What is input tax credit?

As you know, GST is a dual-concept system. On every transaction within a state, there will be components of Central GST (CGST) and State GST (SGST). For inter-state transactions, Integrated GST (IGST) will be applicable. Therefore, you should know how to offset input credit against each of these components as prescribed by the Model GST Law. Here, input tax credit refers to goods and services tax paid or payable by a registered user on the purchases or expenses incurred for business activities. Tax liability refers to the amount a user legally owes a taxing authority.

Are there any criteria to claim input tax credit?

Yes. They are listed below.

1. You must be a registered user on GST.
2. The goods or services must be acquired in the course of or furtherance of business; ITC is claimable on acquisition of capital assets used in the business (such as equipment, furniture, etc.)
3. Goods or services are acquired for making taxable supplies; GST is charged with a standard rate or zero-rated supplies
4. It must not be subject to any restriction such as blocked input tax items
5. You must hold valid tax invoice or valid customs importation documents
6. Tax invoices must be in the name of the registered person unless simplified tax invoices are used
   
   

   Input Tax Credit	Offset against Liability
   CGST (Central GST)	CGST and IGST (in that order)
   SGST (State GST)	SGST and IGST (in that order)
   IGST (Integrated GST)	IGST, CGST, SGST (in that order)

Can input tax credit of CGST paid on inputs be used for paying SGST?

No. Input tax credit of CGST paid on inputs can be used for paying only CGST and IGST.

Can input tax credit of SGST paid on inputs be used for paying CGST?

No. Input tax credit of SGST paid on inputs can be used for paying only SGST and IGST.

Can input tax credit of IGST paid on inputs be used for paying IGST, CGST and SGST?

Yes. Input Tax Credit of IGST paid on inputs can be used for paying IGST, CGST and SGST.

How will SGST and IGST settle?

Accounts will be settled periodically between the centre and the state to ensure that the SGST used for payment of IGST is transferred by the centre to the destination state where the goods and services are eventually consumed. Similarly, the IGST used for the payment of SGST would be transferred by the originating state to the centre.

For more detailed information, visit the GST portal.

GST Portal

*The guidance provided above is as per the Model GST law (released in November 2016) and draft Rules. Please refer to GST/ CBEC website for further details.