September 24, 2013
Input Tax Credit is the tax paid for the materials purchased by a registered dealer from another registered dealer within the state. Input tax credit can be adjusted against the output tax payable and the balance of output tax is paid after adjustment, if any.
Suppose the total output tax payable is Rs.20000/- and the input tax credit available is Rs.12000/- then the balance output tax to be paid is Rs.8000/- (20000-12000). At the same time, if the input tax credit is still available after adjusting output tax payable in a month, it can be carried forward to the subsequent months.
Input tax credit is available on the goods purchased for the purpose of-
- Re-sale within the State; or
- Used as input for manufacturing or processing of goods in the State; or
- Used as containers, labels and other materials for packing of goods in the State; or
- Used as capital goods in the manufacture of taxable goods.
- Sale in the course of inter-State trade or commerce falling under sub-section (1) of section 8 of the Central Sales Tax Act, 1956
- Agency transactions by the principal within the State in the manner as may be prescribed
When Input Tax Credit is not available
- Input tax credit is not available to the following transactions:
- Sale of exempted goods
- Purchase of goods from outside the State
- Goods purchased in the course of business but used for personal purposes of proprietor, partner or director or given as free sample or gift
- Goods damaged in transit
- Goods destroyed, lost or stolen before use in the manufacture of final products
- Goods sold in the course of inter-state sale without the support of Form ‘C’
- Goods transferred to outside the State for sale either by branch or agent without the support of Form ‘F’
- Goods returned
Input tax Credit on Capital Goods
Every registered dealer can avail input tax credit on Capital goods purchased for the purpose of manufacture, processing, packing or storing of goods in the course of business excluding civil structures and other goods as may be notified by the Government.
No input tax credit available on the purchase of capital goods held in closing stock.
Input tax credit is not available on capital goods used exclusively for the manufacture of exempted goods u/s 15.
50% of Input tax credit on capital goods purchased can be availed in the first year of commencement of commercial production and rest can be availed in the second year or third year. Any unutilized credit at the end of the third year will be lapsed to the Government.
Important Points regarding Input Tax Credit
- Input tax credit is available on the basis of original purchase invoice issued by a registered dealer.
- Duplicate or Carbon copy of the purchase invoice can also be allowed to claim input tax credit.
- If the dealer fails to claim input tax credit on goods purchased in any month, such credit can be claimed before the end of the financial year or ninety days from the date of purchase, whichever is later.
- The input tax credit availed by the dealer is only provisional and the assessing authority is empowered to revoke the same if he finds the credit is incorrect, incomplete or otherwise not in order.
- If the input tax credit exceeds the total tax liability for the year as determined by the assessing authority, the same may be adjusted against any outstanding tax due. Any excess of credit after adjusting outstanding tax due can be carried forward to the next year or refunded.
- If the business of the registered dealer is transferred by way of change in ownership or sale, merger, amalgamation, lease or transfer to a joint venture with a specific provision of transferring the liabilities of such business, then the unutilized input tax credit can also be transferred to such sold, merged, amalgamated, leased or transferred concern. Such transfer of credit is allowed only if the goods from which the tax credit availed is also transferred to new ownership, subject to the satisfaction of the Assessing Authority.
- If input tax credit availed but the goods are remaining unsold because of the closure of business, such input tax credit shall be reversed on the date of the closure of the business.
Note: I tried to cover the maximum points related to Input Tax Credit. The information provided above is not exhaustive. All the provisions are as per the Input Tax Credit under TNVAT Act.