CloudFare image
Support support image
Name is required.
Please enter valid Name.
Email ID is required.
Please enter valid Email.
Phone Number is required.
Please enter valid Phone Number.
Message is required.
Submit

Faster, easier and secure gateway to e-file income tax return

Blog

Will Input Tax Credit be Retained in GST transition?

7/28/2017
Will Input Tax Credit be Retained in GST transition?

GST is a comprehensive tax structure to the cascading effect of various taxes like central excise duty, service tax, sales tax, entertainment tax, luxury tax, additional customs duty etc. Taxpayers who are already registered under VAT or service tax are also required to register under GST. Everyone who is registered under any previous indirect taxes will get a certificate of registration on the provisional basis. The certificate issued would be valid for a period of 6 months. Registration for businesses, whose turnover is more than Rs. 20 Lakhs, is mandatory under GST. Businesses whose turnover are less than 50 Lakhs may opt for composition scheme or they can voluntarily register under GST.

 

Input Tax Credit

As per the GST law, return filed under the previous law for the period prior to July 1st, 2017 can claim income tax credit. The amount claimed will be transferred to the Electronic Credit Ledger. Following conditions are needed to be satisfied by the existing dealers for claiming CENVAT Credit for the input held in stock, semi finished or finished goods:

  • Such inputs or goods are used for making taxable supplies under GST.
  • A taxable person should pass the benefits of such credit by way of reduced prices of the recipients.
  • The taxable person should be eligible for input tax credit on inputs under GST.
  • The supplier of services is not eligible for discount or abatement under GST.

 

Input tax credit can only be claimed by manufacturers or dealers on those goods on which tax has been already paid under previous law. Above credits are only allowed if the tax paying document is recorded in the accounts of such person within 30 days of the appointed day. This 30-day extension may only be allowed by the competent authority if there is only sufficient cause for delay. To avail input-output tax credit, there are few conditions which are needed to be satisfied.

The conditions are;

  • GSTR-3 (Return) must be filed.
  • The tax which is charged by the supplier must be deposited with the government.
  • The dealer should be in possession of tax Invoice or supplementary invoice issued by a supplier registered under GST law.

 

Claiming for Refunds

A claim which is pending for a refund on the due amount of CENVAT credit, tax or any interest paid before the appointed day shall be disposed off according to the previous laws.

If some inputs or semi-finished goods have been removed from the factory before the appointed date and have been sent to job worker for further processing, repairing, testing or for a similar purpose and have been received on or after the appointed date, no tax shall be payable. No tax will be payable when the following criteria are met;

  • Within six months from the date of appointment, underlying goods must be returned to the factory, provided it is not extendable for a maximum period of 2 months.
  • Declaration of goods held by the job worker is done in a specified form and manner.
  • From the date of appointment, goods are exported within 6 months provided it is not extendable by more than 2 months.

 

Completion of Manufacturing of goods which have been removed prior to the date appointed for proceeding some processes which are returned on the date it has been appointed or a day later;

In case if any finished goods had been removed without payment of duty for carrying out tests or other processes like repairing etc. no tax shall be payable if the following conditions are satisfied;

  • Within 6 months from the date of appointment, goods which are underlying are returned to the factory provided it is not extendable for a maximum period of 2 months.
  • From the date of appointment, goods are exported within 6 months provided it is not extendable by more than 2 months.
  • Declaration of goods held by the job worker is done in a specified form and manner.

 

 

Credit Distribution by ISD

If the services are received prior to the appointed date and invoices are received on or after the appointed date then provisions of transition will apply. Input Service Distributor (ISD) will be eligible to distribute input output tax credit under GST. Taxpayers who are registered under composition scheme under the current tax regime can take credit of input which is held in stock, semi finished goods or finished goods on the day immediately preceding the date from which he opts to be taxed as a regular taxpayer, subject to the various conditions.

 

Understanding GST Composition Scheme

GST Composition Scheme is an option which is provided to the registered taxpayer for informing the reason to the tax authorities for what they are registering under this scheme. An unregistered taxpayer who fails to register under the GST composition scheme will be treated like a normal taxpayer and will be administered accordingly.

This option is for all businesses i.e. for both who are dealing in goods as well as services. Firstly, the turnover limit under GST composition scheme was Rs. 50 Lakhs, but in a meeting held on 11th June 2017, this limit has been increased to Rs. 75 Lakhs for all eligible registered persons. Registered taxpayers whose aggregate turnover is less than Rs. 75 Lakhs in the preceding Financial Year are liable to pay tax at a rate more than 1% for the manufacturer, 2.5% for restaurant sector and 0.5% for suppliers of turnover.