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
- 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 - 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 - 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 |
FAQs
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.
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.
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.
Hey @HarshitShah
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.
To understand the conditions under which you can claim Input Tax Credit, please refer to this article.