Glossary
What is input tax credit (ITC)?
The GST you paid on what you bought, taken off the GST you owe on what you sold.
Updated
In short
Input tax credit is the GST a business paid on its purchases, set off against the GST it collects on sales. SimpleERP records input tax from every posted bill and expense in its own accounts and shows it in the GST summary.
Input tax credit is the GST a business has paid on its purchases, which it can set off against the GST it collects on its sales, so tax is paid only on the value it adds. Credit is generally available only with a valid tax invoice, goods or services actually received, the supplier having reported the invoice so it shows in GSTR-2B, and the supplier having paid the tax.
Input tax credit (ITC): a worked example
Lakshmi Steel Furnitures buys MS sheet from Tamil Nadu Steels for ₹50,000 plus CGST ₹4,500 and SGST ₹4,500. Once the bill appears in its GSTR-2B, it can set the ₹9,000 off against the GST on its rack sales. If its output tax for the month is ₹14,400, it pays ₹5,400 in cash. Figures assume 18%. Rates change, so confirm the rate for your goods with your CA or the GST portal before you rely on it.
When can I not claim input tax credit?
Credit is blocked on some purchases whatever the paperwork: most motor vehicles, food and beverages, club memberships, goods for personal use, goods lost, stolen or given away as free samples, and construction of your own building. You must also reverse credit if you do not pay the supplier within 180 days, and the last date to claim a year's credit is 30 November after the year ends.
FAQ
Questions, answered
Can I claim ITC on a bill my supplier has not uploaded?
ITC on a bill missing from GSTR-2B generally cannot be claimed. Credit is allowed only when the invoice appears in your GSTR-2B. Keep the bill in your books, ask the supplier to report it, and claim the credit in the month it shows up, within the time limit for that year.
Can I claim ITC on capital goods like a machine?
ITC on capital goods such as a machine can be claimed, usually in full in the year you receive it, if the machine is used for taxable business supplies. If you claim depreciation on the tax part as well, you lose the credit, so book the machine at its value before GST.
In what order is ITC used to pay tax?
IGST credit is used first against IGST, then against CGST and SGST. CGST credit pays CGST and then IGST. SGST credit pays SGST and then IGST. CGST and SGST credit can never be used against each other.
Can a composition dealer claim input tax credit?
A composition dealer cannot claim input tax credit. A business under the composition scheme pays tax at a flat rate on turnover and cannot claim credit on its purchases. That is also why its buyers cannot claim credit on what it sells to them.
Related
Keep reading
GSTR-2B
The portal's monthly statement of input tax credit, built from what your suppliers reported.
Read morePurchase
Purchase orders, supplier bills that receive stock, debit notes and payables.
Read moreGSTR-2B reconciliation
How to match GSTR-2B against your purchase register each month, what to do with each mismatch, and a six-bill worked reconciliation.
Read more
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