Input Tax Credit Provisions in Taxation
Provisions in a nutshell…
Input Credit – Eligibility and Conditions –
Section 16
Conditions for ITC - Issues
•
Whether excess tax charged by vendor is eligible as credit?
•
Whether wrong tax charged by vendor is eligible for credit?
•
Whether wrong place of supply could impact the claim of credit?
•
Whether registration is a must for claim of credit?
•
What if the payment terms with the vendor provide for payment after
180 days?
•
What happens to retention moneys?
•
Credit should be claimed before September return of next financial
year
•
Whether vested right to claim the credit?
Conditions for ITC – Receipt of
Goods/Services
•
Constructive Receipt in case of Bill to / Ship to
•
When are services received ?
•
Advances simpliciter
•
Milestone Obligations
•
Pass through Cases
•
Trading in Services
•
Reimbursement of Expenses
Ineligible Input Credit
Scope of Blocked Credits – Section 17(5)
Notwithstanding anything contained in sub-section (1) of section 16
and sub-section (1) of section 18, input tax credit shall not be available
in respect of
the following, namely
•
“In Respect of” vs. “In Relation to”
•
State of Madras vs. Swastik Tobacco Factory (1966) 3 SCR 79 (SC)
•
Specific mention of goods or services or both in some cases
Blocked Credits – Motor Vehicles
•
motor vehicles and other conveyances except when they are used —
•
for making the following taxable supplies, namely :—
•
further supply of such vehicles or conveyances; or
•
transportation of passengers; or
•
imparting training on driving, flying, navigating such vehicles or conveyances;
•
for transportation of goods
•
Motor Car Insurance, Repairs, etc. whether eligible?
•
Motor Vehicles – Scope – Whether transport vehicles, cranes, vessels,
aircrafts, etc. covered?
•
Distinction between passenger vehicles / goods vehicles
Blocked Credits – F&B
•
food and beverages, …… except where an inward supply of goods or
services or both of a particular category is used by a registered person
for making an outward taxable supply of the same category of goods
or services or both or as an element of a taxable composite or mixed
supply
•
Whether credit for purchase of pantry items will be available?
•
Scope of Exception – further outward supply (restaurants) / element
of composite supply (hotels/training services)
Blocked Credits – Losses & Freebies
•
goods lost, stolen, destroyed, written off or disposed of by way of gift
or free samples
•
Whether both traded as well as manufactured?
•
Losses – Normal Losses vs. Abnormal Losses
•
Shortages discovered later
•
Could be an indicator of consumption or Loss/Theft/Pilferage
•
Scope of Gift/Free Samples
•
Buy1-Get1 Scheme – whether covered?
Blocked Credits – Construction Related
•
works contract services when supplied for construction of an
immovable property (other than plant and machinery) except where
it is an input service for further supply of works contract service;
•
goods or services or both received by a taxable person for
construction of an immovable property (other than plant or
machinery) on his own account including when such goods or
services or both are used in the course or furtherance of business.
Explanation.
— For the purposes of clauses (c) and (d), the expression
“construction” includes re-construction, renovation, additions or
alterations or repairs, to the extent of capitalisation, to the said
immovable property;
Credits : Understanding Apportionment
Whether following constitute exempt
supplies?
Credits on Capital Goods: Understanding
Apportionment
ITC : Special Situations
This content provides a comprehensive overview of Input Tax Credit (ITC) provisions in taxation, covering eligibility criteria, conditions for claiming ITC, issues related to excess or wrong tax charged by vendors, receipt of goods/services, blocked credits, apportioned credits, and more. It discusses the importance of vendor registration, timely payments, and the impact of various scenarios on claiming ITC. The scope of blocked credits and the availability of ITC in special circumstances are also explored.
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Presentation Transcript
Provisions in a nutshell Section Provisions Corresponding Rules 16 Eligibility and Conditions for Claiming Input Tax Credit Rule 36 & 37 17 Apportionment of Credits and Blocked Credits Rule 38, 42, 43 18 Availability of Credit in Special Circumstances Rule 40, 41, 44 19 ITC and Job Work Rule 45 20 Input Service Distributor Rule 39 21 Recovery of Excess Distribution
Input Credit Eligibility and Conditions Section 16 You should Vendor should Supplies should Be used for furtherance of business Be Registered Have Paid the tax Have uploaded the tax to the customers account Not used for Receive Goods/ Services exempted/non business us Credit should not be blocked Possess Tax Invoice Pay the vendor within 180 days
Conditions for ITC - Issues Whether excess tax charged by vendor is eligible as credit? Whether wrong tax charged by vendor is eligible for credit? Whether wrong place of supply could impact the claim of credit? Whether registration is a must for claim of credit? What if the payment terms with the vendor provide for payment after 180 days? What happens to retention moneys? Credit should be claimed before September return of next financial year Whether vested right to claim the credit?
