GST ITC Reconciliation

Category: Academics

What is ITC? The fundamental pillar of the GST regime is thought to be an input tax credit. Indeed, it is the provisions of ITC that essentially make GST a value-added tax, i.e., collecting tax at all points of the supply chain while allowing credit for previously paid tax. ITC is a tool that eliminates the possibility of tax cascading and shifts the burden of taxation to the end consumer. The CGST Act, 2017 defines Input Tax Credit under section 2(63) as the credit of input tax. It usually means that the registered person will receive a credit for the tax paid on purchase to set off when paying the tax to the government on sales of goods or services or both. It is important to understand that section 155 requires a person who claims ITC to bear the burden of proving such a claim. Why is ITC important? Every stakeholder in a specific supply chain, from the manufacturer to the end consumer, should take advantage of ITC to offset the tax paid earlier with the tax paid later. When can you avail of ITC? For a person to be eligible for ITC under GST provisions, a person must meet some logical conditions, which are as follows: You should be registered under GST Goods/services to be used for business purposes (Section 16(1) You must have the Invoice (a tax-paying document containing the necessary information) on hand (section 16(2)(a)) You must have received the goods/services for which you paid (section 16(2)(b)) The tax must have been paid to the government by the vendor who collected it The vendor to whom you pay the tax should have filed the required returns i.e., GSTR 2B It is important to note that, in addition to the conditions you must meet to claim ITC, the vendor with whom you have transacted must also meet his set of requirements for you to claim ITC. While it makes it easier for the government to supervise because the latter person will keep the previous person in the supply chain on track because everyone’s benefits are dependent on one another, it adds a lot of communication and friction to the entire process of reconciling and claiming ITC.