Input Tax Credit
GST & IDTC of ICAI
CA Sushil K Goyal
7 April [email protected]
GST is a ‘Value Added’ TaxPurchase 100
Tax @ 10% 10110
Sale 150Tax @ 10% 15
165Liability to pay Govt. 15
Collected from customer 15
Payment to Govt. ??
Actual payment to Govt. 5
Liability to pay Govt. 15 Reduce liability by tax already paid (10)
Principles of Tax Credit
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Taxable Person Eligible
Credit Available
Credit Availed
Credit Availed Prove ‘Test of Disallowance’
Utilizable Credit
Definition
– “Input”- any goods other than capital goods used or intended tobe used by a supplier in the course or furtherance of business. [Sec2(59)]
– “Input Service”- any service used or intended to be used by asupplier in the course or furtherance of business .[Sec 2(60)]
– “Capital Goods”- goods, the value of which is capitalised in thebooks of account of the person claiming the input tax credit andwhich are used or intended to be used in the course orfurtherance of business.[Sec 2(19)]
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Definition
– “Input tax” In relation to a registered person, means the CentralTax, State Tax, Integrated Tax or Union Territory Tax charged onany supply of goods or services or both made to him andincludes:– (a) IGST charged on Import of goods– (b) Tax Payable u/s 9(3) and (4) of CGST Act– (c) Tax Payable u/s 9(3) and (4) of SGST Act– (d) Tax Payable u/s 5(3) and (4) of IGST Act– (e) Tax Payable u/s 7(3) and (4) of UTGST Act
But does not include tax paid under composition levy.
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Input Tax CreditSec 16(1)Every registered person shall, subject to such conditions andrestrictions as may be prescribed and in the manner specifiedin section 49, be entitled to take credit of input tax charged onany supply of goods or services or both to him which are usedor intended to be used in the course or furtherance of hisbusiness and the said amount shall be credited to the electroniccredit ledger of such person.
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Input Tax CreditSec 16(1)Every registered person shall, subject to such conditions andrestrictions as may be prescribed and in the manner specifiedin section 49, be entitled to take credit of input tax charged onany supply of goods or services or both to him which are usedor intended to be used in the course or furtherance of hisbusiness and the said amount shall be credited to the electroniccredit ledger of such person.
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Input Tax CreditSec 16(1)Every registered person shall, subject to such conditions andrestrictions as may be prescribed and in the manner specifiedin section 49, be entitled to take credit of input tax charged onany supply of goods or services or both to him which are usedor intended to be used in the course or furtherance of hisbusiness and the said amount shall be credited to the electroniccredit ledger of such person.
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Input Tax CreditSec 16(1)Every registered person shall, subject to such conditions andrestrictions as may be prescribed and in the manner specifiedin section 49, be entitled to take credit of input tax charged onany supply of goods or services or both to him which are usedor intended to be used in the course or furtherance of hisbusiness and the said amount shall be credited to the electroniccredit ledger of such person.
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Eligibility & Conditions
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Input Tax CreditRestriction Sec 16(2)(a)
no registered person shall be entitled to the credit ofany input tax in respect of any supply to him unless, -– (a) he is in possession of a tax invoice or debit note issued by
a supplier registered under this Act, or such other tax payingdocuments as may be prescribed
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DocumentsDocuments
for availment
of input tax credit:
Invoice issued u/s 31
Debit note issued u/s 34
Bill of entry
Invoice for reverse charge
Document issued by ISD
Document issued should contain minimum information like tax charged, description, value, GSTIN and Place of supply
Input Tax CreditRestriction Sec 16(2)(b) no registered person shall be entitled to the credit of anyinput tax in respect of any supply to him unless, -– (b) he has received the goods or services or both– “Explanation.—For the purposes of this clause, it shall be deemed that the
registered person has received the goods or, as the case may be, services––– (i) where the goods are delivered by the supplier to a recipient or any other person
on the direction of such registered person, whether acting as an agent or otherwise,before or during movement of goods, either by way of transfer of documents of titleto goods or otherwise;
– (ii) where the services are provided by the supplier to any person on the direction ofand on account of such registered person.”;
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Receipt of Goods/ServiceReceipt of
Goods/Service
General Receipt in lots or installments
On direction of third person
Upon receipt of the Goods/Service
Upon receipt of last lot of goods/Service
Deemed receipt by the taxable third
person
Receipt of Goods
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Movement of goods ondirection of third party
B
A CMovement of Goods
Date of Receipt by Cwill be considered as date of receipt by B
Input Tax CreditRestriction Sec 16(2)(c)
no registered person shall be entitled to the credit ofany input tax in respect of any supply to him unless, -– (c) subject to the provisions of section 41 or section 43A, the
tax charged in respect of such supply has been actually paidto the Government, either in cash or through utilization ofinput tax credit admissible in respect of the said supply;
–
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Input Tax CreditRestriction Sec 16(2)(d)
no registered person shall be entitled to the credit ofany input tax in respect of any supply to him unless, -– (d) he has furnished the return under section 39:
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Input Tax CreditRestriction Sec 16(2) 2nd Proviso– Provided further that where a recipient fails to pay to the supplier
of goods or services or both,
– other than the supplies on which tax is payable on reverse chargebasis,
– the amount towards the value of supply along with tax payablethereon
– within a period of one hundred and eighty days from the date ofissue of invoice by the supplier,
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Input Tax CreditRestriction Sec 16(2) 2nd Proviso – an amount equal to the input tax credit availed by the recipient
shall be added to his output tax liability, along with interestthereon, in such manner as may be prescribed:
– Provided also that the recipient shall be entitled to avail of thecredit of input tax on payment made by him of the amounttowards the value of supply of goods or services or both alongwith tax payable thereon.
