Recent amendments to the Central Goods and Services Tax (GST) Act by the Central Board of Indirect Taxes and Customs (CBIC) have updated provisions regarding input tax credit (ITC) claims. This article clarifies these changes and the current standing of the CGST Act on ITC.

Overview of Input Tax Credit under GST

As defined in Section 2(63) of the CGST Act, 2017, 'input tax credit' refers to the credit for input tax. Input tax encompasses all taxes paid on goods or services utilized in the production of final goods or services. Essentially, businesses can lower their overall tax obligation on sold goods by deducting the taxes already remitted on their purchased inputs.

Legal Framework for ITC

Chapter V, Sections 16-21, of the CGST Act outlines the legal framework for Input Tax Credit. Section 16 specifically addresses the eligibility criteria for claiming ITC, which are further detailed below.

Section 16(2): Eligibility Criteria for Input Tax Credit

To qualify for ITC, a registered individual must fulfill all conditions stipulated in Section 16(2):

• Possession of a valid tax invoice, debit note, or other tax payment document issued by a GST-registered supplier.
• The supplier has submitted the details of the aforementioned tax document in their statement of outward supplies, and these details have been communicated to the recipient as mandated by Section 37 of the CGST Act.
• Receipt of the goods or services.
• The tax liability for the supplied goods or services has been remitted to the government.
• The individual has filed their tax return under Section 39 of the CGST Act.
• Effective from October 1, 2022, ITC must not be restricted in GSTR-2B under Section 38 of the CGST Act.

Section 16(4): Deadline for Claiming ITC

As of October 1, 2022, the deadline for claiming ITC has been extended. A registered person can now claim ITC by the earlier of these two dates:

• November 30th following the end of the relevant financial year.
• The due date for filing the annual return as per Section 44 of the CGST Act.

Section 38: Communication of Inward Supply and ITC Details

The Finance Act, 2022, revised Section 38 to strengthen input tax credit regulations and prevent fraud. This updated section mandates that suppliers' outward supply details will be conveyed to recipients via an automatically generated GSTR-2B statement. Section 38 also outlines the specific content of GSTR-2B, detailing when ITC is permissible and when it is not.

Under the revised Section 38, ITC cannot be claimed in these scenarios:

• If inward supplies originate from a recently registered supplier.
• If a supplier has failed to remit taxes for an extended period.
• If a supplier's tax payments are below the amount indicated in their outward supplies statement by more than the specified limit.
• If a supplier has claimed more ITC than entitled, exceeding the defined threshold.
• If a supplier has used more than the stipulated ITC amount for output tax payments.
• If any other specified conditions remain unfulfilled.

Consequently, eligibility for ITC claims will now be determined exclusively by the GSTR-2B statement. The subsequent section addresses other forms of ITC ineligibility.

Section 17(5): Ineligible ITC or Blocked Credits

Section 17(5) of the CGST Act specifies certain purchases for which businesses cannot claim ITC, often referred to as 'blocked credits':

• Motor vehicles with a seating capacity of up to thirteen persons (including the driver), vessels, and aircraft, with specific exemptions. Exemptions apply when these are intended for resale, passenger or goods transport, or used for training purposes (e.g., driving, navigation, flying).
• Expenses for general insurance, servicing, repair, and maintenance of the motor vehicles, vessels, and aircraft mentioned above, except when directly used for the exempted purposes.
• Leasing, renting, or hiring of the specified motor vehicles, vessels, and aircraft, unless they are for the aforementioned exempted uses.
• Services like rent-a-cab, health insurance, and life insurance, except when employers are legally mandated to provide them, or when these services constitute part of a composite supply.
• Expenditure on food and beverages, outdoor catering, health services, beauty treatments, and cosmetic or plastic surgery, unless these are essential for providing final goods or services as part of a taxable composite or mixed supply.
• Memberships for clubs, health centers, and fitness centers.
• Employee travel benefits, including Leave Travel Concession (LTC) or home travel concessions, unless legally required.
• Works contract services used for the construction, renovation, addition, alteration (of a capital nature), or reconstruction of immovable property, excluding plant and machinery. An exception exists when these services are for further supply of works contract services.
• Goods or services received by a taxpayer for constructing immovable property, excluding plant and machinery, regardless of whether for personal or business use.
• Domestic purchases made by taxpayers registered under the composition scheme.
• Goods or services acquired for personal consumption.
• Goods or services received by a non-resident taxable individual, unless imported by them.
• Purchased goods that are lost, stolen, written off due to damage, or provided as free samples or gifts.
• ITC is disallowed for taxes paid due to non-payment, short payments, or excessive refunds, or when ITC was obtained through fraud, willful misstatement, suppression of facts, or on confiscated/seized goods.
• ITC is also not available for taxes paid when goods in transit have been detained or seized, and penalties have been levied.

Further details on Section 17(5) are available here.

Information regarding ineligible ITC is accessible via the auto-drafted GSTR-2B statement. Recent amendments also require taxpayers to separately report permanently ineligible ITC claims under Section 17(5) in Table 4(B)(1) of GSTR-3B.

How to Identify Restricted ITC in GSTR-2B

To identify restricted Input Tax Credit (ITC) within the auto-generated GSTR-2B form, follow these steps:

1. Access the GST portal using your login credentials and select 'Return Dashboard'.
2. Navigate to the 'File Returns' page, where you will select the appropriate financial year, quarter, and period from the dropdown menus before clicking 'Search'.
3. On the 'GSTR-2B' tile, choose either 'View' or 'Download'. If the number of documents in GSTR-2B surpasses 1,000, 'Download' is recommended. From the download page, you can opt to 'Generate JSON File to Download' or 'Generate Excel File to Download'.
4. If the document count in GSTR-2B is under 1,000, clicking 'View' will open the 'GSTR-2B-Auto-Drafted IT Statement,' featuring 'Summary' and 'All Tables' tabs.
5. The 'Summary' tab is categorized into 'ITC available' and 'ITC not available' sections. The 'ITC not available' section further distinguishes between ineligible ITC and ITC reversal (Table 4), providing a concise overview of restricted ITC claims.
6. Utilize the 'Expand All' arrow to reveal all sections of the GSTR-2B form for a comprehensive review.