Input Tax Credit is an amount of tax that we can adjust at the time of paying output tax liability.
Before studying input tax credit, we should know the meaning of Input tax and credit.
Input tax is amount of tax that is paid at time of procurement of goods and services for business. Credit means the amount of tax that we will collect at the time of supply of goods and services. It is an availment of GST benefit already paid before. When we supply goods, liability of output tax arises, which we can set off against input tax credit.
Input tax credit is the base of avoidance of cascading effect of taxes on goods and services.
Eligibility to take Input Tax Credit.
- Every registered taxable person is eligible to take benefit of itc. So, he must have GST Registration in India.
- ITC will be available only for those goods and services which are only used for business.
Conditions for availing ITC:
- If we claimed the benefit of input tax credit there should be a proper document of invoice.
The documents should consist of following details:
- Description of goods and services.
- Total value of supply of goods and services.
- Amount of tax charged.
- GST number of the supplier and the recipient.
- Place of supply in case of interstate supply.
- The person who purchase goods must have received goods, services or both.
- If depreciation is claimed on tax component of cost, in that case ITC shall not be allowed.
Restrictions on availing ITC:
- ITC not avail on motor cycle and vehicles.
- Transportation of passengers.
- Driving Schools.
- The vehicle used for transportation of goods.
- Membership of a club, health and fitness Centre.
- If we purchase any goods and services from composite dealer.
- Work contract services when supplied for construction of an immovable property other than plant and machinery.
- Travel benefits extended to employees on vacation such as leave or home travel concession.
- Rent a cab, life insurance and health insurance.