Conditions for ITC Receipt of Goods/Services Constructive Receipt in case of Bill to / Ship to When are services received ? Advances simpliciter Milestone Obligations Pass through Cases Trading in Services Reimbursement of Expenses
Ineligible Input Credit Blocked Credits Apportioned Credits Motor Vehicles & Rent-a-Cab Partly for Business and Partly for Other Purposes Food and Beverages Partly for taxable and partly for exempted supplies Club, Life/Health Insurance Construction Related Banking Service Provider Goods lost/written off/ provided free
Scope of Blocked Credits Section 17(5) Notwithstanding anything contained in sub-section (1) of section 16 and sub-section (1) of section 18, input tax credit shall not be available in respect of the following, namely In Respect of vs. In Relation to State of Madras vs. Swastik Tobacco Factory (1966) 3 SCR 79 (SC) Specific mention of goods or services or both in some cases
Blocked Credits Motor Vehicles motor vehicles and other conveyances except when they are used for making the following taxable supplies, namely : further supply of such vehicles or conveyances; or transportation of passengers; or imparting training on driving, flying, navigating such vehicles or conveyances; for transportation of goods Motor Car Insurance, Repairs, etc. whether eligible? Motor Vehicles Scope Whether transport vehicles, cranes, vessels, aircrafts, etc. covered? Distinction between passenger vehicles / goods vehicles
Blocked Credits F&B food and beverages, except where an inward supply of goods or services or both of a particular category is used by a registered person for making an outward taxable supply of the same category of goods or services or both or as an element of a taxable composite or mixed supply Whether credit for purchase of pantry items will be available? Scope of Exception further outward supply (restaurants) / element of composite supply (hotels/training services)
Blocked Credits Losses & Freebies goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples Whether both traded as well as manufactured? Losses Normal Losses vs. Abnormal Losses Shortages discovered later Could be an indicator of consumption or Loss/Theft/Pilferage Scope of Gift/Free Samples Buy1-Get1 Scheme whether covered?
Blocked Credits Construction Related works contract services when supplied for construction of an immovable property (other than plant and machinery) except where it is an input service for further supply of works contract service; goods or services or both received by a taxable person for construction of an immovable property (other than plant or machinery) on his own account including when such goods or services or both are used in the course or furtherance of business. Explanation. For the purposes of clauses (c) and (d), the expression construction includes re-construction, renovation, additions or alterations or repairs, to the extent of capitalisation, to the said immovable property;
Credits : Understanding Apportionment Acronym What it denotes Impact T1 Inputs/Input Services other than business Not Eligible for Credit T2 Inputs/Input Services for exempted supplies Not Eligible for Credit T3 Blocked Credits Not Eligible for Credit C1 Intermediary Number T (T1+T2+T3) T4 Inputs/Input Services for taxable supplies Fully Eligible for Credit C2 Residual Common Credit C1 T4 D1 Proportionate Common Credit attributable to exempted supplies E/F * C2 To be reversed D2 Presumed Non Business 5% of C2 To be reversed E Value of Exempted Supplies F Value of Taxable and Exempted Supplies
Whether following constitute exempt supplies? Scenario Whether Exempted Supplies Value of NIL Rated Goods Yes Value of Exempted Services Yes Zero Rated Goods/Services otherwise taxable No Zero Rated Goods/Services otherwise exempt No Supplies effected by branches in other states No Supplies effected by branches in other countries No?? Conditional Rates (Restaurants, Rent a Cab, etc.) Yes Transactions in Securities ?? Yes, 1% of Sale Price Sale of Land / Building ?? Yes, stamp duty value Interest on Deposits No (Excluded)
Credits on Capital Goods: Understanding Apportionment Acronym What it denotes Impact Capital Goods other than business Not Eligible for Credit Capital Goods for exempted supplies Not Eligible for Credit Blocked Credits Not Eligible for Credit Capital Goods for taxable supplies Fully Eligible for Credit A = Tc Residual Common Credit attributable to capital goods Useful Life presumed to be 60 months Tm Monthly Common Credit attributable to capital goods E Value of Exempted Supplies F Value of Taxable and Exempted Supplies Te Amount to be reversed on monthly basis with interest
ITC : Special Situations Situation Impact Reference Inputs in Stock at the time of obtaining registration Eligible for Credit Section 18(1)(a) / (b) Inputs in Stock at the time of opting out of composition Eligible for Credit Section 18(1)(c ) Capital Goods in possession at the time of opting out of composition Eligible for Reduced Credit Section 18(1)(c ) Inputs / Capital Goods in stock at the time an exempted supply becomes taxable supply Eligible for credit as above Section 18(1)(d) Transfer of Business Successor can claim credit Section 18(3) Stock at the time of opting for Composition or supply becoming exempt (Inputs and Capital Goods) Pay an amount Section 18(4) Supply of Capital goods on which credit is taken Higher of transaction value or reduced value Section 18(6)
