ITC under GST
CA Sugandh Jain Parmar

Updated on February 14th, 2023

Input tax credit is credit available on purchase of goods or services or both against GST payable.

As per section 18 of Central Goods and Service Tax, 2017, certain circumstances have been defined where input tax credit may be availed.

Special cases under which ITC can be claimed

Compulsory Registration

When a person applies for registration within 30 days from the date when he becomes liable for registration, he can avail input tax credit on –

(a) Inputs held in stock and
(b) Inputs contained in semi-finished and finished goods held in stock o
n the day immediately preceding the date on which he becomes liable to pay tax

Example

Example –
ABC Ltd having registered office in Maharashtra crosses turnover limit of Rs 40 lakh on 1st July 2019. It applies for GST registration on 14th August 2019.

GST registration is granted on 12th September 2019.

As on 30th June 2019, it holds goods on which GST is paid inputs worth Rs 10 lakhs and inputs contained in semi-finished and finished goods amounting to Rs. 15 lakhs

Thus, ABC Ltd can take input tax credit on inputs held in stock and inputs contained in semi-finished goods and finished goods held in stock as on 30th June 2019 – Rs. 25 Lakhs.

Voluntary Registration

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When a person voluntarily takes registration under section 25(3) of the CGST Act, he is entitled to claim input tax credit on

(a) Inputs held in stock and
(b) Inputs contained in semi-finished and finished goods held in stock

on the day immediately preceding the grant of registration.

Example

Mr. Ram applies for registration on 1st July 2019 and is granted registration on 1st August 2019.

On 31st July 2019, he has credit available on inputs held in stock – Rs. 20,000 and on inputs contained in semi-finished goods and finished goods in stock – Rs 35,000.

He can claim credit worth Rs. 55,000 on stock available as on 31st July, 2019.

Read more related articles:

Input Tax Credit Under GST - 10 Cases Where You Cannot Claim It

Conversion of Composition Taxpayer to Regular Taxpayer

Where any person registered under section 10 of the CGST Act, ceases to be pay tax under such scheme, he shall be entitled to take input tax credit on –

(a) Inputs held in stock and
(b) Inputs contained in semi-finished and finished goods held in stock
(c) Capital goods

Read more related article

Wrongly Claiming of Input Tax Credit | Conditions and Eligibility

Example

On the day immediately preceding the date on which he becomes liable to pay tax under section 9 (regular taxpayer).

However, in case of capital goods, credit on capital goods shall be reduced by such percentage as may be prescribed.

Exempt Supply Becomes Taxable

Where any exempt supply whether goods or services or both become taxable, such person may take input tax credit on the following used for supplying such exempt supply –

(a) Inputs held in stock and
(b) Inputs contained in semi-finished and finished goods held in stock
(c) Capital goods


On the day immediately preceding the date from which such supply becomes taxable.
However, in case of capital goods, credit on capital goods shall be reduced by such percentage as may be prescribed i.e. 5% per quarter from the date of invoice.

Certain Conditions

- Input tax credit is available only for goods and not for services
- Input tax credit on tax invoices older than one year will not be ineligible
- Such registered person shall file Form GST ITC – 01 declaring details of stocks or capital goods as mentioned above within 30 days from the date of becoming eligible to avail input tax credit. This form shall be certified by a practising Chartered Accountant or Cost Accountant if the value of such input tax credit exceeds INR 2 crores.

Change in Constitution

In case of change in constitution of a registered person due to sale, merger, amalgamation, demerger, lease, or transfer of the business with specific provisions for transfer of liabilities, such person can transfer the remaining balance of input tax credit in electronic credit ledger to the resultant business

Example

XYZ, a partnership firm was reconstituted to XYZ Pvt. Ltd. with specific liabilities. XYZ, partnership firm, had a balance of Rs. 100,000 in electronic credit ledger.

Such balance may be transferred to XYZ Pvt. Ltd. if the prescribed conditions are satisfied.

Change from Regular to Composition Taxpayer

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Where a registered person,
- Paying under section 9 i.e. regular taxpayer (availing input tax credit) opts to pay tax under section 0 i.e. composition scheme or
- Taxable supply becomes exempt,

he shall pay an amount by way of debit to electronic credit ledger or electronic cash ledger, equivalent to credit on


a. Inputs held in stock and
b. Inputs contained in semi-finished and finished goods held in stock
c. Capital goods, reduced by such percentage as may be prescribed,

On the day immediately preceding the date of exercising such option or the date of exemption.

Any amount lying in the electronic credit ledger, after such reversals / payment, shall lapse.

Supply / sale of capital goods or plant and machinery

Where any capital goods or plant and machinery are supplied, the registered person has to pay an amount equal to higher of the following –

- Input tax credit availed on such capital goods or plant and machinery. The amount of input tax credit to be reversed shall be reduced by 5% per quarter from the date of invoice or
- The tax on transaction value determined under section 15 (Valuation)

In case of refractory bricks, moulds, dies, jigs and fixtures when supplied as scrap, the registered person may tax on the transaction value.

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CA Sugandh Jain Parmar

About the author

CA Sugandh Jain Parmar is a practicing Chartered Accountant with an experience of over 4 years.

Having associated with one of the Big 4 audit firms in India for 2 years, she has knowledge on internal audit and internal financial controls.

Currently, her domain specialization includes providing GST consultancy and advisory services.

Her articles focus on balancing information and in-depth information on GST related topics.

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