Availability of Tax Credit in Special Circumstances
by Input Tax Credit (ITC) is generally available to a registered person when the conditions prescribed under Section 16 of the CGST Act, 2017 are satisfied. However, special situations may require specific rules for allowing, restricting or transferring ITC. Section 18 contains important provisions relating to ITC in special circumstances, including becoming liable for registration, voluntary registration, shifting from composition scheme to regular taxation, exempt supplies becoming taxable and changes in the constitution of a business. These provisions ensure that eligible credit is not unnecessarily lost while preventing wrongful claims. Therefore, taxpayers should carefully examine the applicable conditions and prescribed time limits.
1. ITC on Becoming Liable for Registration
When a person becomes liable to obtain GST registration, ITC may be available on eligible inputs held in stock immediately preceding the day on which the person becomes liable to pay tax. Under Section 18(1)(a) of the CGST Act, 2017, credit may also be available on inputs contained in semi finished and finished goods held in stock. The taxpayer must satisfy the prescribed conditions and claim the credit within the specified time. This provision helps newly registered businesses obtain credit for eligible taxes already paid on purchases before registration. Proper invoices and supporting records should be maintained to substantiate the claim.
2. ITC on Voluntary Registration
A person who obtains voluntary GST registration may claim ITC on eligible inputs held in stock immediately before the date of registration. This facility is provided under Section 18(1)(b) of the CGST Act, 2017, subject to prescribed conditions and time limits. The credit may relate to inputs contained in semi finished and finished goods held in stock. The provision encourages businesses to enter the GST system voluntarily without losing eligible credit on existing inventory. The registered person should maintain valid tax invoices and other supporting documents. The credit must be calculated carefully and claimed according to the applicable GST provisions.
3. ITC on Switching from Composition Scheme
A registered person who stops paying tax under the Composition Scheme and becomes liable to pay tax under the regular GST scheme may claim eligible ITC. Under Section 18(1)(c) of the CGST Act, 2017, credit may be available on inputs held in stock and inputs contained in semi finished and finished goods immediately preceding the date of becoming liable under the regular scheme. This provision prevents eligible credit from being permanently lost when a taxpayer changes from composition taxation to normal taxation. The taxpayer must satisfy prescribed conditions, maintain proper records and claim the eligible credit within the specified time.
4. ITC When Exempt Supply Becomes Taxable
When goods or services that were previously exempt from GST become taxable, a registered person may become eligible for ITC on relevant stock. Under Section 18(1)(d) of the CGST Act, 2017, credit may be available on inputs held in stock and inputs contained in semi finished and finished goods related to such supplies. The provision allows taxpayers to obtain eligible credit when the tax status of their supplies changes. The taxpayer must comply with the prescribed conditions and time limits. Proper identification of eligible stock and maintenance of supporting invoices are essential for correctly determining and claiming the available ITC.
5. ITC on Change in Constitution of Business
When there is a change in the constitution of a registered business, such as a merger, amalgamation, demerger or transfer of business with specific conditions, eligible ITC may be transferred to the new or reorganised entity. Section 18(3) of the CGST Act, 2017 permits transfer of unutilised ITC in specified circumstances, subject to applicable conditions and procedures. The transfer ensures that legitimate credit accumulated by the original business is not unnecessarily lost because of restructuring. The entities involved must comply with GST requirements and maintain appropriate documentation. The transfer of credit must follow the prescribed procedure and applicable conditions.