15 June 2016

GST Model Law in India – Credit mechanism specified

Model Goods & Services Tax Act has been released by the Indian Finance Ministry on 14th of June. The Model Law amongst other details also provides mechanism for taking Input Tax Credit (ITC) in respect of defined inputs, capital goods and input services. The terms inputs and input services have been defined in a wide manner to cover goods/services used or intended to be used by a supplier for making an outward supply in the course or furtherance of business. Some important aspects of this new proposed law are highlighted below.


Items excluded for ITC

According to provisions of Section 16 of the GST Act, input tax credit is not available on Motor vehicles, except when used for providing specified taxable services. Specified goods and / or services used primarily for personal use or consumption of any employee, and goods and/or services used for private or personal consumption, to the extent they are so consumed, are also not eligible for the credit.
Goods and/or services acquired by the principal in the execution of works contract when such contract results in construction of immovable property, other than plant and machinery, and goods acquired by a principal, the property in which is not transferred to any other person, which are used in the construction of immovable property, other than plant and machinery, are also excluded for the purpose of Input Tax Credit.


Conditions for availing ITC

For the purpose of availing credit,

  • Taxpayer should be in the possession of a valid document.
  • Taxpayer should have received the goods and/or services. Further, Explanation as provided in the Section, enables availment of ITC in certain situation without actual receipt of goods. Further in case where the goods against an invoice are received in lots or instalments, the registered taxable person shall be entitled to the credit upon receipt of the last lot or instalment.
  • The tax charged in respect of such supply should have been actually paid to the credit of the appropriate Government, either in cash or through utilization of input tax credit admissible in respect of the said supply.
  • Taxpayer should have furnished the return under Section 27 i.e. GSTR 3.


Matching concept

It may be noted that ITC is available only on provisional basis until the supplier makes the tax payment and files a valid return. Provisions also provide that the claim of input tax credit in respect of invoices and/or debit notes relating to inward supply would be matched with the details of corresponding outward supply and in case of mismatch and where the supplier has not made the tax payment, the ITC has to be reversed with interest payable from the date of wrong availment or utilization. However, there is a specific provision for reclaim of ITC and interest in case of subsequent matching.

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