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In our previous blog Understanding Input Service Distributor (ISD) in GST, we discussed the role of an ISD in GST. In this blog, we will discuss the various conditions applicable for the distribution of credit and method of distribution of credit to different units (branches).

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In our previous blog we learned about the conditions for availing GST input tax credit and the scenarios in which input tax credit (ITC) can be availed. In this blog, we will discuss the scenarios where you cannot avail Input Tax Credit.

It is quite common that businesses have a distributed system of manufacturing units or service rendering units across the nation. In simple words, businesses with Head Offices (HO) and Branch Offices (BO) which are spread across the nation – could be in the same state or a different state. Under this system, in order to have better operational efficiency and control, usually businesses adopt centralized billing for procurement of common services at the HO.

Note: This blogpost is intended for tax consultants. Business owners will also find this interesting to read.
As a tax consultant, you deal with different types of clients. For some, you provide end-to-end accounting services, while for others you must be providing services up to the extent of filing GST returns. More recently, you must have come across requests to generate and manage e-Way Bills as well from those clients to whom you provide end-to-end services.
 

GST, a comprehensive indirect tax system introduced on 1st July, 2017, is a transaction-based, technology-driven tax system. Under GST, compliance becomes a key factor for the success and credibility of businesses. GST compliance works on the concept of Self-Monitoring mechanism, under which the input tax credit will be dependent on your supplier’s compliance. This means, your supplier should file the returns, declaring the outward supplies along with the tax payment, and matching of invoice between supplier and recipient of goods and services.

GST, a comprehensive indirect tax system, was introduced on 1st July, 2017. The businesses are in the transition phase, and doing everything possible to get equipped with new taxation reform. Among the various aspects, migrating of input tax credit (ITC) is an important one. The closing balance of ITC of CENVAT, VAT, Service Tax as on 30th June, 2017, will be allowed to carry forward as input tax credit to GST. CENVAT (Including Service Tax) will be carried forward as CGST input tax credit, and VAT will be carried forward as SGST input tax credit.

Input tax credit is a critical component of compliance under GST. While input tax credit is available on all inputs used in the course of business or for furtherance of business, certain conditions have been laid down for claiming the input credit. Also, input tax credit is not allowed on certain inputs. This checklist is a useful ready reckoner for you to claim input tax credit correctly.

Conditions for claiming input tax credit

Negative list (Goods or services on which input tax credit cannot be claimed)

The input tax credit provisions under GST are framed with a border perspective to allow the tax credit on all the inward supplies. Now, businesses can claim input tax credit on all the inputs or input services which are “used or intended to be used in the course of, or for furtherance of business”. In simple words, if goods or services are used for the purpose of business, the tax paid on such inward supplies will be allowed as ITC.
 

GST, a comprehensive indirect tax system introduced on 1st July, 2017, has subsumed a host of Central and State levied taxes and has transformed the entire nation as ‘One Nation –One Tax –One Market’. The convergence of taxes into a single indirect tax system is a significant achievement. It aims at seamless availability of Input Tax Credit (ITC) across the supply chain and the state borders, and elimination of cascading effect. With the similar objective, GST is provisioned to allow the tax credit of duties and taxes paid on the closing stock held as on 30th June, 2017.