GST Input Tax Credit Claims Under Special Cases

Input Tax Credit under GST is the most essential part of the GST structure in India.

Claiming of the eligible ITC is a challenging task and businesses should observe due diligence while availing the Input Tax Credit under GST.

There are certain special cases under GST where claiming ITC is a bi challenging than the normal situations.

In this short article, we will discuss few of the special cases where businesses can claim their eligible ITC in these special cases too!

When taxpayer takes ‘Compulsory Registration under GST’

Within the first 30 days from the date when a business or an individual applies for a GST registration, he becomes eligible to avail Input Tax Credit under GST on following:

1. Inputs held as stocks
2. Inputs contained in the form of finished or semi-finished goods on the day preceding the date on which this person is eligible to pay tax.

Let us understand this with an example:

Consider, Deshbhakt Traders Ltd has a registered office in Bengaluru, Karnataka(Normal category state).

This firm crosses the turnover limit of Rs. 40 Lakh (which is the threshold for GST Registration eligibility w.e.f April 1^st, 2019) on June 9th, 2021.

Deshbhakt Traders Ltd now applies for GST registration on August 1st, 2021.

The GST registration gets confirmed on September 3rd, 2021.

Now, before registering under GST, this business had semi-finished goods worth Rs. 5 Lakh. GST paid on these goods was equal to 90,000 (18% rate).

In this situation, Deshbhakt Traders Ltd. can claim GST Input Tax Credit on these items after the GST registration is confirmed. (i.e. in the month of September 2021).

Voluntary GST registration

According to the Section 25 (3) of the CGST Act, 2017, a person is allowed to voluntarily register under the GST even if he is NOT eligible for the same as per the Section 22.

Section 22 is the clause that defines the threshold limit required to register for the GST.

In this case of voluntary GST registration, this taxpayer will get the same benefit of availing Input Tax Credit as the normal taxpayer.

This taxpayer can now claim ITC on the following things:

1. Inputs held as stocks
2. Inputs held as furnished & semi-furnished goods on which GST is paid

Once, the GST registration is confirmed, the registered entity can claim ITC for the listed items.

Example:

Mr Jimmy is voluntarily registering under GST on June 17th, 2021.

Prior to his registration, he has purchased about 2 lakh of semi-finished goods and has paid a GST of about 36,000 on his purchase.

His GST registration is confirmed for August 14th, 2021.

Mr Jimmy then will be able to claim the GST Input Tax Credit on the GST of Rs. 36,000 he has already paid when he was NOT registered under GST.

He can avail this benefit in any month followingAugust 2021.

When a taxpayer converts from Regular to Composition taxpayer

If a taxpayer wishes to change from a Regular Taxpayer to a Composition taxpayer, then in this case the taxpayer shall be entitled topay an amount by way of debit to an electronic credit ledger, which is equal to the GST Input Tax Credit on:

1. Inputs held in the stocks
2. Inputs contained in the furnished or semi-furnished goods.
3. GST input on Capital Goods

It’s advisable to the businesses to use an automated reconciliation tool for all your ITC reconciliation requirements.

Change in the type of business

A business can fall into any category during its setup stage. It can be a Partnership, Proprietorship, LLP or a Private Limited firm.

It is possible that the business owners further decide to change the type of this business.

There can be multiple reasons for this transition:

1. Merger of multiple businesses
2. Sale of a business unit, etc.

In these situations, if the businesses decide to the type of business, then it is possible for them to TRANSFER the remaining balance of Input Tax Credit to the newly constituted business.

Needless to say that, the business must have a valid GST registration.

Example:

Michael ScottPapers Pvt. Ltd is now reconstituted to Michael & RyanPapers Limited Liability Partnership (LLP).

Previously this business had a balance of Rs. 65,000 of ITC in their electronic credit ledger.

This ITC balance can now be transferred to the account of Michael & RyanPapers Limited Liability Partnership (LLP).

Taxpayer shifts from Composition Scheme to Regular Scheme

If a business which has earlier opted for Composition Scheme under GSTwishes to change to the Regular scheme, he can do so.

In this case, the taxpayer shall be entitled to avail eligible GST Input Tax Crediton the following:

1. GST paid on the purchase of finished or semi-finished goods
2. GST paid on the purchase of stocks.

To learn more on the GST Composition scheme, click on the link given.

Exempt supplies become taxable

A person can claim eligible Input Tax Credit if there are any exempted supplies of goods that is to become taxable.

In that case, taxpayer will be eligible to take Input Tax Credit on the following:

1. GST paid on the purchase of finished or semi-finished goods
2. ITC on Capital Goods
3. GST paid on the purchase of stocks.

This claim can be made on the immediate next day after the exempt supplies become taxable.

NOTE:

• ITC will be available only on the supply of goods and NOT services.
• ITC on tax invoices older than a year will not be valid.

In a nutshell

This article has submitted before you few exceptional cases under GST where businesses can claim ITC under GST.

It’s essential that the businesses claim only the eligible Input Tax Credit under GST& should reverse any ineligible ITC.

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For a flawless ITC reconciliation business must consider using a fully automated reconciliation tool like GSTHero.