How to Claim GST Input Tax Credit for Business Expenses?

Posted In | Finance | Accounting Software | India Accounting Tax

In order to streamline the taxation system, the Goods and Services Tax (GST) was introduced in India on July 1, 2017. The GST system allows businesses to claim input tax credit on their purchases, which helps reduce the tax burden on the final consumer. In this article, we will discuss the process of claiming input tax credit on business expenses under the GST regime.

 

What is Input Tax Credit?

Input tax credit (ITC) is a mechanism in the GST system that allows businesses to offset the tax paid on their purchases against the tax payable on their sales. This helps to avoid the cascading effect of taxes, where the tax is levied on a product at multiple stages, ultimately increasing the cost of the product for the end consumer.

 

Eligibility for claiming Input Tax Credit

To claim input tax credit, a business must fulfill the following conditions:
 

• The business must be registered under GST.
   

• The goods and services purchased by the business should be used for business purposes only.
   

• The supplier of goods or services must be registered under GST and have paid the tax on the supplied goods or services.
   

• The recipient of the goods or services must have a tax invoice, debit note, or any other document evidencing the payment of tax.
   

• The recipient must have received the goods or services.
   

• The recipient must file GST returns (GSTR-1 and GSTR-3B) and report the ITC claimed in the relevant period.
   

Steps to claim Input Tax Credit
 

1. Obtain a valid tax invoice: The first step in claiming input tax credit is to obtain a valid tax invoice from the supplier. The invoice should have details such as the supplier's GSTIN, invoice number, date of issue, description of goods or services, and the tax amount charged.
    

2. Ensure that the supplier has paid the tax: Before claiming input tax credit, the recipient must ensure that the supplier has paid the tax on the supplied goods or services. This can be verified by checking the supplier's GST returns or by checking the details in the recipient's GSTR-2A.
    

3. File GST returns: The recipient must file their GST returns, specifically GSTR-1 and GSTR-3B, within the due dates. The input tax credit claimed should be reported in these returns. The recipient should also ensure that the tax amount claimed as ITC matches the tax amount mentioned in the supplier's GSTR-1.
    

4. Reconcile ITC with GSTR-2A: The recipient should regularly reconcile the input tax credit claimed in their GST returns with the details appearing in their GSTR-2A. Any discrepancies should be resolved with the supplier to avoid any issues during the GST audit.
    

Important points to remember
 

• Input tax credit can only be claimed if the supplier has paid the tax and filed their GST returns.
   

• ITC can be claimed only on goods and services used for business purposes. It cannot be claimed on personal or exempted items.
   

• Ensure that the tax amount claimed as ITC matches the tax amount mentioned in the supplier's GSTR-1.
   

• Regularly reconcile your ITC with GSTR-2A to avoid issues during the GST audit.
   

The input tax credit mechanism under GST is a crucial tool for businesses to offset their tax liability and reduce the overall tax burden. By following the steps mentioned above and adhering to the eligibility criteria, businesses can effectively claim input tax credit on their business expenses and contribute to a more streamlined and efficient taxation system.