– Note : Provision of Section 16(4) will not apply for re-availing ofcredit
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TAX
Availing ITC in GST Regime
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Tax dept Buyer
Buyer gets input credit if seller pays GST
Seller pays tax to the government Buyer gets input credit
Seller
20
Restriction on ITC Rule 36(4)
– Input tax credit to be availed by a registered person in respect ofinvoices or debit notes, the details of which have not beenuploaded by the suppliers under sub-section (1) of section 37,shall not exceed 20 per cent. of the eligible credit available inrespect of invoices or debit notes the details of which have beenuploaded by the suppliers under sub-section (1) of section 37.
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Restriction on ITC Rule 36(4)
– Input tax credit to be availed by a registered person in respect ofinvoices or debit notes, the details of which have not beenuploaded by the suppliers under sub-section (1) of section 37,shall not exceed 10 per cent. of the eligible credit available inrespect of invoices or debit notes the details of which have beenuploaded by the suppliers under sub-section (1) of section 37.
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Restriction on ITC Rule 36(4)
– taxpayers may avail full ITC in respect of– IGST paid on import,
– documents issued under RCM,
– credit received from ISD etc.
– details of which have been uploaded by the suppliers as onthe due date of filing of the returns in FORM GSTR-1 of thesuppliers for the said tax period.
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Have all the invoices been furnished in GSTR-2A? YES
Credit for invoice not furnished by supplier < 10% of invoices
furnished
Avail credit
Avail credit of invoices in 2A + 10% of such invoices
YES
NO
NO
Restriction on ITC Rule 36(4)
NO
NO
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Restriction on ITC Rule 36(4)
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Cases Invoices available in GSTR-2A
(A)
10% of invoices furnished
(B)
ITC to be taken in GSTR-3B
(A)+(B)
Case 1 ₹ 10,00,000 ₹ 1,00,000 ₹ 10,00,000
Case 2 ₹ 9,50,000 ₹ 95,000 ₹ 10,00,000
Case 3 ₹ 8,00,000 ₹ 80,000 ₹ 8,80,000
Restriction on ITC Rule 36(4)
– Full ITC of balance amount may be availed, in present, inthe above cases total ITC pertaining to invoices thedetails of which have been uploaded reaches Rs. 8.3lakhs (Rs 10 lakhs /1.20).
– When it will reach Rs.8.3 lakhs by that time credit takenby the registered person Rs.10 lakhs.
– No further credit available beyond 10 lakhs.
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GST - COVID-19 ImpactRestriction on ITC Rule 36(4)– Proviso has been inserted in CGST Rules 2017 to provide that the
said condition shall not apply
– for the months of February, March, April, May, June, July andAugust, 2020,
– but that the said condition shall apply cumulatively in FORM GSTR-3B for the tax period of September, 2020
– Hence, cumulative adjustment of input tax credit for the saidmonths in accordance with the condition under rule 36(4).
