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GST Input Tax Credit Reconciliation


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GST input tax credit reconciliation and sending of SMS/email reminders to vendors.



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GST Input Tax Credit Reconciliation

What is input tax credit?

The input tax credit (ITC) serves as a crucial mechanism within the Goods and Services Tax (GST) framework. It encompasses Central Tax (CGST), State Tax (SGST), Integrated Tax (IGST), or cess paid by a GST-registered individual on the supply of goods or services. Notably, it covers taxes paid on a reverse charge basis and IGST incurred on imported goods. However, taxes paid under the composite taxation scheme are not included in ITC.
This credit represents the tax paid by a business during purchases, and its primary purpose is to offset the tax liability when making sales. The GST Act is founded on the principle of value addition, with taxes levied at each stage of the supply chain until reaching the end consumer. To counter the cascading effect of tax liabilities on the procurement of raw materials, consumables, plants, and machinery, the mechanism of offsetting these liabilities is termed input tax credit.
Every entity with GST registration in the supply chain plays a role in controlling, collecting, and remitting GST taxes. The provision of input tax credit is instrumental in preventing double taxation and mitigating the cascading impact. It allows businesses to set off taxes paid on the procurement of raw materials, consumables, goods, or services used in the manufacturing, supply, and sale of goods or services.
The input tax credit mechanism promotes tax neutrality, ensuring that the tax element does not become a component of the cost of production or the cost of supplying goods and services. This not only streamlines the taxation process but also contributes to the overall efficiency and cost-effectiveness of businesses operating under the GST regime.

Eligibility criteria for Input tax credit

Who can claim input tax credit?

Certainly, claiming input tax credit (ITC) under GST is subject to certain conditions. Here are the key conditions that a person registered under GST must meet to be eligible for claiming ITC:

Documents required for claiming GST Input tax credit

What documents are required for claiming the GST input tax credit?

As a registered taxable person the input tax credit can be claimed on basis of the following documents:

step:1 An invoice that is issued by the supplier of goods or services

step:2 An invoice that is issued by the recipient of the goods and services supplied by an unregistered dealer. Such supply comes under the reverse charge mechanism. This mechanism involves the supplies made by an unregistered person to a registered person.

step:3 A debit note that is issued by the supplier of the tax charged is less than the tax payable concerning such supply.

step:4 A bill of entry or similar documents is also required to document an integrated tax on imports.

step:5 An invoice or the credit note that is issued by an input service distributor as per the rules under GST.

step:6 A supply bill by a dealer that is opting for a composition scheme or an exporter or a supplier of the exempted goods.

Basic requisites for claiming the input tax credit

What are the conditions under which Input tax credit can be claimed?

The following requisites are mandatory for claiming the input tax credit under the GST:

Claiming the Input tax credit

How to claim the Input tax credit?

All the regular taxpayers have to report the amount of the in the GSTR 3B.
A taxpayer can claim the input tax credit on the provisional basis in the GSTR 3B up to 20% of the eligible ITC that is reported by the supplier in the auto-generated GSTR 2A return. The taxpayer must cross-check the GSTR 2A figures before proceeding with the GSTR 3B.
Before the 9th of October 2019, a taxpayer was able to claim any amount of the provisional input tax credit. But CBIC has notified that from October 9, 2019, a taxpayer can claim only 20% of the eligible ITC available in the GSTR 2A as the provisional input tax credit.
This means that the amount of input tax credit that is reported in the GSTR 3B will be the total of the actual ITC in the GSTR 2A and the provisional ITC which is 20% of the actual eligible ITC in the GSTR 2A. It is important to match the purchase register with the GSTR 2A becomes very important.

Reversal of Input Tax Credit

The input tax credit can be reversed certain circumstances which are mentioned below:

Availing credit under Reverse Charge Mechanism

How to avail of the credit when the tax has been paid under the Reverse Charge Mechanism?

Reconciliation of Input tax credit

Special cases of Input tax credit

Input tax credit for Capital goods

You've highlighted an important aspect of Input Tax Credit (ITC) eligibility under the Goods and Services Tax (GST) system. Specifically, ITC is not available for capital goods that are used exclusively for making exempted goods and exclusively for personal purposes.

Input tax credit for Capital goods

A principal manufacturer may send goods for further processing to a job worker. In such cases ITC will be allowed on the goods that are sent to the job worker in these cases:

To enjoy the input tax credit the goods must be received back by the principal within 1 year.

The input tax credit that is provided by the Input Service Distributor

Certainly, an Input Service Distributor (ISD) can function as the head office, branch office, or registered office of a person who is registered under GST. The role of an ISD is to collect input tax credit on all the purchases made and then distribute this credit to all the recipients within the organization.

Input tax credit on the transfer of business

Absolutely, the transfer of input tax credit (ITC) in the context of amalgamations, mergers, or the transfer of business is a significant consideration under the Goods and Services Tax (GST) system. When there is a transfer of a business or a merger, the available ITC with the transferor can be passed on to the transferee.

Goods and Services not eligible for Input Tax Credit

Under GST, the input tax credit is not available in respect of the following goods or services:

1. Motor vehicles, except when they are supplied in the course of business or used for providing taxable services like:

2. Supply of goods and services concerning food and beverages, outdoor catering, beauty treatment, health services, cosmetic and plastic surgery except where a registered taxable person uses such inward supply of goods or services of a particular category for making an outward taxable supply of the same category of service

3. Membership of a club, health, and fitness center

4. Rent a cab, life insurance, health insurance, except where it is statutorily obligatory for an employer to provide such services

5. Travel benefits extended to employees on vacation, such as leave or home travel concession.

6. Goods and services received by the principal in the construction of immovable property, other than plant and machinery except where it is an input service for the supply of works contract service

7. Goods and services received by a taxable person for constructing an immovable property on his account, other than plant and machinery, even when used in the furtherance of business.

8. Goods and services on which tax has been paid under composition scheme

9. Goods and services used for personal consumption

10. Goods lost, stolen, written off, or disposed of by way of gift or free samples.

11. Tax paid after detection of fraud, wilful misstatement, or suppression.

12. Tax paid for the release of detained or seized goods.

13. Tax paid for the release of confiscated goods.

DefinitionUnregistered type of business entity managed by one single personA formal agreement between two or more parties to manage and operate a businessA Limited Liability Partnership is a hybrid combination having features similar to a partnership firm and liabilities similar to a company.Registered type of entity with limited liability to the owners and shareholders
OwnershipSole Ownership

Min 2 Partners

Max 50 Partners

Designated Partners

Min 2 Directors

Min 2 Shareholders

Max 15 Directors

Max 200 Shareholders

For One Person Company

1 Director

1 Nominee Director

Registration Time7-9 working days
Promoter LiabilityUnlimited LiabilityLimited Liability


GST Registration

Partnership Deed

LLP Deed

Incorporation Certificate



Incorporation Certificate

GovernanceUnder Partnership ActLLP Act, 2008Under Companies Act,2013
TransferabilityNon TransferableTransferable if registered under ROFTransferable
Compliance RequirementsIncome tax filing if turnover is more than Rs.2.5 lakhsITR 5

Form 11

Form 8



MCA filing


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