Most of our Visitors ask and confuse about Input Tax Credit under Value Added Tax. So First I would like to clear that VAT is state Tax, So All state has its own act. But I am given FAQ which are common in all states. I hope that it will clear all your confusion about Input Tax Credit under VAT.
Q.1. What is input tax credit?
A.1. Input tax credit is the amount of tax paid by the dealer on purchases for which the dealer is entitled to claim a credit.
Q.2. How and when input tax credit has to be claimed?
A.2. The input tax credit has to be claimed in the tax period in which a dealer records tax invoice and can be adjusted against tax liability of the dealer on all the sales effected during the said tax period.
Q.3. How does input tax credit work within the overall VAT scheme and whether tax credit is available against liability of tax under CST Act?
A.3. In order to understand how the input tax credit works, following illustrations would be useful:
ILLUSTRATION-1 (Rupees)
Amount Tax
A Purchases during the month @12.5% 1,00,000 12,500
B Local sales during the month @12.5% 1,20,000 15,000
C Output tax payable 15,000
D Less: input tax credit 15,000
E VAT payable 2,500
ILLUSTRATION-2 (Rupees)
Amount Tax
A Purchases during the month @12.5% 2,00,000 25,000
B Local sales during the month @4% 1,00,000 4,000
C Inter State sales @4% 1.00.000 4,000
D Total output tax liability (B+C) 8,000
E Input tax credit admissible 25,000
E Negative balance of input tax credit carried forwarded to next tax period (B-E) 17,000
Q.4. Can input tax credit of an item be adjusted against output tax on other items?
A.4. There is no “one to one” correlation between input tax credit and output tax of an item. Input tax credit on all items purchased in a tax period can be adjusted against total tax payable during the tax period.
Q.5. Which purchases would be qualified for input tax credit?
A.5. Input tax credit will be available for the taxable goods purchased for the purpose of:
1. Sale or resale within the State
2. Sale in the course of inter state trade or commerce
3. Sale in the course of exports
4. Use as raw materials, processing materials or processing materials in the manufacture of taxable goods
5. Use as packing of goods
6. Sale to SEZ/EOU
7. Transfer out side the State
Q.6. Are there any prohibited goods for which input tax credit will not be admissible?
A.6. Yes. Input tax credit will not be available for crude oil, Lignite, Petrol and High Speed Diesel besides purchases unrelated to goods under sale.
Q.7. How input tax credit will be available in case of branch transfer?
A.7. Input tax credit would be available in case of branch transfer after deducting 4 % as under:
In the case of reseller: 4% of the value of the goods so transferred
In the case of manufacturer: 4% of the value of the goods used in the manufacture of goods so transferred.
Q.8. Whether input tax credit will be available for works contract or transfer of rights to use etc.?
A.8. Yes, the input tax credit will be available in case of works contracts (except capital goods) but it would not be available for transfer of rights to use goods.
Q.9. Whether input tax credit will be admissible for capital goods also?
A.9. Yes. Input tax credit will be admissible for capital goods used in the manufacture of taxable goods. Capital goods must be used continuously for a full period of five years within the State. How ever, no input tax credit would be admissible for capital goods purchased for the use in:
1. Manufacture of tax-free goods
2. Generation of electricity including captive power
3. Works contract
Q.10. Whether input tax credit will be available for fuels used in generation of electricity including captive power?
A.10. No. Input tax credit will not be available in such case.
Q.11. Whether input tax credit will be available for fuels used in motor vehicles?
A.11. No. Input tax credit would not be available in such case also.
Q.12. Whether input tax credit will be available for purchases of motor vehicles?
A.12. No, unless vehicle is purchased for resale.
Q.13. Whether input tax credit will be available on inter state purchases or imports?
A.13. No. Input tax credit will not be available on inter state purchases or imports. Only purchases within the State are qualified for input tax credit.
Q.14. Whether input tax credit is available for the purchases made from a person who is not a registered dealer?
A.14. No. However, purchase tax paid on such purchase is admissible as input tax credit.
Q.15. Whether input tax credit would be available for the purchases made from a dealer paying lump-sum tax?
A.15. No. In such cases, input tax credit will not be admissible
Q.16. Whether input tax credit will be admissible for the purchases made before registration?
A.16. No. In such cases also, input tax credit will not be admissible.
Q.17. Whether input tax credit will be available for the purchases made from the dealer whose registration is suspended or cancelled and his name is published on website of the department?
A.17. No. In such case, no input tax credit will not be admissible for the purchases made from such dealer subsequent to publication of the name of the defaulting dealer on website.
Q.18. What are the other cases/circumstances in which input tax credit will not be admissible?
A.18. In following cases/circumstances input tax credit will not be admissible:
1. where tax is not charged separately
2. the original tax invoice is not with the dealer
Q.19. What is the mechanism for claiming tax credit by Commission Agent and Principal?
A.19. In the normal trade practice, the transaction between the commission agent and principal is not sale purchase transaction. Therefore, no tax invoices can be issued for such transactions. However, for the purpose of claiming tax credit, such transactions shall be deemed to be sales and purchase transactions between the commission agent and principal and they will issue tax invoices to other wherein, they will show the amount of tax paid/payable on such transaction. Commission agent or principal as the case may be, can claim tax credit on the basis of such tax invoices.
Q.20. Whether any proof would be required to claim input tax credit?