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Eligibility & Conditions for ITC
Eligibility and
Condition
must be used “by
him”Possession of
documents
contain all the prescribed particulars
Taxes actually paid
upload the details of such documents
received goods or services
payment to the supplier within 180
days
No depreciation
claimed
Sept month / Annual Return
Not pursuant to an order
Credit should not exceed 10% R:36(4)
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Matching ConceptRule 36(4)
Professional
xxx 134/17 500 60xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP-63U 1000 50
Inward Supply Register
Paper
Computer
Telephone
Food
07/04/[email protected]
Professional
xxx CA-0001/17-18 20000 3600xxx CA-0002/17-18 30000 5400xxx CA-0003/17-18 10000 1800xxx CA-0004/17-18 20000 3600
Outward Supply Register
Client A
Client B
Client C
Client D
07/04/[email protected]
GSTR - 1
xxx CA-0001/17-18 20000 2400xxx CA-0002/17-18 30000 3600xxx CA-0003/17-18 10000 1200xxx CA-0004/17-18 20000 2400
xxx 134/17 500 60xxx E32j33 30000 5400xxx YP-63U 1000 50
Professional
Paper
Computer
Food
07/04/[email protected]
GSTR – 2A
xxx 134/17 500 60xxx E32j33 30000 5400
xxx YP-63U 1000 180
xxx 134/17 500 60xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP-63U 1000 50
Inward Supply RegisterProfessional
07/04/[email protected]
GSTIN Invoice No. Invoice Value TaxInput Records
xxx 134/17 500 60xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP63-U 1000 50
GSTIN Invoice No. Invoice Value TaxOutput Tax
xxx CA-0001/2017-18 20000 1600
xxx CA-0002/2017-18 30000 5400
xxx CA-0003/2017-18 10000 1800xxx CA-0004/2017-18 20000 3600
Professional
07/04/[email protected]
Professional
GSTIN Invoice No. InvoiceValue
Tax
Input Records
xxx 134/17 500 60
xxx E32j33 30000 5400xxx 7837-R 20000 3600xxx YP63-U 1000 50
Invoice Value TaxOutput Tax Liability
Payment
07/04/[email protected]
80000 14400
Paid by ITC Paid by Cash
6006 8394
Eligible ITC in 2A : 546010% of above : 546ITC to be availed : 6006
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Utilisation of Credit
Utilisation of ITCSection 49ANotwithstanding anything contained in section 49, the input tax crediton account of central tax, State tax or Union territory tax shall beutilised towards payment of integrated tax, central tax, State tax orUnion territory tax, as the case may be, only after the input taxcredit available on account of integrated tax has first been utilisedfully towards such payment.
Inserted by the Finance Act 2018 w.e.f. 1st February 2019
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Order of utilisation of ITC Rule 88AOrder of utilization of input tax credit.- Input tax credit on account ofintegrated tax shall first be utilised towards payment of integratedtax, and the amount remaining, if any, may be utilised towards thepayment of central tax and State tax or Union territory tax, as thecase may be, in any order:
Provided that the input tax credit of CGST/SGST shall be utilisedtowards the payment of IGST/CGST/SGST only after the input taxcredit available on account of integrated tax has first been utilisedfully.
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Input Credit Adjustment
Input Tax
SGST
SGSTIGST
12
SGST1Input Tax
SGST
InputTax
CGSTCGSTIGST
12
CGST1Input Tax
CGST
InputTax
IGSTIGSTCGST
12
SGST
3
IGSTIGSTCGST
Input Tax
IGSTSGST
Block Credit
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input tax credit shall not be available in respect of the followingnamely:-
(a) motor vehicles for transportation of persons having approvedseating capacity of not more than thirteen persons (includingthe driver), except when they are used for making the followingtaxable supplies, namely: —
(A) further supply of such motor vehicles; or(B) transportation of passengers; or(C) imparting training on driving such motor vehicles;
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Block Credit Section 17(5)(a)…
input tax credit shall not be available in respect of the followingnamely:-
(aa) vessels and aircraft except when they are used––(i) for making the following taxable supplies, namely:—
(A) further supply of such vessels or aircraft; or (B) transportation of passengers; or(C) imparting training on navigating such vessels; or(D) imparting training on flying such aircraft;
(ii) for transportation of goods;7 April [email protected]
Block Credit Section 17(5)(aa)…
input tax credit shall not be available in respect of the followingnamely:-(ab) services of general insurance, servicing, repair and maintenance in
so far as they relate to motor vehicles, vessels or aircraft referredto in clause (a) or clause (aa):Provided that the input tax credit in respect of such services shall be available—
(i) where the motor vehicles, vessels or aircraft referred to in clause (a) or clause(aa)are used for the purposes specified therein;
(ii) where received by a taxable person engaged—(I) in the manufacture of such motor vehicles, vessels or aircraft; or(II) in the supply of general insurance services in respect of such motor vehicles,
vessels or aircraft insured by him; 7 April [email protected]
Block Credit Section 17(5)(ab)…
input tax credit shall not be available in respect of the followingnamely:-
(b) the following supply of goods or services or both—(i) food and beverages, outdoor catering, beauty treatment, health services,
cosmetic and plastic surgery, leasing, renting or hiring of motor vehicles,vessels or aircraft referred to in clause (a) or clause (aa) except when usedfor the purposes specified therein, life insurance and health insurance:
Provided that the input tax credit in respect of such goods or services or bothshall be available where an inward supply of such goods or services or both isused by a registered person for making an outward taxable supply of the samecategory of goods or services or both or as an element of a taxable compositeor mixed supply;
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Block Credit Section 17(5)(b)…
input tax credit shall not be available in respect of the followingnamely:-
(i)…..(ii) membership of a club, health and fitness centre; and(iii) travel benefits extended to employees on vacation such as
leave or home travel concession.Provided that the input tax credit in respect of such goods orservices or both shall be available, where it is obligatory for anemployer to provide to its employees under any law for the timebeing in force.
