer be penalised?

    I am in a trading business. Will, as a business, we be able to take benefit of GST charged by various utilities like Electricity, Telephone, ST charged by transporters, etc.? Right now, we don’t take any input credit for he same.

    • If your supplier defaults the payment of tax, the ITC claimed by you will be reversed and added to your output tax liability. We have also been trying to bring this to the attention of authorities – http://blogs.tallysolutions.com/?page_id=655

      For the second part of your question, currently electricity is not included under GST and GST charge on this utility cannot be taken as input tax credit. However, GST charged on telephone services and transport operators can be claimed as input tax credit provided, if these are for furtherance of business.

    • Dear
      As far as GST concern if the supplier dot pay or submit return it is up to them and the tax department. we can claim our input tax.

      Electricity and telephone are used for business. so we are the consumer. We are entitle to claim when our product coming out

      I have been worked 15 years as an accountant in the Republic of Maldives. GST is there.

    • It means when you enter your input / service tax in your system you can not availed or utilised GST credit for selling your finish goods.
      Pl. explain the meaning of tally

  • a) In case goods have not been received at buyer premises before 10th of next month, whether GSTR2 can be filed by buyer for the said purchases based on GSTR1
    b) In case goods have been is received after end of month and accounted in next month after receipt of goods, in which input credit to be claimed since seller is filing GSTR1 in the month of despatch.

    • We need more clarity from the law maker on these exceptional cases. However, the outward supply dealer (seller) will be capturing the invoice detail in his Form GSTR-1 and it will be made available to the inward supply dealer(Buyer) from 11th in Form GSTR–2A. The same can be accepted and updated in the buyers books of account. Since, both the invoices are matched, Input credit will be available. The details of dispute mechanism, when made available, will throw more light on these exceptions. We shall keep our readers posted and build such use cases of exceptional transactions, once more details available.

    • As per GST draft law, transition provisions allow you to carry forward the input tax credit. We will be publishing a detailed article on this soon.

  • Dear Shri Najib Shah Ji, ( Chairman CTBT)

    This refer to your FAQ on GST released by you. The information given to us by this question answers are very useful for all of us.

    My suggestion regarding further FAQ is to add following

    1) Pl give us few examples of how to make bills and charge GST on which components.

    Like example if any one charge freight , packing , forwarding charges , royalty as extra in the bill and is collected by buyer party seperatly .

    Pl let us know all that how GST will be charged on which prices , wheather it is value + other charges or other charges will come after charging GST.

    2) Like wise if any one give discount in bill how GST will be charged. Pl give conditions and than give us the format of billing pattern. If it is know at the time of supply GST charging format like wise.

    3) How MRP billing will be done by super stockist , stockist and trader.

    4) Pl let us know the transaction value for GST in billing with various formats and heads of expenses used in billing. Pl let us know who GST is charged on all other charges collected by party or discount given.

    Sir, this will help all manufacturers and traders , and billing software providers to to see how billing is to be done , and on which amont GST to be charged.

    We hope you will find above in order. If you need any further details pl mail me for bill formats.

    Regards

    Rajesh Maheshwari

    R M Enterprises
    Plot No 73 ( C1 & C2)
    Maksi Road Industrial Area
    Ujjain (M.P.) 456010

    Mobile No 9827077798 RAJESH Maheshwari
    Mobile No 9425092443 C S Maheshwari.

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