A.20. Yes, input tax credit could be claimed only on purchases from dealers registered under VAT. The original ‘tax invoice’ must be preserved carefully. If original tax invoice is lost, duplicate ‘tax invoice’ will be required. Indemnity bond will be furnished for obtaining duplicate tax invoice.
Q.21. Can input tax credit be adjusted against CST payable on inter-state sales?
A.21. Yes, but after adjusting input tax credit against the output tax payable under the VAT if there is any balance of tax credit, such credit shall be adjusted against the CST payable as explained in ‘Illustration 2’ in A-3 above.
Q.22. What are the provisions for refund of input tax credit?
A.22. Input tax credit will be refunded as under:
1. In case of excess input tax credit carried forward, tax credit will be refunded not later than 2 years from the end of the year
2. In case of export, input tax credit will be refunded within 3 months from the end of respective tax period
Q.23. Whether Entry Tax paid by the dealer will be admissible as input tax credit?
A.23. Yes. Entry Tax paid by the dealer will be available as input tax credit.
Q.24. Whether any penalty will be payable for claiming excess tax credit?
A.24. Yes. Penalty equal to tax credit can be imposed.
Related posts:
- Input Service Credit – The Epicenter of Controversy
- Rule 5 of The Cenvat Credit Rules – Refund of Cenvat Credit – Amendment to Notification No. 42/2001-CE (NT), dated 26-6-2001
- Items used in Ceramic Tiles Industry – Capital Goods or Input
- Concept on CENVAT Cerdit
- Understand Debit Credit in Simple Way : One must Know the Basic
Sponsored Links
{ 20 comments… read them below or add one }
Under Karnataka VAT Act, Whether entry tax on capital equipment can be taken as input tax credit against my output tax liability on VAT.
The dealer deals in sales only Fish in local Gujarat and also Exports out side country. Fish is a tax free item under vat law applicable in Gujarat.So the dealer is not liable to pay vat tax.
Dealer purchases packing material from local dealers in gujarat and the purchase of packing material is tax paid. The vat rate is 4+1=5% vat paid by the dealer on packing material purchase and tax invoice received by the dealer.
I want to know that Can dealer claim input vat credit paid on packing material purchase in vat return?.if yes which section is applicable under the vat act in Gujarat.and can dealer claim refund of input vat from vat department.
Whether input tax credit will be available for fuels used in production of final products , such as oxygen and acetylene gas.
Thanks for updating with input credit. I Have a question please clarify.
we are registered under Karnataka vat and where we have a warehouse and our manufacturing unit is at Tamilnadu registered under TNVAT.
Question is can our wherehouse located at karnataka purchase the raw material and transfer the same to head office situated at Tamilnadu and avail the input credit, if so under what section.
Whether warehouse can avail input credit for the material purchased and transfered to its head office situated at outside the state, if so under what section.
i have a manufacturing unit at andhra pradesh and i have a branch office at Karnataka i purchased some of the inputs from Karnataka
bill in the branch address and vat credit is taken at branch and the same material is transfered to Manufacturing Unit at Andhra Pradesh under branch transfer. Our Finished goods are also transfered from Andhra Pradesh to Karnataka Branch for sale
I am setoff the vat credit on purchase to our finished goods vat
please commnent the correctness
regards
Kodanda Pani.G
Hi,
is ITC available in Kerala and Motor car purchase is included in the ITC applicable items? When I try to foreclosue my car lease, the financier charges me VAT on the foreclosure value. I have already paid VAT for the car at the time or purchase.
Any suggestions would be appreciated
Thanks
is there vat for icecream products
sir
we are manufacturers of power transformers we purchase other items that are not related to power transformers, whether we can claim the vat or not
kindly do the needful
rdgs
venkat
Dear sir,
i want to know that is there any entry tax at karnataka state? for colleges what should be do for prevent or Exempt from Entry tax?
The above information was very useful…Anyways i have a Query….
I am an importer and i need to pay customs duty for clearing my goods. The customs duty which i pay can be paid through DD or through duty free scrips. I pay all my duty through this duty free scrips and the bill which i get includes VAT of 4%. So as end user of the product can i claim the VAT amount paid on such duty free scrips as Input for my company. Cos i need to pay a lot of Output Tax every month.
Kindly do the needful.
With Thanks & Regards
~Bhavesh
can input vat on purchase of fixed assets like LCD T.V,adjusted with output vat ??
Whether input credit available for CST purchases?
Can awe claim input tax credit on retail invoice instead of Tax Invoice, if yes then prescribe the procedure and also about the notification.
Hello Sir, My Company is doing Printing jobs on sarees and we pay lump sum vat on all our works. Kindly tell me how to treat vat paid on capital goods and Material used in construction of Building.
Dear sir,
We are the manufacturer of sponge iron and we are also have a 12 mw capative power plant . Our question is wheather we are eligible to take capital input tax credit on our capative power plant in karnataka?
Dear Sir,
Please tell…
Can input vat on purchase of fixed assets like Machinery, LCD T.V,adjusted with output vat ??
Dear Sir ,
Is it possible to take input Credit on capital goods purchase for manufacturing of both excempted and non excempted (i.e taxable )goods .
regards ,
Rupesh
kindly clarify input vat availed for diesel purchase of m/s.indian oil corporation
I have taken a job in Hyderabad. I have purchased a new car in the month of July 2010 in Pune, Maharashtra. Now I want to bring the same in Hyderabad. Do I need to pay VAT on the same.
Umesh