Chapter 5

Section 16. Eligibility and Conditions for Taking Input Tax Credit (ITC)

1. Registered persons can claim ITC on goods/services used in the course or furtherance of business, credited to Electronic Credit Ledger.
2. Conditions for ITC:
   • Possession of a tax invoice or debit note from a registered supplier.
   • Invoice details furnished by supplier in outward supply statement (Section 37).
   • Receipt of goods/services.
   • Tax paid to the government (cash or ITC utilization).
   • Return filed under Section 39.
   • For instalments, ITC allowed on receipt of last lot.
   • Non-payment to supplier within 180 days → ITC reversed with interest; can reclaim upon payment.
3. Depreciation claimed on tax component of capital goods → ITC not allowed on that component.
4. ITC must be claimed within 30 Nov after the financial year or annual return filing, whichever is earlier.
5. Transitional provision for FY 2017–18 for delayed filings (upto Mar 2019).

Enforced w.e.f. 1st July 2017.

 

Section 17. Apportionment of Credit and Blocked Credits

1. ITC is restricted if goods/services are partly used for business and partly for other purposes.
2. ITC restricted when used for taxable + exempt supplies → only attributable to taxable/zero-rated supplies.
3. Exempt supply includes transactions in securities, land, certain building sales, reverse charge supplies.
4. Banks/financial institutions may claim 50% of ITC monthly; remaining lapses (except supplies between entities with same PAN).
5. Blocked ITC:
   • Motor vehicles, vessels, aircraft (with exceptions: passenger transport, resale, training)
   • General insurance, servicing of above vehicles/vessels/aircraft (with conditions)
   • Food, beverages, catering, beauty, health services, club membership, travel benefits (with conditions)
   • Works contract for immovable property (other than plant/machinery)
   • Non-resident taxable person (except imported goods)
   • Personal consumption, lost/destroyed goods, tax paid under Sections 74, 129, 130
6. Government can prescribe method of attribution.
7. “Plant and machinery” = apparatus, equipment fixed to earth for outward supplies (excludes land, building, telecom towers, pipelines).

Enforced w.e.f. 1st July 2017.

 

Section 18. Availability of Credit in Special Circumstances

1. ITC allowed for:
   • Newly registered persons → stock/semi-finished/finished goods on day before registration.
   • Transition from composition scheme (Sec 10) → credit on stock/capital goods reduced by prescribed %
   • Exempt supply becomes taxable → credit on related stock/capital goods reduced by prescribed %.
2. ITC cannot be claimed after 1 year from invoice date.
3. Business restructuring (sale, merger, demerger, lease) → ITC transferable to new entity.
4. If opting for composition or supply becomes exempt → pay tax equivalent to ITC on stock/capital goods (reduced %), remaining ITC lapses.
5. ITC on capital goods/plant & machinery → pay higher of reduced ITC or tax on transaction value (Sec 15).

Enforced w.e.f. 1st July 2017.

 

Section 19. ITC on Inputs and Capital Goods Sent for Job Work

1. Principal can claim ITC on inputs/capital goods sent to job worker.
2. ITC allowed even if goods sent directly to job worker without reaching principal’s premises.
3. If inputs not returned/supplied within 1 year → deemed supplied by principal on dispatch date.
4. If capital goods not returned within 3 years → deemed supplied by principal on dispatch date.
5. Exceptions: moulds, dies, jigs, fixtures, tools.

Enforced w.e.f. 1st July 2017.

 

Section 20. Distribution of Credit by Input Service Distributor (ISD)

1. ISD distributes central/IGST credit via prescribed document.
2. Conditions:
   • Credit distributed only to intended recipients with proper document.
   • Cannot exceed available credit.
   • Distribution pro rata based on turnover of recipients during relevant period.

Explanation:

• Relevant period: previous financial year or last quarter with available turnover details.
• Recipient of credit = supplier with same PAN as ISD.
• Turnover excludes certain duties/taxes.

Enforced w.e.f. 1st July 2017.

 

Section 21. Recovery of Excess Credit Distributed by ISD

• Excess credit distributed contravening Sec 20 → recovered from recipients with interest.
• Sec 73/74 applies for recovery procedure.