Eligibility for Unregistered Businesses to Claim VAT Input Tax Credit After GST Registration
Businesses not previously registered under VAT may still be able to claim Input Tax Credit (ITC) for VAT paid on goods in stock when they transition to GST. This claim is permissible if certain conditions are met, including proof of payment or specific circumstances for claiming a percentage of SGST/IGST. The facility was intended to ease the transition for businesses from the old tax regime to the Goods and Services Tax framework.
Yes, individuals or entities that were not previously registered for VAT can indeed claim available VAT credit upon registering under the Goods and Services Tax (GST) regime. This provision covers input tax credit for both Value Added Tax (VAT) and entry tax.
How Much Input Tax Credit Can Be Claimed?
The amount of ITC available depends on whether proof of VAT payment is accessible.
When Proof of VAT Payment Is Available
Taxpayers can claim the full input VAT credit on goods held in stock, including those incorporated into semi-finished or finished goods, as of the appointed day (July 1, 2017). Several criteria must be fulfilled for this:
The taxpayer must demonstrate that the goods are intended for making taxable supplies, meaning the final sales will be subject to GST.
The registered entity must be eligible for input tax credit on these inputs, implying they have not opted for the composition levy scheme.
The registered entity must possess invoices confirming the payment of input VAT.
The invoices should not predate July 1, 2016, meaning they must be no older than 12 months on June 30, 2017.
When Proof of VAT Payment Is Not Available
A registered individual or entity, not previously registered under VAT, holding goods that were taxed only at the initial point of sale within the state (with subsequent sales untaxed), can still claim input tax credit on their stock-in-hand as of July 1, 2017.
This credit is granted at a rate of 40% of the State Goods and Services Tax (SGST) applicable after July 1, 2017. For cases where the total GST rate is 18% or higher, a 60% ITC is applicable. If Integrated Goods and Services Tax (IGST) was paid on the sale of such goods, a 30% ITC is available for IGST rates of 18% or higher, and 20% for other IGST rates.
This credit amount will be transferred to the taxpayer's electronic ledger only after the output SGST on the sale of these goods has been paid. This scheme was active for a period of six tax periods from the appointed date (until December 31, 2017). The following conditions apply:
The goods in question must not have been exempt from the previous VAT regime.
The registered entity must possess procurement documents for these goods, such as challans.
Businesses utilizing this scheme must submit separate details of their stock on hand as of July 1.
The registered person must report sales details of these goods in FORM GST TRAN-1 at the end of each month while the scheme is operational.
The approved credit amount will be posted to the electronic credit ledger, maintained in FORM GST PMT-2 on the Common Portal.
The stock for which credit is claimed must be easily identifiable and properly stored by the registered person.
The specific credit amount declared in FORM GST TRAN-1 will be credited to the applicant's electronic credit ledger, which is managed in FORM GST PMT-2 on the Common Portal.
This particular scheme is exclusively applicable when there is no verifiable proof of payment for the inputs. If no documentation exists at all for the goods (e.g., no challans, no goods received notes), then this 40% (or other percentage) credit scheme is not available.
For articles on the transition to GST, you can browse various resources.