Input tax credit
Input tax credit is the GST a registered person has paid on inward supplies, set off against the GST payable on outward supplies. Company Suggestion claims it in GSTR-3B only where the invoice is in GSTR-2B and section 16 is met.
What is input tax credit?
On a sale, the dealer charges GST. On a purchase, the dealer has already paid GST to the supplier. Input tax credit reduces the output tax by that purchase tax. The balance is paid to the government in GSTR-3B.
A person on the composition scheme cannot claim it. Credit also fails if depreciation has been claimed on the tax component of a capital good, under section 16(3).
When can input tax credit be claimed?
Section 16(2) allows the claim only when all of these are true.
- The recipient holds a tax invoice or a debit note from a registered supplier.
- The goods or services have been received. If goods arrive in lots, credit waits until the last lot.
- The supplier has paid the tax to the government.
- The recipient has filed the return.
- The invoice appears in GSTR-2B.
Section 16(4) sets the outer date. Credit for a financial year is claimed by 30 November of the next financial year, or by the date of filing the annual return, whichever is earlier. The working document is the tax invoice, not a bill of supply.
Which credits are blocked?
Section 17(5) blocks credit even when a tax invoice exists. The common blocks are these.
- Motor vehicles for carrying passengers, with seating up to 13, except when they are used for further supply, passenger transport, or driving training.
- Food and beverages, outdoor catering, beauty treatment and health services, except when they are an outward supply of the same kind or an employer obligation under law.
- Membership of a club, health and fitness centre.
- Works contract and other goods or services used to construct an immovable property on one’s own account.
- Goods lost, stolen, destroyed, written off, or disposed of as gifts or free samples, and goods or services for personal consumption.
What are the claim steps?
Company Suggestion claims the credit in four steps.
- The tax invoice is checked for the recipient’s GSTIN and the tax amount.
- The invoice is matched to GSTR-2B. A missing invoice is taken up with the supplier.
- The eligible figure is claimed in GSTR-3B inside the section 16(4) date.
- Credit is reversed if the supplier remains unpaid for 180 days, and it is reclaimed when payment is made.
Frequently asked questions
4 questions cover the rules that decide this registration.
Can a composition dealer claim input tax credit?
No. Input tax credit is for a regular registration. A composition dealer pays tax on turnover and does not set off the GST on purchases.
What is the last date to claim input tax credit?
Section 16(4) closes the claim on 30 November of the next financial year, or on the date of the annual return, whichever is earlier.
Which document supports input tax credit?
A tax invoice, a debit note, a bill of entry for imports, or an invoice from an input service distributor. A bill of supply does not carry credit.
What if the supplier is not paid within 180 days?
The credit is reversed, with interest, and it can be claimed again in the period the payment is made.