Eligibility and conditions for taking Input Tax credit (Section 16) FAQ

Q 1.Whether capital goods can be considered as inputs?
Ans. No. ‘Inputs’ are defined under Section 2(59) of the CGST Act to mean any goods other than capital goods used or intended to be used by a supplier in the course or furtherance of business.
‘Capital goods’ are defined under Section 2(19) of the CGST Act to mean goods, the value of which is capitalized in the books of account of the person claiming the input tax credit and which are used or intended to be used in the course or furtherance of business.

Q 2. What is Input Tax credit?
Ans. Input tax credit means the credit of central tax, state/ union territory tax and integrated tax available to a registered person on the inward supply of goods or services or both, made to him excluding the tax paid on supplies liable to composite tax. It further includes the integrated tax applicable on import of goods and the tax payable under reverse charge mechanism.

Q 3.What are the conditions to be fulfilled for entitlement of input tax credit?
Ans. A registered person will be entitled to claim input tax credit only upon fulfillment of the following conditions:
  • He is in possession of tax invoice/ debit note issued by a registered supplier or any other tax paying documents;
  •  He has received the goods and /or services or both;
  • The tax charged on such supply is paid to the Government (by way of cash or by utilizing input tax credit)
  • He has furnished a valid return.

Q 4. Whether Input tax credit on Inputs and Capital Goods is allowed in one installment?
Ans. Yes. Input tax credit will be available in full with respect to inputs and capital goods, subject to fulfillment of the prescribed conditions under Section 16(2) of the CGST Act.
Even in the case of supply of goods in lots/ instalments, the credit would be available in full on the receipt of the last lot/ installment.
The existing concept of partial credit on purchase of capital goods under the CENVAT Credit Rules, 2004 (i.e. 50% in the year of receipt and 50% in subsequent years) has been done away with.

Q 5. One of the conditions to claim credit is that the receiver is in possession of tax invoice or debit note or any other tax paying documents. What are the tax paying documents?
Ans. The tax paying documents have been prescribed under Rule 1 of the Input Tax Credit Rules, 2017 as under:
  • An invoice issued by supplier of goods or services.
  • Bill of Entry
  • Invoice raised by the recipient in case of inward supplies from unregistered persons or reverse charge mechanism supplies
  • ISD Invoice issued by an Input Service Distributor for distribution of credit
  • A debit note issued by supplier of goods or services

Q 6. What is the time limit within which the recipient of supply is liable to pay the value of supply with taxes to the supplier of service to avail the input tax credit?
Ans. The time limit prescribed is one hundred and eighty days (180 days) from the date of issue of invoice by the supplier of service/goods. If the recipient fails to do pay the value of supply (with tax) within 180 days, such input tax credit would be payable by the recipient along with applicable interest.
The above time limit is not applicable to supplies that are liable to tax under reverse charge mechanism.

Q 7.In case the amount is paid partly to the supplier of service, whether full taxes can be adjusted first? If No then whether it has to be calculated proportionately?
No. there is no provision under the GST law to allocate part payment of the invoice towards the taxes first so that the input tax credit can be allowed. Second proviso to Section 16(2) of the CGST Act clearly provides that the entire value of supply (with tax) is to be paid within 180 days from the date of issue of invoice. Therefore, as long as the entire payment is made within 180 days, the recipient would be entitled to claim the credit in full.
Assuming that only part payment is made within 180 days, availing of proportionate credit based on such part payment is not provided for under the CGST law and thus, would be subject to litigation.

Q 8. One of the conditions to claim credit is that the receiver has received the goods. Is there any provision for deemed receipt of goods in case of transfer of document of title before or during the movement of goods?
Ans. Yes. Explanation to Section 16(2)(b) of the CGST Act provides for deemed receipt of goods where the goods are delivered by the supplier to the recipient or any other person on the direction of the recipient, whet her acting as agent or otherwise, before or during movement of goods.

Q 9. Whether the registered person can avail the benefits of input tax credit and depreciation on the tax component of capital goods and plant and machinery?
Ans. No. Section 16(3) provides that input tax credit will not be allowed on the tax component of cost of capital goods/ plant and machinery, if the depreciation on the said tax component is claimed under the provision of Income Tax Act, 1961 by the taxable person. Therefore, the registered person has an option to either claim depreciation (under the Income Tax Act, 1961) or claim credit under the GST law, on the said tax component.
For example:
Cost of Asset = Rs. 1000/-
Tax = Rs. 100/-
Total = Rs. 1100/-
If depreciation is charged on Rs. 1000/-, then credit will be available under the GST law and if depreciation is charged on Rs. 1100/- then credit will not be available.

Q 10.What is the maximum time limit to claim the Input tax credit?
Ans. A registered person is not entitled to claim input tax credit in respect of any supply of goods or services after the earlier of following two events:
(a)Filing of the monthly return under Section 39 of the Act for the month of September following the end of financial year to which such invoice or invoice relating to such debit note pertains;
(b)Furnishing of the annual return under Section 44 of the Act.However, in cases of credit in special circumstances like new registration, voluntary registration, etc. the credit will not be avail able after the expiry of one year from the date of issue of tax invoice.

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