How to calculate Eligible Input Tax Credit?

Eligible Input Tax Credit is that portion of Common Input Tax Credit which can be utilised for payment of output tax liability.
The ITC on inputs used for personal consumption or the ITC on inputs used for the sale of exempt goods or services is called Ineligible ITC.
Therefore it cannot be used for paying taxes under GST. In order to calculate ITC availbale, it is important to calculate Eligible Input Tax Credit from the Common ITC.

Example

Following are the details of Input Tax Credit of business of Mr. X for January 2019:

ITC on Input Goods used for business purpose Rs. 50,000
ITC on Input Goods used for personal purpose Rs. 10,000
ITC on Input Goods used for sale of taxable goods Rs. 30,000
ITC on Input Goods used for sale of exempt goods Rs. 40,000
ITC on Input Services used for business and personal purpose* Rs.1,00,000
ITC on Input Services used for sale of taxable and exempt goods Rs. 60,000
Ineligible ITC Rs. 10,000
Turnover of exempt goods Rs.2,40,000
Turnover of taxable goods Rs.4,80,000

*It is assumed that 10% of the input services are used for personal purpose

Solution

  1. Calculation of ITC on services used for personal purpose
    ITC used for business + personal purpose * % used for personal purpose
    Rs.1,00,000 * 10% = Rs.10,000
  2. Calculation of ITC on services used for the sale of exempt goods
    ITC used for exempt + taxable sales * Exempt Goods Turnover / Total Turnover
    Rs.60,000 * Rs.2,40,000/Rs.7,20,000 = Rs.20,000
  3. Calculation of Eligible ITC
ITC on Input Goods used for business purpose Rs. 50,000
ITC on Input Goods used for sale of taxable goods Rs. 30,000
Proportionate ITC on Input Goods used for business purpose
(Rs.1,00,000 – Rs.10,000)
Rs. 90,000
Proportionate ITC on Input Goods used for the sale of taxable goods
(Rs.60,000 – Rs.20,000)
Rs. 40,000
Total Eligible ITC Rs. 2,10,000    
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FAQs

What is the eligibility for availing Input Tax Credit?

The following conditions have to be met to be entitled to Input Tax Credit under the GST scheme:
1. One must be a registered taxable person on GST Portal.
2. One can claim Input Tax Credit only if the goods and services received is used for business purposes.

Can we claim ITC on electricity bills?

No, ITC cannot be claimed for tax paid on Electricity bills as Electricity is out of GST coverage & thus no GST is levied on electicity bills.

If goods are destroyed or lost due to various reasons, can a person take ITC to the extent of such goods?

No, a person cannot take ITC with respect to goods lost, stolen, destroyed or written off. In addition, ITC with respect of goods given as gifts or free samples are also not allowed.

How to Claim Input Tax Credit?

Taxpayers registered under the regular scheme can claim the input tax credit on purchases and utilize them towards payment of output tax on sales. The Input Tax credit is deducted from the Output Tax Liability and the Net tax is paid to the government. The process of claiming and utilising tax credit comprises of filing the monthly GST Return i.e. GSTR-3B.

Steps to Claim Input Tax Credit

1. Prepare, Review and Submit GSTR-3B
GSTR-3B is the monthly return with a summary of sales and purchases made during the return period.
a. Prepare – Enter the data of sales, output GST, purchases and input GST
b. Review – Review the calculations of Output GST against Input GST
c. Submit – Submit the data on the GST Portal

2. E-Credit Ledger updated
Once the return is submitted, the amount of input tax credit from the purchases of the current month gets populated in the E-Credit Ledger

How to Utilise Input Tax Credit?

  1. Calculate Output Tax and Input Tax

    After submitting the return, the next step is to pay off the tax liability of the current month. The calculations are populated in the taxpayer’s account on the GST Portal.
    1. Output Tax Liability – The output GST payable on sales i.e. IGST, CGST, SGST, UTGST or Cess is calculated based on the sales data entered
    2. Input Tax Credit
    E-Credit Ledger – The screen displays the balance of input IGST, CGST, SGST, UTGST or Cess. It includes the input tax credit of purchases from the current month and input tax credit brought forward from earlier tax periods
    E-Cash Ledger – The screen displays the balance of cash deposited by payment of challan

  2. Apply rules for utilisation of Input Tax Credit

    1. IGST – Use ITC of IGST in the sequence of paying output IGST, output CGST and output SGST
    2. CGST – Use ITC of CGST in the sequence of paying output CGST and output IGST
    3. SGST – Use ITC of SGST in the sequence of paying output SGST and output IGST
    4. The ITC of CGST and ITC of SGST cannot be cross-utilised

  3. File Return and Carry forward Input Tax Credit

    After utilising the ITC, make payment of tax through a challan. The system would carry forward the remaining unutilised balance of ITC and use it for payment of taxes in returns of subsequent periods.

Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore
Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore


FAQs

Who can claim ITC?

Taxpayers registered under the regular scheme can claim the input tax credit on purchases and utilize them towards payment of output tax on sales. The Input Tax credit is deducted from the Output Tax Liability and the Net tax is paid to the government.

What are the Documents Required for Claiming ITC

To claim ITC following documents are required:
1. Invoice issued by the supplier of goods/services
2. The debit note issued by the supplier to the recipient (if any)
3. Bill of entry
4. An invoice issued under certain circumstances like the bill of supply issued instead of tax invoice if the amount is less than Rs 200 or in situations where the reverse charge is applicable as per GST law.
5. An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice rules under GST.
6. A bill of supply issued by the supplier of goods and services or both

Is ITC available on Capital Goods?

ITC is available for all capital goods under GST.
However, ITC is not available for:
1. Capital Goods used exclusively for making exempted goods
2. Capital Goods used exclusively for non-business purposes 
No ITC will be allowed if depreciation has been claimed on the tax component of any capital goods.

What is Common Credit (ITC) or Proportionate Credit (ITC) under GST?

A business may have an inward supply of input goods, input services and capital goods. Further, the inward goods and services may be used for a personal purpose or business purpose. The total input tax credit available on all such purchases is called Proportionate Credit ot Common Credit under GST. The taxpayer cannot claim the credit on the inputs used for personal purposes. Thus, the common credit should be utilized proportionately while making payment of output tax liability.

Example

Mr.X runs a business of selling computers and laptops. He purchases 10 laptops for Rs.5,00,000 including GST Rs.50,000. He gifts 1 laptop to his wife. Can he claim the input tax credit of Rs.50,000?

Solution

Since the input goods are used for personal and business purpose, the Input Tax Credit of Rs. 50,000 is called Common Credit. It can be claimed for only those goods that were actually used for business purpose. Thus, Mr.X can claim ITC of 9 laptops i.e. Rs. 45,000 (9*50,000/10)

How to utilize Common Credit (ITC) or Proportionate Credit (ITC) under GST?

To utilize the common credit, two basic rules should be considered:

  1. ITC allowed for business purpose only

    The Input Tax Credit can be claimed only if the inward goods or services are used for business purposes. If they are used for personal consumption, ITC cannot be claimed or utilized.

  2. ITC allowed for the sale of taxable goods or services only

    Input Tax Credit can be claimed only if the inward goods or services are used for the sale of taxable supplies. If they are used for the sale of exempt supplies, ITC cannot be claimed or utilized

Can a company claim a GST input tax credit on computers bought by it?
The credit can be claimed if the computers are used for business purpose. Further, they must be used for sale of taxable goods or services.
Read Answer
Can a company claim a GST input tax credit on computers bought by it?
The credit can be claimed if the computers are used for business purpose. Further, they must be used for sale of taxable goods or services.
Read Answer

Summary for steps to utilise common credit

 

Purchase of:

Used for

Claim ITC

Input Goods or Input Services

Business purpose

Yes

Personal Purpose

No

Both business and personal purpose

Claim eligible ITC

Input Goods or Input Services

Sale of taxable goods and services

Yes

Sale of exempt goods and services

No

Sale of both taxable and exempt goods and services

Claim eligible ITC

FAQs

What is Common Credit (ITC) or Proportionate Credit (ITC) under GST?

A business may have an inward supply of input goods, input services and capital goods. Further, the inward goods and services may be used for a personal purpose or business purpose. The total input tax credit available on all such purchases is called Common Credit or Proportionate Credit.

Can I claim Common Credit (ITC) for personal purposes?

The taxpayer cannot claim the credit on the inputs used for personal purposes. Thus, the common credit should be utilized proportionately while making payment of output tax liability.

