Input Tax Credit (ITC) is a mechanism that allows businesses to reduce their tax liability by claiming credit for the GST paid on purchases of goods and services that are used or will be used in the course of their business. In other words, ITC is the GST paid by a taxable person on any purchase of goods and/or services that are used or will be used in the course of their business. The following are some key points to keep in mind regarding ITC:
- ITC can be claimed only by a person registered under GST who fulfills all the prescribed conditions.
- The dealer should be in possession of a tax invoice, and the said goods/services have been received, and returns have been filed.
- ITC can be claimed for motor vehicles or conveyance only when they are used for making a further supply of such vehicles or conveyances or transportation of passengers or imparting training or for transportation of goods.
- ITC cannot be claimed for expenses related to the normal use of motor vehicles for office purposes.
- ITC can be claimed for expenses relating to food, beverages, and outdoor catering only when 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.
- ITC cannot be claimed for expenses relating to food, beverages, and catering for regular taxpayers.
- ITC can be claimed for expenses relating to rent-a-cab facilities, life or health insurance only when the Government notifies it as services which are obligatory for an employer to provide to its employees under law.
- ITC cannot be claimed for goods or services or both on which tax has been paid under the Composition Scheme.
- ITC cannot be used for payment of interest, penalty, fees, or any amount payable under the act other than the GST.
All regular taxpayers must report the amount of ITC in their monthly GST returns of Form GSTR-3B. The table 4 requires the summary figure of eligible ITC, Ineligible ITC, and ITC reversed during the tax period.
