Category: Input Tax Credit

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What is the option available to a Banking Company/ Financial Institution (including non banking financial company) who choose to not opt for proportionate reversal of credits relating to exempt supplies?

A Banking Company/ Financial Institution engaged in supplying services by way of accepting deposits, extending loans or advances has the following options:

Option 1: Comply with the provisions of Section 17(2) regarding restriction of
credits relatable to exempt supplies in the manner prescribed; or

Option 2: Avail 50% of the eligible input tax credit every month on inputs, capital goods and input services.

A Banking Company/ Financial Institution choosing Option 2 has to follow the following procedure in accordance with Rule 38 of the CGST Rules, 2017:
 The credit of tax paid on inputs and input services used for non-business
purposes and those that are not eligible in terms of Section 17(5) should not be availed
 The credit of tax paid on supplies by another person having the same PAN can be availed in full
 50% of the remaining credit will be admissible and should be claimed in Form GSTR-2
 The eligible credit (as mentioned above) will be credited to the Electronic Credit Ledger

(ICAI FAQ PUBLICATION 06-09-2017 -: Input Tax Credit: FAQ NO. 44)

 

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Whether Input Tax credit should be reversed in case of non-payment of consideration to supplier as per Rule 37 of the CGST Rules, 2017?

Yes, where the value of the supply along with the tax, has not been paid to the supplier within 180 days from the date of issue of invoice, the input tax credit availed by the recipient will be added to the output tax liability of the recipient. The recipient will have to furnish the details of the supply in Form GSTR-2 for the month immediately following the period of 180 days from the invoice date and will be liable to pay interest from the date of availment of credit till the date of addition to the output tax liability.

(ICAI FAQ PUBLICATION 06-09-2017 -: Input Tax Credit: FAQ NO. 43)

 

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What are the conditions prescribed to avail the Input Tax Credit in relation to documents?

In terms of Rule 36(2), Input tax credit can be availed by a registered person only if:
 All the applicable particulars prescribed in the Chapter VI [which contain Rule 46 to Rule 55] of the CGST Rules,2017 are contained in the document; and
 The relevant information contained in the document is furnished in FORM
GSTR-2 (Details of inward supply) by the recipient.
Further, in terms of Rule 36(3), Input tax credit cannot be availed on the tax paid in pursuance of any order where the demand has been confirmed on account of any fraud, willful misstatement or suppression of facts.

(ICAI FAQ PUBLICATION 06-09-2017 -: Input Tax Credit: FAQ NO. 42)

 

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Whether recovery provisions can be initiated in case of wrong distribution of credit?

  1. Yes. In terms of Section 21 of the Act, the recovery provisions can be initiated if the Input Service Distributor distributes credit in contravention of the law resulting in excess distribution of credit to one/ more recipients of credit.
  2. Such credit can be recovered from the recipients along with applicable interest.and the provisions of section 73 or section 74, as the case may be, shall, mutatis mutandis, apply for determination of amount to be recovered.

(ICAI FAQ PUBLICATION 06-09-2017 -: Recovery of Credit distributed in excess : FAQ NO. 40)

 

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What are the conditions applicable to Input service distributor to distribute the credit?

In terms of Section 20(2) of CGST Act, an Input Service Distributor can distribute the credit subject to the following conditions:
 The credit should be distributed to recipient against a document containing such details as given in Rule 54(1) of the CGST Rules, 2017;
 The amount of credit distributed shall not exceed the amount of credit available for distribution;
 The credit of tax paid on input service attributable to a recipient of credit shall be distributed only to that recipient;
 If credit is attributable to more than one recipient, then it shall be distributed
among such recipient(s) to whom the input service is attributable on pro rata
basis of the turnover in a State of such recipient during the relevant period, to the aggregate of the turnover of all such recipients to whom such input service Is attributable.
 If credit is attributable to all recipients, the above method of allocation on pro rata may be applied with reference to all recipients.

(ICAI FAQ PUBLICATION 06-09-2017 -: Distribution of credit by the Input service distributor : FAQ NO. 39)

 

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What is the manner in which Input Service Distributor should distribute the credit where distributor and recipient are located in different states?

The Input Service Distributor is permitted to distribute the credit as follows:
 Central tax as central tax or integrated tax; and

 Integrated tax as integrated tax or central tax, and

 State tax as State tax or integrated tax [Rule 39(1)(f)]

(ICAI FAQ PUBLICATION 06-09-2017 -: Distribution of credit by the Input service distributor : FAQ NO. 37)