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April 29, 2022

Restriction to avail Input Tax Credit under Section 16(2)(aa) of CGST

by CA Shivam Jaiswal in GST

Restriction to avail Input Tax Credit under Section 16(2)(aa) of CGST

Introduction to Input Tax Credit

Input Tax Credit means taxpayers can claim tax if he has already paid tax on purchase of goods or services. The Mechanism of Input Tax Credit is the backbone of GST and is one of the most important reasons for the introduction of GST. It also includes tax paid on reverse charge basis and integrated tax goods and services tax charged on import of goods. It does not include tax paid under composition levy.

Eligibility and Conditions for availing Input Tax Credit

As per section 16 of CGST, Act provides that every  registered person shall, subject to such conditions and restrictions as may be prescribed be entitled to take input tax credit and charged on any supply of goods or services or both  which are used or intended to be used in the course or furtherance of his business and the said amount shall be credited to the electronic credit ledger of such person.

Section 16(2) of CGST Act, 2017 provides that no registered person shall be entitled to input tax credit in respect of any supply of goods or services or both to him unless –

  • He is in possession of a valid tax invoice , debit note or other prescribed documents issued by registered supplier.
  • He received the goods or services. If the product is being received in instalments, then the credit can be claimed against the tax invoice for the last instalment.
  • The tax charged in respect of such supply has been paid to government either in cash or by claiming input tax credit.
  • He has filed the GST returns. The most unique change GST brings to this entire tax setup is that he has allowed to claim input tax credit on purchases only if supplier is GST compliant and has paid the tax they had collected.
  • Availing ITC for invoices and debit notes apply only in cases where details of these invoices / debit notes are provided in Form GSTR-1 / IFF and communicated to the registered person in Form GSTR-2B.
  • Where a recipient fails to pay to the supplier of goods or services or both  other than the supplies on which tax is payable on reverse charge basis, the amount towards the value of supply along with tax payable thereon within a period of one hundred and eighty days from the date of issue of invoice by the supplier, If the buyer fails to do so, the amount of credit they would have availed, will be added to their output tax liability.

Documents required for availing Input Tax Credit

  • Invoice issued by the supplier.
  • Debit note issued by the supplier (if any)
  • Bill of Entry or similar documents issued by the Customs Department
  • Bill of Supply issued by the supplier
  • Invoice or credit note issued by ISD

Time limits for claiming Input Tax Credit

Input Tax Credit can be claimed only for tax invoices and debit notes which are less than a year old . In any other case, the last date to claim ITC is the earlier of the following:

  • Before filing GST returns for month of September following the end of the financial year applicable to that invoice.
  • Before filing a relevant annual return.

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