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Block Credit Section 17(5)(b)…
input tax credit shall not be available in respect of the followingnamely:-
(c) works contract services when supplied for construction ofimmovable property, (other than plant and machinery), exceptwhere it is an input service for further supply of works contractservice;
Explanation. - For the purpose of clause (c) and (d), the expression“construction” includes re-construction, renovation, additions oralterations or repairs, to the extent of capitalization, to the saidimmovable property.
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Block Credit Section 17(5)(c)…
input tax credit shall not be available in respect of the followingnamely:-
(d) goods or services or both received by a taxable person forconstruction of an immovable property (other than plant andmachinery) on his own account, including when such goods orservices or both are used in the course or furtherance of business;
Explanation. - For the purpose of clause (c) and (d), the expression“construction” includes re-construction, renovation, additions oralterations or repairs, to the extent of capitalization, to the saidimmovable property.
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Block Credit Section 17(5)(d)…
input tax credit shall not be available in respect of the followingnamely:-
(e) goods or services or both on which tax has been paid under section 10;
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Block Credit Section 17(5)(e)…
input tax credit shall not be available in respect of the followingnamely:-
(f) goods or services or both received by a non-resident taxable person except on goods imported by him;
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Block Credit Section 17(5)(f)…
input tax credit shall not be available in respect of the followingnamely:-
(g) goods or services or both used for personal consumption;
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Block Credit Section 17(5)(g)…
input tax credit shall not be available in respect of the followingnamely:-
(h) goods lost, stolen, destroyed, written off or disposed of by way of gift or free samples; and
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Block Credit Section 17(5)(h)…
input tax credit shall not be available in respect of the followingnamely:-
(h) any tax paid in accordance with the provisions of sections 74, 129 and 130.
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Block Credit Section 17(5)(i)…
Apportionment
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Use of Goods/Service Sec 17(1)
Use of Input tax
Credit
For business purpose
For other purpose
ITC available
ITC not available
Use of Input Tax Credit : partly for
Taxable Supplies
Zero rated Supplies
Non taxable supplies
Exempted Supplies
Nil rated supplies
ITC available ITC not available
ITC on the basis of Uses Sec 17(2)
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The value of exempt supply shall be such
as may be prescribed,
and shall include
supplies on which the recipient is liable to pay tax
on reverse charge basis,
transactions in securities,
sale of land and,
sale of building. (subject to clause (b) of paragraph 5 of
Schedule II)
Value of Exempt Sec 17(3)
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Value of Exempt Sec 17(3)
Explanation :(2) for determining the value of an exemptsupply as referred to in sub-section (3) of section 17-
(a) the value of land and building shall be taken as thesame as adopted for the purpose of paying stampduty; and
(b) the value of security shall be taken as oneper cent of the sale value of such security.
Apportionment (Banking/FI/NBFC)
– Avail of, every month, an amount calculated as above,– An amount equal to 50% of the eligible input tax credit
on inputs, capital goods and input services in thatmonth and the rest shall lapse.
– Option once exercised shall not be withdrawn duringthe remaining part of the financial year.
