In simple terms, input tax credit (ITC) means claiming credit of the tax paid on the purchase of goods and/ or services which are used for the furtherance of the business. Notably, the seamless and easy flow of input tax credits is the backbone behind the implementation of Goods and Services Tax (GST) in India. ITC on goods received in lots/instalments article explain how ITC availability works.
Section 2(63) of the Central Goods and Services Tax Act, 2017 defines the term ‘input tax credit’. As per the definition, ‘input tax credit’ means the credit of input tax.
However, just like the simple definition, availment of the input tax credit is not at all simple. The same is because of the reason that prior to availment of input tax credit, the registered person is required to satisfy a hell lot of stringent conditions.
In the present article, we will, firstly, try to brush up the mandatory conditions which the registered person needs to satisfy for availment of input tax credit and also figure out that how the input tax credit is available in case the goods are received in lots/ instalments.
What are the mandatory conditions for avail the ITC
Interestingly, instead of working hard towards achieving the basic aim of a seamless and easy flow of input tax credit. Government is working really hard towards making the task of availment of input tax credit tough, tougher and toughest.
Provisions of section 16(2) of the Central Goods and Services Tax Act, 2017 deal with the conditions which the registered person needs to satisfy in order to be avail eligible ITC.
Earlier, with the introduction of GST i.e. with effect from 1st July 2017, the registered person was required to satisfy only four conditions. However, a fifth condition was added, on 1st January 2022, which made the task of availment of input tax credit tougher. Later on, a sixth condition was also added, on 1st October 2022, which made the said task toughest.
Input Tax Credit Availment Conditions
Section covering input tax credit condition | Corresponding condition in details |
|---|---|
Section 16(2)(a) of the Central Goods and Services Tax Act, 2017 [one of the condition that is made effective from 1st July 2017] | The registered person should be in possession of either a tax invoice or debit note or any other relevant tax paying document. |
Section 16(2)(aa) of the Central Goods and Services Tax Act, 2017 [inserted vide Finance Act, 2021 and made effective from 1st January 2022] | The details of the invoice or debit note or any other relevant tax paying document should have been furnished by the supplier in their statement of outward supplies i.e. Form GSTR-1; and Such details should have been communicated to the recipient via Form GSTR-2B. |
Section 16(2)(b) of the Central Goods and Services Tax Act, 2017 [one of the condition that is made effective from 1st July 2017] | The relevant goods and/ or services should have been received by the recipient. |
Section 16(2)(ba) of the Central Goods and Services Tax Act, 2017 [inserted vide Finance Act, 2022 and made effective from 1st October 2022] | The details of the input tax credit so communicated to the recipient via Form GSTR-2B should not be restricted as per provisions of section 38 of the Central Goods and Services Tax Act, 2017. |
Section 16(2)(c) of the Central Goods and Services Tax Act, 2017 [one of the condition that is made effective from 1st July 2017] | The supplier should have paid the tax so charged to the Government. Such payment can be made by the supplier either via cash or via utilization of the input tax credit. |
Section 16(2)(d) of the Central Goods and Services Tax Act, 2017 [one of the condition that is made effective from 1st July 2017] | Return in Form GSTR-3B covering the relevant supply of goods or services or both should have been furnished. |
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Importantly, the above easy looking conditions are really very problematic for the registered person. However, the registered person needs to satisfy the same each and every time prior to availment of any input tax credit.
Goods received in lots : ITC availability
After going to the conditions to be satisfied for availment of the input tax credit, let us figure out the availability of input tax credit in case the goods are received in different lots/ instalments.
As we know, when the order is big, there are more chances of receiving the goods in lots/ instalments.
As seen above, condition covered under section 16(2)(b) of the Central Goods and Services Tax Act, 2017 clearly states that, prior to availment of input tax credit, goods should have been received by the recipient. Accordingly,
How will input tax credit availability work when goods received in lots/installments?
Proviso to section 16(2) of the Central Goods and Services Tax Act, 2017 clearly states that when goods against an invoice are received in lots/ instalments, the input tax credit will be available to the recipient on receipt of the last lot/ instalment. In nut-shell, availment of the input tax credit on a proportionate basis on receipt of each lot/ instalment is not allowed.
Understand the ITC on goods received in lots/ instalments with example
M/s. A Ltd. purchased 10,000 kgs of goods worth INR 10 Lakhs involving total GST worth INR 50,000. The date of invoice is 1st January 2023. Whereas, goods are received in the following three instalments –
1st instalment received on 15th January 2023 – 2,000 kgs
2nd instalment received on 15th February 2023 – 5,000 kgs; and
3rd instalment received on 15th March 2023 – 3,000 kgs.
Accordingly, since the last instalment is received on 15th March 2023, the recipient is eligible to avail the entire input tax credit of the respective goods i.e. INR 50,000 only on 15th March 2023.
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