GST Transition – Transitional Income Tax Credit Under GST

Transition to GST

When GST is applied, it absorbs multiple taxes (VAT, Excise, and Service Tax) into one. It is very important to implement a variety of rules to ensure that registered business transitions smoothly to the New Tax Regime.

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Input Tax Credit

Provision available under GST is made available for the smooth transition of the input tax credit from old tax systems like VAT, excise or service tax. Registered dealers opting for the composition scheme will not be eligible to claim the input tax credit available in the previous tax system.

Provisions For ITC Transition Available In These Cases :

1. Based on the closing balance of ITC

You can claim ITC from the old taxation system (VAT, Excise and Service Tax) if you have filed your return for the last 6 months from January 2017 to June 2017. As per the last return filed by you in the previous tax regime, the closing balance available in your Income Tax Credit will be taken as a credit in GST.

A registered user has to file TRAN 1 by 27 December 2017 to carry forward your input tax credit; if you have made some mistake while filing TRAN-1, you can rectify it but only once.

2. ITC on Capital Goods

Before GST, a registered user can only claim some portion of ITC paid on capital goods. For example, “A” users purchased capital goods in the year 2016-17, on which user A received an ITC of Rs 12,000. A can claim only 6000 of ITC, which is 50% in the purchase year and the remaining 50% will be claimed next year.

In this matter, all the credit available on capital goods, which is still unclaimed or pending. By entering the credit details in Form TRAN 1, a registered user can forward all available credits.

3. Based on Stock

A manufacturer or a service provider with goods in stock & whose tax has been paid. The dealer can take credit for the same stock he holds. To take credit, the dealer has to declare information about such stock on the GST portal. To claim this credit, the dealer must have all invoices for the outstanding stock, and all invoices must be within 1 year.

If a manufacturer or service provider fails to produce an invoice for their holding stock, they will not be allowed to claim the credit of such goods on the GST port 

Under certain conditions, a trader can claim for credit in case of missing receipt;

When the stock can be identified separately or when the benefits of credit taken by the merchant should be passed to the end-user. 

Rate of GST on GoodsInter-state Credit to IGSTIntra-state  Credit to CGST
Less than 18%20%40%
18 % or more30%60%

Registered Persons Who Were Not Registered In The Previous Tax System

Every individual who is :

  •   Unregistered in the previous system and registered under the new tax system.
  •   Industries or service providers that fall into the exempt goods or services category.
  •   Dealers who come under the first stage or second stage.
  •   Those who are availing abatement and providing works contract service.
  •   An importer who is registered.

Can avail the claim for ITC input on their hold stock on 1st July 2017, if the following condition is fulfilled :

  •   Invoice must be less than 12 months older.
  •   If a person who is eligible for such input tax credit.
  •   A taxpayer who possesses the invoice of paying taxes under the previous law.
  •   If such a benefit is passed to the end-user with the reduced price.
  •   If it is used to make a taxable supply.
  •   The supplier of services under GST is not eligible for any abatement.

1. Credit on Goods send before 1st July 2017

Manufacturers or dealers who receive goods after the appointed day can also claim for the input tax credit if they have paid advance tax of goods or services under the previous tax system. But such claims are allowed to the user when they produce an invoice or tax receipt of such item within 1 August 2017, they may get a 3-day extension by the competent authority under certain conditions.

2. Refunds and Arrears

Any remaining claims or appeals for a refund on the pending amount of CENVAT credit, any amount paid as tax or interest before 1 July will be settled as per the last tax system.

If there is any amount that is payable under the previous tax system, it will be considered outstanding under GST and it will be recovered as per GST law.

3. Other Cases

1. Job Work

There is no tax payable on Job Work. Conditions when there is no tax payable under job work:

  •   Stock held on job work which is also mentioned in the Trans-1 form.
  •   Goods to be returned within six months from 1st July, which can be extended up to a maximum of two months.
  •   Semi-finished goods are supplied only on payment of tax in India or if goods are sent out of India within six months from 1st July, which can be extended up to a maximum of two months.
  •   The finished goods went out of the factory and returned within six months from 1 July.
If the goods are not returned within 6 months, then the input tax credit will be refunded.

1. Credit distribution by input service distributor

In this, the transition provisions will apply in the scenario where the service was received before 1st July, and the user of that service received the invoice on 1st July or a few days after that.

Input service distributors will be capable of distributing credit under GST.

2. Composition Dealer

Taxpayers registered under the composition scheme in the previous tax law and now registered as general taxpayers can claim the available credit as on 1st July after meeting certain conditions under the GST law.

  •   Invoice or tax payment documents should be available and should be within 12 months.
  •   The registered dealer under the GST is eligible to claim for Tax Credit.
  •   The Input should be used for the taxable supply of goods and services.
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