– Restriction of 50% will not apply on supply from otherunit having same PAN
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Banking/NBFC Sec 17(4)
ITC Reversal onInput & Input Services Rule 42
The ITC in respect of inputs or input services, whichattract the provisions of Sec 17(1)/(2), being partly usedfor the purposes of business and partly for otherpurposes, or partly used for effecting taxable suppliesincluding zero rated supplies and partly for effectingexempt supplies, shall be attributed to the purposes ofbusiness or for effecting taxable supplies in the followingmanner, namely
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ITC Reversal onCapital Goods Rule 43The ITC in respect of capital goods, which attract theprovisions of Sec 17(1)/(2), being partly used for thepurposes of business and partly for other purposes, orpartly used for effecting taxable supplies including zerorated supplies and partly for effecting exempt supplies, shallbe attributed to the purposes of business or for effectingtaxable supplies in the following manner, namely
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ITC Reversal onCapital Goods
Rule 43 of CGST Rules modified to have betterunderstanding
Reversal of credit in case of non taxable personbecoming taxable or vice versa
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Transfer of Business
Apportionment of ITC Business Reorganisation
– Transfer/Apportionment of ITC in the event of Business Reorganisation with specific provision for transfer of liability– Sale,– Merger, – Demerger, – Amalgamation – Lease – Transfer or– Change in the constitution/ownership of business
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Apportionment of ITC Business Reorganisation
Issue : In case of de-merger proviso to rule 41(1) says that ITC shall be apportioned in the ratio of the value of assets of the new units. Whether the value of asset is considered as state level or at all India level?Clarification : A person having same PAN required to take separate registration in different state and each registration is known as separate entity. So, the value of assets of the new units is to be taken at the State level.
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Apportionment of ITC Business Reorganisation
Issue : Whether the transferor required to file Form GSTITC 02 in all the States where it is registered?
Clarification : No. The transferor is required to file FORMGST ITC-02 only in those States where both transferor andtransferee are registered.
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Apportionment of ITC Business Reorganisation
Issue : Whether the proviso to rule 41(1) shall beapplicable to calculate the amount of transferable ITC onlyto demerger or other form of business and where part ofbusiness is transferred as a going also covered?Clarification : Yes, the formula for apportionment of ITC,shall be applicable for all forms of business re-organizationthat results in partial transfer of business assets along withliabilities.
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Apportionment of ITC Business Reorganisation
Issue : Whether the ratio of value of assets, in rule shall beapplied in respect of each ITC head separately viz. CGST/SGST/ IGST/ Cess?
Clarification : No, it shall be applied to the total amount ofunutilized ITC of the transferor sum of CGST, SGST/ UTGSTand IGST credit. Said formula also applicable for cess.
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Apportionment of ITC Business Reorganisation
Issue : How to determine the amount of ITC that is to betransferred to the transferee under each tax head(IGST/CGST/SGST) while filing of Form GST ITC-02 by thetransferor?Clarification : The transferor shall be at liberty todetermine the amount to be transferred under each taxhead within this total amount, subject to the ITC balanceavailable with the transferor.
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Apportionment of ITC Business Reorganisation
Issue : It is not clear as to which date shall be relevant tocalculate the amount of unutilized ITC balance oftransferor?
Clarification : the apportionment formula shall be appliedon the ITC balance of the transferor as available inelectronic credit ledger on the date of filing of FORM GSTITC – 02 by the transferor.
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Apportionment of ITC Business Reorganisation
Issue : Which date shall be relevant to calculate the ratio ofvalue of assets, as prescribed in the proviso to rule 41(1)?
Clarification : The ratio of the value of assets should betaken as on the appointed date of demerger, on the ITCbalance of the transferor, on the date of filing FORM GSTITC - 02 to calculate the amount to transferable ITC.
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Others
Council Recommendations
– Interest for delay in payment of GST to be charged on thenet cash tax liability w.e.f. 01.07.2017 (Law to beamended retrospectively)
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Corporate Insolvency Resolution Process– Registration CIRP Period
– IRP/RP should apply for registration of CD – Within 30 days of appointment – If appointed before Notification 30days from 21.3.2020
– Returns for the CIRP Period– First Return as per Section 40– Including all transaction from date of appointment to actual
date of registration
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Corporate Insolvency Resolution Process– Input Tax Credit
– Eligible for credit Including all transaction from date of appointment to actual date of registration even old registration is mentioned
– First Return as per Section 40– Section 16(4) & Rule 36(4) will not apply for the first return– Buyer will get credited even old GSTIN
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Time for Query
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98300884007 April [email protected]