What is Input Tax Credit in GST?

Let us assume that we are discussing Input Tax Credit in GST of India.

Input Tax Credit or ITC is the tax that a business pays on a purchase and that it can claim credit and use it to reduce its tax liability when it makes a sale. In other words, it means at the time of paying tax on output (Final sale product), you can reduce the tax you have already paid on inputs (Purchase).

Example  For a manufacturer, tax payable on output (Final product) is Rs 500 and tax paid on input A is Rs 100, input B is Rs 50 and, input C is Rs50. You can claim INPUT CREDIT of Rs 200(100+50+50) and you only need to deposit Rs 300(500-200) in taxes.

Conditions- Only a Registered Person would be able to claim the benefit of Input Tax Credit of GST after satisfying the following:

1. He is in possession of a Tax Invoice or any other specified tax-paid document.
2. He has received the goods or services. Includes “Bill to ship” scenarios.
3. Tax is actually paid by the supplier.
4. The supplier has furnished the GST Return.
5. To claim ITC, the buyer should pay the supplier for the supplies received (inclusive of tax) within 180 days from the date of issuing the invoice.

Claiming of ITC – Discussed by taking an example, seller A sold his goods to B. Now B who is a buyer will be eligible to claim the input tax credit on purchases based on the invoices when he makes further sales. Now,

•  S will upload the details of all the tax invoices in GSTR 1.
• All the details in accordance with the sales to B will reflect in GSTR 2A, and the same data will be taken by B to file GSTR 2 (i.e. details of inward supply).
• B will accept the details about the purchase that has been made and uploaded by the seller, the tax on purchases will be credited to ‘Electronic Credit Ledger’ of B and he can adjust it against future output tax liability and get the refund.