IG FINANCE

CA Gaurav Kenkre is a CA in practice for the last 11 years. He is a regular speaker at various professional organizations, trade bodies, MNCs and Government bodies. He also writes regularly in local as well as national publications. Besides this he holds various positions in bodies such as ICAI, GCCI, College bodies, Rotary etc.

SIMPLIFYING INPUT TAX CREDITS – PART 2

By Gaurav Kenkre

In the previous edition, we had covered the basis of Input Tax Credit and a few conditions attached to claiming thereof. We will now proceed with further conditions prescribed in law.

Question: Is there any time limit for claiming Input Tax Credit?

Answer: Yes. There is a specific time limit for claiming of Input Tax Credit. A business can claim input tax credit in r e l a t i o n t o a n i n v o i c e , maximum upto the due date of filing GST returns of the month

of September, immediately following the financial year to which the invoice belongs. This might sound complicated, but can be explained with the help of an example. I f a n I n v o i c e i s d a t e d anywhere between 1st April 2021 to 31 March 2022, the invoice would be said to belong to Financial Year 202122. The September month immediately following this financial year is September 2022. So, for any invoice of Financial Year 2021-22, the last date to claim credit is the due date of GST returns filed for the month of September 2022. In other words, for an invoice dated anytime in Financial Year 2021-22, the credit can be claimed not only in Financial 2021-22 itself, it can even be claimed from April 2022 to September 2022 in case it was not claimed in time. Thus it is very important to reconcile Input Tax credit will in advance, and claim any missed out input tax credits before the last date is close.

Question: Can I claimed input tax credit even if some

o r a l l o f m y s a l e s a r e exempt from GST?

Answer: No, if your sales are exempt from GST, then claim of input tax credit is restricted. Firstly, we must understand what does “ exempt” sales means. Without going into too much detail, exempt sales for this purpose of claim of input tax credit would cover: a.Sales on which no GST is charged (egs essential items like food grains)

b . G o o d s o r s e r v i c e s

completely out of GST (Petrol, A l c o h o l f o r h u m a n consumption etc) c.Sale of land or complete building It is to be noted that Export is not considered as exempt sales, even though there is no GST charged on exports. If you have any of the above as your sales, then your eligibility to claim input tax credits will be r e s t r i c t e d . F o r b e t t e r understanding, we can look at an example. A provision store is selling both exempted goods (food grains) as well as taxable items (other goods like soaps etc). His credit input tax credit eligibility will be as follows:

a . A n y G S T p a i d o n

expenses/purc hases which are D I R E C T L Y r e l a t e d t o taxable sales, will be allowed ( e x a m p l e s p e c i f i c p a c k i n g m a t e r i a l purchased etc)

b . A n y G S T p a i d o n

expenses/purc hases which are DIRECTLY related to exempt sales, will NOT be allowed (example specific packing material purchased for sale of food grains)

c . A n y G S T p a i d o n

COMMON expenses (egs rent) i.e. expenses which are incurred to enable sale of taxable as well as exempt goods, will be allowed only as per a ratio. This ratio is the ratio of Taxable sales to Total sales. So if 70% of sales of the provision store are taxable, then he can claim 70% of the common input tax credits only. The above is a simplistic way of explaining this rule and actual calculation may involve much more detailed working.

Question: Are there any business/industry specific situations where input tax credits are restricted?

Answer: Yes, for several types of businesses/industry, the Government has prescribed concessional GST rates (egs 5%) and for such businesses, GST input credits are not allowed. Examples are:

a.Real Estate Construction

business (except in certain cases)

b . R e s t a u r a n t s e r v i c e

(except in certain cases) c.Catering services (except in certain cases) d.Taxi service (except in certain cases) e.Rental of motor vehicle (except in certain cases) f.Goods transport agency (except in certain cases) I n t h e a b o v e business/industries (except in certain cases), even if goods or services are purchased for purpose of business, you cannot claim the input tax credit. The GST paid will simply become a cost. As explained, the primary reason b e h i n d t h i s i s t h a t t h e Government has prescribed a much lower GST rate of just 5% in most of the above categories. Besides, the above, there are certain restrictions relating to type of goods or services i.e. input tax credits are blocked on certain types of goods or services. We shall have a detailed look at this in the next part.