What is input tax credit?
Very simply put, you can reduce the tax burden on your supply by the amount of tax that you already paid on any raw material you procured or any other service you took for creating your offering i.e., for building your product or service.
Here is an example: Let’s say you are a furniture manufacturer and you bought plywood worth 1 lakh 28 thousand to build the furniture. The price of plywood included a GST of 28 K. Now, when you supply the furniture build out of this raw material and sell it for say 2.56 lakh, which includes a tax liability of 56,000 (@ 28% of sales price), you need to only remit 28 K as GST, as you already paid 28 K on the raw material.
How to claim input tax credit?
When your vendor files the GST return via the GSTR-1 form, you would receive input tax credit in your GST account through the GSTR-2 form, which gets auto populated basis returns filed by your vendor.
Which categories are blocked from input tax credit?
The GST council has listed a few categories and any GST paid on expenses incurred under these categories cannot be claimed in the form of input tax credit. Here is the list, this is basis the information available at the time of writing this article, the categories list may change if the government changes the policy.
- Input tax credit is not available for conveyances except when:
the vehicle is used for transportation of passengers, as a commercial vehicle
the vehicle is used for the supply of other vehicles
the vehicle is used for transportation of goods
the vehicle is used for delivering training on driving the vehicle
- No input tax credit would be available for the supply of these goods or services or both:
Beauty treatment, Outdoor catering, Food and beverages, health services, cosmetic and plastic surgery except where the category of Inward and outward supply is same or the component relates to a mixed supply under GST
Membership in fitness centre or clubs.
Rent-a-cab, health insurance and life insurance
Any other services which are made obligatory for an employer, by the Government, to be provided to its employees.
In the case of tours or travel, benefits extended to employees on vacation such as LTA or travel concession.
Input tax credit shall not be available for any work contract services.
For construction of an immovable property can be availed only when the input service is used for further work contract services.
These are a few items, there are more, please follow the notification from GST department for updated list.
Also note, try to leverage cloud based GST Filing Software - simple, secure, reliable for managing your returns.
Very simply put, you can reduce the tax burden on your supply by the amount of tax that you already paid on any raw material you procured or any other service you took for creating your offering i.e., for building your product or service.
Here is an example: Let’s say you are a furniture manufacturer and you bought plywood worth 1 lakh 28 thousand to build the furniture. The price of plywood included a GST of 28 K. Now, when you supply the furniture build out of this raw material and sell it for say 2.56 lakh, which includes a tax liability of 56,000 (@ 28% of sales price), you need to only remit 28 K as GST, as you already paid 28 K on the raw material.
How to claim input tax credit?
When your vendor files the GST return via the GSTR-1 form, you would receive input tax credit in your GST account through the GSTR-2 form, which gets auto populated basis returns filed by your vendor.
Which categories are blocked from input tax credit?
The GST council has listed a few categories and any GST paid on expenses incurred under these categories cannot be claimed in the form of input tax credit. Here is the list, this is basis the information available at the time of writing this article, the categories list may change if the government changes the policy.
- Input tax credit is not available for conveyances except when:
the vehicle is used for transportation of passengers, as a commercial vehicle
the vehicle is used for the supply of other vehicles
the vehicle is used for transportation of goods
the vehicle is used for delivering training on driving the vehicle
- No input tax credit would be available for the supply of these goods or services or both:
Beauty treatment, Outdoor catering, Food and beverages, health services, cosmetic and plastic surgery except where the category of Inward and outward supply is same or the component relates to a mixed supply under GST
Membership in fitness centre or clubs.
Rent-a-cab, health insurance and life insurance
Any other services which are made obligatory for an employer, by the Government, to be provided to its employees.
In the case of tours or travel, benefits extended to employees on vacation such as LTA or travel concession.
Input tax credit shall not be available for any work contract services.
For construction of an immovable property can be availed only when the input service is used for further work contract services.
These are a few items, there are more, please follow the notification from GST department for updated list.
Also note, try to leverage cloud based GST Filing Software - simple, secure, reliable for managing your returns.