Condition to utilize Common Credit (ITC)?

For utilizing Common Credit (ITC), two basic rules should be kept in mind:
1. ITC allowed for business purpose only
2. ITC allowed for the sale of taxable goods or services only

What is Input Tax Credit (ITC) under GST?

Input Tax Credit under GST means the credit of input tax paid on purchases, which the taxpayer can use it towards payment of output tax charged on sales. ITC comprises of credit in form of IGST, CGST, SGST / UTGST or Cess paid on the purchase of input goods, capital goods and input services that are used for business purpose.

Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore
Calculate Input Tax Credit online: ITC calculator
Input Tax Credit under GST means the credit of input tax paid on purchases. ITC can be used to set of against the CGST, SGST and IGST outward tax liabiliy.
Explore

If the tax paid on purchases is more than the tax paid on sales, the taxpayer can carry forward the Input Tax Credit. He can use it for payment of tax in future or claim the refund.

Example

Mr.X is a manufacturer of garments. He buys cloth as input and pays GST of Rs.400. GST payable on sale of garments is Rs.1000. When he files his GST Return, he can utilise the input tax credit of Rs.400 and needs to pay a tax of Rs.600 only.

Under GST, the taxpayer can claim ITC of goods to pay GST on services and vice-versa. This was not possible under VAT or Service Tax. Further, the ITC mechanism removes the cascading effect i.e. tax on tax. The taxpayer can use the credit of tax paid at one stage of a supply chain to pay tax at a subsequent stage. Eg: IGST paid on manufacture of a product can be used for paying IGST or CGST and SGST on the sale of the same or any other product also.

How to View Input Tax Credit balance?

The taxpayer can view the balance of accumulated ITC in his account on the GST Portal. Follow the below given steps to view the balance of ITC:

  1. Visit GST Portal

    Login using your valid credentials on GST Portal

  2. Navigate to Services

    Click on Ledgers > Electronic Credit Ledger

  3. The screen displays the balance of Input Tax Credit as on Current Date

     (Note: You can view the E-Credit Ledger for a maximum period of 6 months only)

The E-Credit Ledger or Input Tax Credit Ledger reflects the self-assessed Input Tax Credit from the monthly returns. It has four categories i.e. IGST, CGST, SGST/UTGST and Cess. The taxpayer can use this balance for paying tax dues only. They cannot use it for paying dues of interest, fee or penalty.

FAQs

What is the time limit for taking ITC in GST?

ITC cannot be taken beyond the month of September of the following FY to which invoice pertains or date of filing of an annual return, whichever is earlier. The underlying reasoning for this restriction is that no change in return is permitted after September of next FY.

Can I claim ITC for previous month?

A taxpayer who has not availed the eligible ITC of any previous months may avail such ITC in any of the subsequent months, but anytime-either before the filing of the annual return or filing of the GST Returns for September belonging to subsequent financial year, whichever is earlier.

Whether input tax credit is allowed on inputs, which become waste and is sold as scrap?

Section 17(4) (g) states that input tax credit shall not be available in case of goods lost, stolen, destroyed, written off or disposed of, by way of gift or free samples. Therefore, input tax paid on taxable goods which becomes waste and is sold as scrap is not eligible.

When can I claim Input Tax Credit under GST?

Input Tax Credit is the credit of GST paid on the purchase of goods or services. It is utilized to pay GST on the sale of goods or services. In order to be eligible to claim Input Tax Credit one must be registered under GST.

GST Number Search: Verify GST Number or GSTIN online
Enter GST number or GSTIN (GST Identification Number) and verify GST details online. GST Number or GSTIN is a unqiue 15 digit number allotted after GST Registration.
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GST Number Search: Verify GST Number or GSTIN online
Enter GST number or GSTIN (GST Identification Number) and verify GST details online. GST Number or GSTIN is a unqiue 15 digit number allotted after GST Registration.
Explore

The taxpayer can claim the Input tax credit of GST if he fulfills the following conditions:

  • The taxpayer has a valid tax invoice or any other tax-paying document
  • He has received the goods or services
  • He has made payment of the value of goods or services including tax within 180 days from the date of issue of invoice
  • The supplier has paid the tax to the government
  • The supplier has filed his GST Returns
  • If he receives the inputs in lots, he can claim the credit only he receives the last lot of inputs

What is the time limit to claim Input Tax Credit under GST?

