Input Tax Credit (ITC)

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Understand ITC in layman terms…

 

ITC or Input Tax Credit is an efficient way to say no to doubling of taxation. The government agrees that it is not fair to tax one single product several times, so ITC came as a solution to this trouble. ITC for GST says if your supplier of raw material is a GST payer than you can claim the return for the tax paid by him, as you pay tax for the finished goods which include the tax for raw materials as well.

At the time of purchasing the manufacturer pays the amount of tax to the supplier and adds it to the cost of finished goods resulting in increased cost of goods for the end customer. But ITC allows claiming the returns for the amount of tax already paid by the supplier.

This concept is not entirely new as it already existed under the indirect taxes regime, prior to the implementation of GST (service tax, VAT and excise duty). Now under GST, its scope has been widened. Earlier, it was not possible to claim input tax credit for Central Sales Tax, Entry Tax, Luxury Tax and other taxes including Central Excise duty, which manufacturers and service providers were not allowed to claim. Whereas now, these taxes will be subsumed into one tax hence, there will be no restriction for setting off this input tax credit.

 

ITC can be availed by a registered taxable person in a specific manner and within a specified time frame. For example, If a person has applied for registration or is liable to register or is granted registration he can claim ITC from the day when he is liable to pay taxes; When a person takes voluntary registration he can claim ITC from the registration day; When a taxable registered person stops paying taxes in composition levy scheme he will be allowed to claim ITC only from the day when he is liable to pay tax normally.

For any other cases, ITC must be claimed Before you file a valid return for the September month i.e. 27 days after the end of financial year to which the invoice is related, OR Before you file the annual return, the due date to file the annual return is December 31 after the end of the financial year.

 

 

 

 


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