What is input credit?
Input credit means at the time of paying tax on output, you can reduce the tax you have already paid on inputs. Say, you are a manufacturer – tax payable on output (FINAL PRODUCT) is Rs 450 tax paid on input (PURCHASES) is Rs 300 You can claim INPUT CREDIT of Rs 300 and you only need to deposit Rs 150 in taxes.
Input Credit in GST
Input Credit Mechanism is available to you when you are covered under the GST Act. Which means if you are a manufacturer, supplier, agent, e-commerce operator, aggregator or any of the persons mentioned, registered under GST, You are eligible to claim INPUT CREDIT for tax paid by you on your PURCHASES.
How to claim input credit under GST?
To claim input credit under GST –
- You must have a tax invoice(of purchase) or debit note issued by registered dealer
- You should have received the goods/services
Note: Where goods are received in lots/instalments, credit will be available against the tax invoice upon receipt of last lot or installment. Note: Where recipient does not pay the value of service or tax thereon within 3 months of issue of invoice and he has already availed input credit based on the invoice, the said credit will be added to his output tax liability along with interest.
- The tax charged on your purchases has been deposited/paid to the government by the supplier in cash or via claiming input credit
- Supplier has filed GST returns
- Supplier has uploaded the invoice in their GSTR-1 and it appears in GSTR-2B of the recipient or buyer.
Possibly the most path-breaking reform of GST is that input credit is ONLY allowed if your supplier has deposited the tax he collected from you. So every input credit you are claiming shall be matched and validated before you can claim it. Therefore, to allow you to claim input credit on Purchases all your suppliers must be GST compliant as well.