How to claim ITC in GST (Ultimate Guide)

Since the GST has been discussed across the country, the input tax credit has been brought up frequently. 

ITC is essentially the essence of GST. The continuous flow of input credit across the chain (from the manufacture of goods to the end consumer) and across states, which was not previously the case, is one of the key reasons why GST is beneficial for the country.

If you are finding it difficult to claim ITC in GST, then this article is for you. 

Let’s get started!

What is ITC in GST, with example?

Any business that has paid GST on the purchase of goods and services may claim an input tax credit under the GST regime. One of the key features of the GST Act is the whole Input Tax Credit system. 

From the time that goods are manufactured until they are delivered to the final consumer, they are subject to the GST, a single tax that includes all other indirect taxes. A smooth flow of credit results from this strategy because everyone in the system stands to gain from it. 

Example: 

Let’s discuss an example, 

Mr. A spent ₹ 20,000 on products, of which ₹ 3600 were taxed at 18%.

He sold things for ₹ 25,000 in total. So, ₹ 4500 is the GST payable at 18%.

Therefore, net GST is 4500-3600=900

How do I claim ITC from GST?

Businesses and registered individuals in India are able to claim the GST Input Tax Credit for the tax they paid while purchasing goods or raw materials for their business. This is achieved by the To be eligible to submit a claim for an input tax credit, or ITC, one must meet a number of conditions.

• A registered taxable individual is required.
• Only if the goods and services received are used for business purposes is it possible to claim an input tax credit.
• Exports and zero-rated supply are eligible for input tax credits, which are taxed.
• If a registered taxable person’s structure changes as a result of a merger, sale, or transfer of a business, any unused input tax credits will be passed to the new entity.
• According to the model GST law, one may provisionally credit the input tax credit in his electronic credit ledger on the common site.
• To claim the input tax credit, supporting documentation such as a debit note, tax invoice, and supplemental invoice are required.
• An input tax credit can be claimed if there is a physical receipt for the products and services.
• Payment for the input tax must be made via an electronic credit/cash ledger.
• It is necessary to file all GST returns, including GST-1, 2, 3, 6, and 7.

How ITC is calculated?

Let’s assume 

XYZ Enterprises produces plastic storage bins, chairs, and tables. They spent 200 on additional raw materials and 600 on plastic to create a set of four chairs. 

Consider a GST of 18% for plastic and 28% for other raw materials. Accordingly, XYZ Enterprises would have paid GST of 108 on raw plastic and 56 on other raw materials that they used as inputs, based on these rates. 

As a result, XYZ Enterprises paid an input tax of 164 (108 + 56).

XYZ Enterprises chose to charge 1200 + GST for the set of 4 chairs while selling them to a distributor. The GST rate is 18% for items made of plastic. Therefore, the GST would be 216. Therefore, XYZ Enterprises will charge 1416 (1200+216) for the set of chairs. In this case, XYZ Enterprises is charging the distributor 216 as GST on the sale.

When purchasing input raw materials, XYZ Enterprises paid 164 as GST. Therefore, XYZ Enterprises can deduct the 164 they had already paid for GST on inputs from the 216 of GST from the sale and submit the remaining 52 to the government. 

When merchants and distributors charge GST and subsequently claim the Input Tax Credit, this tax credit is available at all stages of the business transaction. The input tax credit is available at all times during a business transaction when distributors and merchants charge GST and subsequently claim it.

How many types of ITC are there?

There are four types of ITC.

1. Form ITC 01 – ITC for new GST Registration

The following situations require the filing of the declaration form in ITC-01: 

• When a GST registration application is submitted within 30 days of becoming subject to GST. 
• Whenever a person chooses to voluntarily register. 
• When a person decides not to participate in the composition scheme but keeps their regular taxpayer registration. 
• When a taxable supply of goods or services replaces an exempt supply. 

2. Form ITC 02

In the case of a sale, merger, demerger, amalgamation, leasing, or transfer of a business pursuant to subsection 3 of Section 18, this is required for the declaration for the transfer of ITC.

The taxpayer may transfer his or her available input tax credit to the portal’s electronic credit ledger.

An electronic credit ledger may be able to transfer the appropriate ITC.

Visit the GST Portal, log in, click on “Services,” then click on “Returns” and “ITC Forms,” and choose Form ITC-02 to complete the GST ITC-02.

3. Form ITC 03

This form is for informing ITC of the reversal or payment of tax on capital goods under Section 18 of Subsection 4 and includes inputs contained in semi-finished and finished items kept in stock as well as inputs themselves.

Feel free to visit the GST PORTAL, login, click on services, then click on returns and ITC Forms, and finally select FORM ITC-03 to complete the GST ITC-03.

Complete the form for the ITC reversal.

4. Form ITC 04

This form serves as a record of the specific items or capital goods that were provided to a job worker and received in return.

This is the form that registered manufacturers can use to provide information about the inputs or capital goods they have received or have sent from a job that was completed during a specific quarter.

Go to the GST Portal, log in, click on “Services,” then “Returns” and “ITC forms,” and choose FORM ITC- 04 to complete the GST ITC- 04 form.

FAQs: How to claim ITC in GST

1. Can we claim 100% ITC on capital goods?

No, personal purchases and capital goods used in exempt sales are not eligible for ITC.

2. Who is eligible for the GST ITC?

The following conditions must be met in order for someone who has registered for GST to be eligible to claim the input tax credit:

• Only those with a GST registration and who have submitted their GSTR 2 returns may claim the input tax credit.
• The tax invoice or debit note issued by the input or input service provider must be in the dealer’s possession.
• Receiving the aforementioned products, services, or both are required.
• The GST payment due to the government for this supply has been made by the provider.
• The input tax credit can only be used when the final batch of goods is received when they are purchased in installments.
• If depreciation has been claimed on the tax component of a capital good, no input tax credit is permitted.

3. What if I forgot to claim ITC?

The ITC claimed by the recipient will be revoked with interest and a penalty if the supplier does not file the same.

Conclusion

We hope this article on how to claim ITC under the GST has been helpful to you. For more such updates, feel free to visit our website, InstaFiling. Also, reach out to our team for further queries. We are happy to help you.

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