Understanding the Distinction Between Availed and Claimed Input Tax Credit in GST

Within the Goods and Services Tax (GST) framework, it is essential to differentiate between input tax credit (ITC) that has been availed and ITC that has been claimed. This article clarifies these distinct concepts for businesses and financial experts.

What is Availed Input Tax Credit?

Input Tax Credit (ITC) is considered "availed" when a business records the tax credits it has accumulated from GST paid on its business inputs. These inputs encompass goods, services, or capital assets utilized in business activities.

In essence:

• When a company acquires goods or services, it pays GST on these purchases.
• This paid GST is then documented in the company's financial records as availed ITC.
• The business subsequently reports this amount in its GSTR 3B return, making the credit accessible in the Electronic Credit Ledger.

For instance, a manufacturer who pays GST on raw material purchases has availed ITC equal to that GST amount. However, certain expenses do not qualify for ITC. These ineligible credits are precisely detailed in section 17(5) of the CGST Act.

What is Claimed Input Tax Credit?

"Claimed" Input Tax Credit refers to the act of applying the existing ITC to lower or offset a business's GST obligations. After the ITC appears in the Electronic Credit Ledger, it can be formally "claimed" or employed to reduce the GST due on sales or outputs.

Specifically:

• When a business sells goods or services, it computes the GST payable on these transactions.
• Instead of settling this entire liability in cash, the business can use the availed ITC from its Electronic Credit Ledger to decrease the amount it owes.

Following our previous example, the manufacturer who availed ITC on raw materials can subsequently claim this ITC when selling the finished product, thereby lowering the GST liability on that sale.

Distinguishing Availed, Utilized, and Claimed ITC in GST

While these terms may appear similar initially, they carry specific meanings within the GST system:

Availed ITC

This refers to the initial acknowledgment and entry of the input tax credit into a business's financial records, and subsequently into the Electronic Credit Ledger, once GST has been paid on inputs.

Claimed ITC

This signifies the practical application or deployment of the availed ITC to lessen GST liabilities. It involves utilizing the ITC accessible in the Electronic Credit Ledger to counterbalance the GST amounts owed on final products or services.

Utilized ITC

This term is very similar to "claimed ITC". It denotes the same process: employing the available ITC to settle GST liabilities. Therefore, "utilized" and "claimed" are frequently used interchangeably in this context.

Consequences of Claiming Excess ITC Without Availment

Attempting to claim more Input Tax Credit than what has been availed or is present in the Electronic Credit Ledger constitutes a breach of GST regulations. Such inconsistencies can result from administrative mistakes, misinterpretations, or deliberate false reporting. The outcomes of these disparities include:

Penalties and Interest

The business might face penalties and incur interest charges due to the difference between the claimed and availed ITC amounts.

Legal Consequences

Significant or recurrent discrepancies could lead to legal proceedings or scrutiny by tax authorities.

Reconciliation Difficulties

Mismatches between claimed and availed ITC can also create problems during GST return reconciliations, thereby complicating the tax submission process.

Therefore, businesses must ensure that their ITC claims do not exceed the amount they have availed. They should also maintain accurate records and perform regular reconciliations to prevent unexpected discrepancies and notices from the tax department.