Learn the concept of Input Tax Credit under GST
The basic premise for the introduction of Input Tax Credit is that taxing the same thing twice is not fair. Further, the focal point of GST is to make a chain of Input Tax Credit in a manner that there will be seamless flow of the credit of GST on each stage from manufacturer to trader till its ultimate consumption. ITC is considered to be the backbone of the GST regime. In fact, it is the provisions of ITC which essentially make GST a value added tax i.e., collection of tax at all points of supply chain after allowing credit of tax paid at earlier points.
Let us understand the said provision through the practical Case Scenario
Case Scenario
Amartya Ltd., a registered firm, purchased goods in the month of April 2021 from various firms as follows:
| S. No. | Particulars | Taxable amount | GST | Invoice Price (in Rs.) |
| 1. | Mourya Ltd. | 2,00,000 | 36,000 | 2,36,000 |
| 2. | Surya Ltd. | 50,000 | 9,000 | 59,000 |
| 3. | Arya Ltd. | 1,00,000 | 18,000 | 1,18,000 |
Given that, in case of Mourya ltd. and Surya ltd. the invoices were received in April 2021, but goods were received in April 2021 (from Mourya ltd.) and May 2021 (from Surya ltd.) respectively. In case of Arya ltd. goods were received in April 2021 and invoice was received in May 2021. How much ITC shall be available to Amartya ltd. and in which month?
Solution:
In accordance with the provisions of Section 16(2), the ITC available in respect of above mentioned inward supplies is provided below month-wise:
| S. No. | Particulars | April 2021 | May 2021 | ITC available in month |
| 1. | Mourya Ltd. | a) Invoice received
b) Goods received |
——- | April 2021 |
| 2. | Surya Ltd. | a) Invoice received
|
b) Goods received | May 2021 |
| 3. | Arya Ltd. | a) Goods received | b) Invoice received | May 2021 |
Thus the ITC available in each month is as follows:
| S. No. | Particulars | April 2021 | May 2021 (in Rs.) |
| 1. | Mourya Ltd. | 36,000 | —- |
| 2. | Surya Ltd. | —- | 9,000 |
| 3. | Arya Ltd. | —– | 18,000 |
| Total | 36,000 | 27,000 |
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