Rajakumari's blog

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.

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.

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).

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)

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.

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.

For businesses, availing accommodation in destinations outside the State where they are registered, is common. This could be for business events, meetings, seminars, employee engagement activities, functions, etc. In the previous tax regime, under Service Tax, there was no concern with regard to ITC on outstation hotel stays. As Service Tax registration was a centralised registration, businesses registered under Service Tax could claim full ITC of the Service Tax paid on the accommodation charges, irrespective of the State where the accommodation service was taken.
 

Under GST, a recipient of a supply can avail input tax credit (ITC) of the supply only on successful matching of invoice details with the supplier. The invoice wise details furnished by suppliers in Form GSTR-1 will be matched with the details of inward supplies furnished by recipients in Form GSTR-2. Input tax credit in GST will only be allowed to be availed for invoices where the details match.
 
Hence, it is important to know the details that will be cross checked by the GST portal to ensure that the invoice details are matching.

In our previous blogs, we have gone through the plethora of GST rate changes which have been introduced by the GST Council for various goods as well as services. The reduction of rates is indeed a welcome move for consumers, and at first look, it seems to be good news for traders as well – since a reduction in GST rates would essentially mean that the input tax credit being availed would be more than the tax liability for a business.