The taxpayer cannot claim Input credit for any tax invoice pertaining to a financial year after:

  • Filing the return for the month of September following the end of financial year to which such invoice pertains,
    OR
  • Filing of the Annual Return
    whichever is earlier

When can I not claim Input Tax Credit under GST?

Input Tax Credit is ineligible and the taxpayer cannot claim it under the following situations:

  • Time limit to avail Input Tax Credit is over
  • The dealer has not applied for Registration within 30 days from the date of becoming liable to register
  • The recipient has not made payment of the value of goods or services including tax within 180 days from the date of issue of invoice
  • If the taxpayer uses goods or services for personal consumption and not for business purpose
  • If the taxpayer uses goods or services for providing exempt supplies
  • The goods are stolen, lost, destroyed or given away as a gift or free samples
  • On motor vehicles and other conveyances except in certain cases
  • Goods or services provided relating to:
    • Foods and beverages, outdoor catering, health services, beauty treatment services, cosmetic and plastic surgery.
    • Club memberships, health and fitness centre memberships
    • Rent-a-cab, life insurance, health insurance except when it is mandatory for an employer under any law
    • Travel benefits like leave travel concession provided to employees
  • Hotel Services – If the dealer’s state of registration is different than the state in which the hotel is located, he cannot claim ITC unless he is also registered in the other state.
Claiming ITC in case of restaurant services and hotel services is different for every situation. Read more about it here.
Read Answer
Claiming ITC in case of restaurant services and hotel services is different for every situation. Read more about it here.
Read Answer

FAQs

Can I claim ITC for previous month?

A taxpayer who has not availed the eligible ITC of any of the previous months, may avail such ITC in any of the subsequent months, but anytime either before the filing of the annual return or filing of the GST Returns for September belonging to subsequent financial year, whichever is earlier.

Can we take ITC on RCM in same month?

Yes, you can avail the ITC of RCM in the same month after making the Cash payment of Tax Under RCM.

How long can ITC be taken?

Input tax credit cannot be taken on purchase invoices which are more than one year old. Period is calculated from the date of the tax invoice.

Who can claim Input Tax Credit under GST?

Input Tax Credit is the credit of GST paid on the purchase of goods or services. The taxpayer can use it towards payment of GST on the sale of goods or services.  One can claim Input Tax Credit only if the goods and services received is used for business purposes

Input Tax Credit of GST paid on the inward supply of goods or services or both that the taxpayer uses or intends to use for the purpose of business. The following persons can claim ITC:

List of documents required to claim Input Tax Credit under GST?

Taxpayer registered under GST can claim Input Tax Credit by filing his GST Returns. He can avail ITC on the basis of the following documents:

  • Tax Invoice issued by the supplier
  • Debit Note issued by the supplier
  • Revised Invoice issued by the supplier
  • Bill of Entry issued in case of Import
  • Document issued by Input Service Distributor (ISD)
  • Tax Invoice issued by the recipient in case of reverse charge

Who cannot claim Input Tax Credit under GST?

The following persons cannot claim Input Tax Credit under GST:

  • Business not registered under GST
  • Business registered under the Composition Scheme are not allowed to claim the input tax credit on its purchases
  • The business registered under GST but not filing GSTR-3B cannot claim ITC

FAQs

What can be claimed as ITC?

ITC can be claimed for business purposes only. ITC will not be available for goods or services exclusively used for:
A. Personal use
B. Exempt supplies 
C. Supplies for which ITC is specifically not available

What are the Documents Required for Claiming ITC

To claim ITC following documents are required:
1. Invoice issued by the supplier of goods/services
2. The debit note issued by the supplier to the recipient (if any)
3. Bill of entry
4. An invoice issued under certain circumstances like the bill of supply issued instead of tax invoice if the amount is less than Rs 200 or in situations where the reverse charge is applicable as per GST law.
5. An invoice or credit note issued by the Input Service Distributor(ISD) as per the invoice rules under GST.
6. A bill of supply issued by the supplier of goods and services or both.

Is ITC available on Capital Goods?

ITC is available for capital goods under GST.
However, ITC is not available for:
1. Capital Goods used exclusively for making exempted goods
2. Capital Goods used exclusively for non-business purposes 
No ITC will be allowed if depreciation has been claimed on tax component of any capital goods.