Comparative Analysis of Changes Made In GST Input Tax Credit

This update seeks to highlight the changes made in the Revised GST Law as compared to the old GST Draft with respect to provisions relating to input tax credit as follows:-

  1. A new proviso in section 16(1) specifying the manner of credit availment in case of pipelines and telecommunication tower fixed to Earth has been inserted which states that the input tax credit shall not exceed one third in the financial year in which said goods are received. The assessee can further avail upto two third of the total credit in the year succeeding the year of receipt and the balance credit in the subsequent financial year. Presently, there is restriction of 50% credit availment of capital goods which has been dispensed with in the GST regime except for pipelines and telecommunication towers as stated above.
  2. It has been provided that where recipient fails to pay to the supplier of services an amount towards the value of supply of services along with tax thereon within a period of three months from the date of issue of invoice by the supplier, amount of input tax credit availed by recipient shall be added to his output tax liability along with interest. This is a welcome step from service provider’s point of view as this provision will lead to timely payments of value of service to them.
  3. An explanation has been added in section 17(2) which pertains to credit availment provision for persons effecting taxable supplies and exempt supplies. The provision states that the registered taxable person shall be eligible for availing input tax credit as is attributable to taxable supplies including zero rated supplies made by him. The explanation further clarifies that exempt supplies shall include supplies on which recipient is liable to pay tax under reverse charge mechanism. This has the effect that credit will not be available for supplies for which tax is payable by recipient under reverse charge mechanism.
  4. A special provision for banking company or financial institution has been proposed which is in line with the present provisions of Rule 6 of the Cenvat Credit Rules, 2004. It is provided that a banking company or a financial institution including a non-banking financial company, engaged in supplying services by way of accepting deposits, extending loans or advances shall have the option to either comply with the provisions of section 17(2) or avail of, every month, an amount equal to fifty per cent of the eligible input tax credit on inputs, capital goods and input services in that month. However, option once exercised shall not be withdrawn during the remaining part of the financial year. This special provision was not provided in the old GST draft. Furthermore, presently, there is no reversal requirement for capital goods if they are partly used in taxable and partly used in exempted and credit on capital goods is denied only if they are exclusively used in exempted goods/services but in the proposed GST law, there are provisions for credit reversal even in case of capital goods partly used for taxable and exempt supplies.

We will draw your attention on the remaining changes made in input tax credit provisions in the revised GST Law in our next update.

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